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DBRS said Montreal-based Yellow Media could have further downgrades.


Yellow Media's hopes of amending its restructuring proposal have been smacked down by a Quebec court just days before the company faces a vote on its much-criticized plan.

Early last week, Yellow Media put together a conference call to threaten that it would seek creditor protection in order to reduce almost $2-billion of debt should stakeholders vote against its current restructuring proposal. Those efforts were shot down just a few days later by judge Robert Mongeon, who delivered his ruling just a few hours before the long weekend started.

The sequence of events is a bit tricky to follow, but the gist of the story is that Yellow Media's restructuring proposal has been filed under the Canada Business Corporations Act (CBCA). Last week, Yellow Media chief executive officer Marc Tellier tried to complicate the matter by amending the current resolution to implement the plan through the Companies' Creditors Arrangement Act (CCAA) if the current effort "appears for any reason impracticable."

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"We have tabled clearly the best alternative available to us and if a recapitalization is not implemented we may be required to immediately pursue alternatives that are less favourable to the company and its stakeholders," Mr. Tellier said on the conference call.

Judge Mongeon didn't let that language influence him. "I am of the view that the proposed amendment should not be part of the process currently envisaged under the CBCA inasmuch as it deals only with another proceeding under a different statute and which is, at this time, purely hypothetical."

He explained his reasoning in detail. First, the judge noted that even Yellow Media admits that the proposed amendment isn't necessary to pursue arrangement currently up for debate under the CBCA. Second, the CBCA and CCAA have different tests of admissability and different procedures, so having one proposal technically apply to both would be very tricky.

The judge didn't say Yellow Media can't pursure CCCA, but the company "shall then have to seek and obtain anew any support proxies it may need to implement such plan," adding that Yellow Media "cannot suggest that a consent given in favour of the CBCA plan will automatically survive its intended use and eventually apply to an eventual plan of arrangement under the CCAA, thus forcing the voting stakeholders to be tied to another legal process."

Given that the proposal was shot down, it looks like the company is headed to the vote on Thursday, with both the lending syndicate and convertible debenture holders arguing that the current plan isn't fair.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More


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