RHD Retains Lazard to Explore ‘Balance Sheet Alternatives’

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As debt maturities loom in a tight credit market, the directory publisher R.H. Donnelley announced today that it has retained the financial firm Lazard to “assist in the evaluation of its capital structure, including various balance sheet restructuring alternatives.”

On a conference call this morning to announce year-end and fourth-quarter earnings (ad sales were down 8 percent in 2008), RHD CFO Steve Blondy explained that the publisher is facing “large maturities in early 2010.” He added that RHD had long assumed it would refinance the debt at maturity, but in the current environment, “refinancing may not be possible.”

Blondy says that Lazard will help the company “evaluate alternatives … with the goal of better positioning us for the future.” Blondy added that RHD will negotiate with its banks to explore “amending, refinancing or restructuring our debt.” RHD is carrying US$9.4 billion in debt, which is about 6.7 times 2008 EBITDA.

As for the earnings announcement itself, the company released sobering if not entirely surprising revenue and ad sales figures. For full-year 2008, the company recorded adjusted revenues of $US2.62 billion, down 2 percent over 2007. Advertising sales, a better reflection of current performance, were down 8 percent for the year and 12 percent in the fourth quarter.

EBITDA was also down 2 percent for the year to US$1.4 billion. The company’s EBITDA margin was 54 percent in 2008, owing to some substantial cost cutting last year, including a 20 percent headcount reduction.

On the earnings call, CEO Dave Swanson described the current economic environment as the “worst in several generations.” He said the company’s sales force is “working tirelessly” but is seeing reduced spending across all products, print and online, and all key indicators — renewal rates, bad debt, cancel and decrease, and so on, are trending in the wrong direction.

The company did express hope that its efforts to launch a new and improved IYP, a newly integrated systems environment and a sales efficiency program, as well as efforts to shore up the balance sheet, will position the company for better times when the economy improves.

The Kelsey Report will offer a more detailed look at RHD’s earnings in an upcoming Client Inquiry Brief.

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