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Yellow Media Inc. President and Chief Executive Officer (CEO) Marc Tellier smiles prior to the company's quarterly results meeting in Montreal, Thursday, May 6, 2010.


Yellow Media Inc. is turning its attention to financial survival as it seeks ways to pay down more than $1.5-billion in debt amid a sharp drop in advertising in its printed phone books.

The troubled Montreal company, which also has several online divisions, cut off dividends to its preferred shareholders in a bid to save tens of millions of dollars that can be redirected toward debt repayments as it struggles to reinvent itself as a digital company.

It also said it would undertake a review to determine how to refinance its debt, with "every option" on the table. The company added three new board members, including Bruce Robertson, a restructuring expert who formerly worked for Brookfield Asset Management Inc., and David Leith, the former head of investment banking at CIBC World Markets. Mr. Robertson, who was chief restructuring officer at AbitibiBowater when it was in bankruptcy protection, will lead a new financing committee of the board.

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The moves signal a new phase in Yellow Media's fight to pare the crippling debt load it accumulated making acquisitions in the past decade. And they came as the company unveiled a set of fourth-quarter financial results that included a 16-per-cent drop in print advertising revenue.

The numbers underscore the difficult road that lies ahead for Yellow Media, a company that was once a staple in the investment portfolios of thousands of individual shareholders who prized it for its ability to produce steady dividends. Its key problem: While it has been making strides in converting its customers to its digital offerings, it isn't generating enough digital revenue to make up for the losses in print. Total revenue slipped 9 per cent $313.3-million in the fourth quarter from $345.4-million a year ago.

Now, with about $700-million in debt due by the end of 2013, according to Standard & Poor's Capital IQ, the company is trying to get out in front of a cash crunch that threatens to derail its ambitious digital transformation. "It'd be premature to speculate at this time" what the company will do, said chief executive officer Marc Tellier. "I think all we've done is initiated the process for us to assess all of the possible options as we look to February next year."

The company paid about $22-million to preferred shareholders last year. Yellow Media's preferred shares were hammered in heavy trading, falling between 34 and 55 per cent, depending on the series. Cutting the payout is an uncommon move, one usually undertaken only by distressed companies, because preferred shareholders are higher in the capital structure than common shareholders.

Other companies that have cut their preferred dividends in recent years include Nortel Networks and Quebecor World. In both cases, common shareholders were later wiped out as the companies underwent restructuring.

Most of the analysts who follow Yellow Media have already given up on the common shares, which have fallen more than 97 per cent in the past year. They have $0 price targets, and don't expect things to turn around without a restructuring of some sort.

Chief financial officer Ginette Maillé said in a conference call yesterday that it would continue to make its bond payments "at this point," but that the company would explore every option available as it looks to refinance its debt.

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Analysts listening to the company's quarterly conference call were particularly concerned about managements decision to take out $239-million from one of its credit lines that expires early next year and has a limit of $250-million. They wanted to know what prompted the decision, but the company said it just wanted to have the cash on hand.

"We've just made the determination to hold liquidity in the form of cash," Ms. Maillé said. "The company wanted to secure a financing resource to make sure it was fully available when we may need it."

The company reduced its total debt by about $800-million in 2011, mostly through its sale of Trader Corp., which publishes AutoTrader magazine.

The company is convinced it can convert customers to digital offerings and still make money. It said earlier this month that it would shutter its Canpages unit, which it bought for $225-million less than two years ago, so it could stop competing with itself through its Yellow Pages division and give customers one point of contact with the company.

"Often people look at the worst case," Mr. Tellier said. "But that's not what we're seeing. We're not seeing people leave print in droves; they are reducing spending within the print directory and unfortunately not supplementing enough of that spend with our new product portfolio. ... We've yet to be able to offset the print decline with the sale of new online products."

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