Yellow Media Inc. Announces Recapitalization Transaction

Montreal (Quebec), July 23, 2012 — Yellow Media Inc. (TSX: YLO) announced today a recapitalization transaction (the "Recapitalization”) aimed at significantly reducing the Company’s debt and improving its maturity profile, with debt first coming due in 2018. The Recapitalization will allow the Company to pursue its business transformation.

Closing of the Recapitalization is anticipated by the end of September 2012.

The key components of the Recapitalization are as follows:

- Exchange of its credit facilities and medium term notes (the “Senior Unsecured Debt”), representing $1.8 billion of the Company’s debt, for a combination of:

  • $750 million of 9% Senior Secured Notes due in 2018;
  • $100 million of Subordinated Unsecured Exchangeable Debentures due in 2022, with interest payable in cash at 8.0% or in additional debentures at 12%;
  • 82.5% of the New Common Shares; and
  • $250 million of cash;

- Holders of existing convertible debentures, preferred shares and common shares of the Company to receive in exchange for their securities a combination of:

  • 17.5% of the New Common Shares; and
  • Warrants, representing in the aggregate 10% of the New Common Shares;

- Noteholders holding 30.0% of the medium term notes, and representing 23.7% of the Company's Senior Unsecured Debt, have executed support agreements committing them to vote in favour of the Recapitalization;

- The Recapitalization will not impact customers, suppliers and other business partners of Yellow Media Inc.

The Company proposed this Recapitalization initiative to align its capital structure with its operating strategy.  The Recapitalization will ensure the necessary financial flexibility to pursue the Company’s ongoing transformation in order to enhance long-term value for stakeholders.  Upon completion of the Recapitalization, the Company will have debt of approximately $850 million consisting of $750 million of Senior Secured Notes and $100 million of Subordinated Unsecured Exchangeable Debentures.  Annual interest expense will also be reduced by approximately $45 million.

A summary of the key terms of the Recapitalization can be found in the attached “Key Terms of the Recapitalization”.

“The Recapitalization is consistent with the Company’s previously stated objective of significantly deleveraging its balance sheet and allowing us to focus on the execution of our ongoing business transformation," said Marc P. Tellier, President and Chief Executive Officer of Yellow Pages Group.

The Recapitalization represents the best alternative available to address the Company’s existing capital structure and liquidity needs. BMO Capital Markets and Canaccord Genuity, Yellow Media’s financial advisors, have provided opinions to Yellow Media’s Board of Directors that the terms of the Recapitalization are fair, from a financial point of view, to the holders of its Senior Unsecured Debt, convertible debentures, preferred shares and common shares. Based on a range of factors, including the fairness opinions, Yellow Media's Board of Directors is unanimously recommending that all Senior Unsecured Debtholders, convertible debenture holders and shareholders support the Recapitalization, which will significantly reduce the Company’s debt and improve the Company’s capital structure.

"This Recapitalization delivers upon the Company’s commitment to review its capital structure and evaluate alternatives to refinance maturities in 2012 and beyond," said Marc L. Reisch, Chairman of the Board of Directors. "The Board and management believe this Recapitalization is a significant and positive development for the Company, reducing its total indebtedness and strengthening its capital structure.”

The Recapitalization will not impact customers, suppliers and other business partners of Yellow Media.  The Company’s obligations to employees, including its pension and benefit plan obligations, are also unaffected by the Recapitalization.

The Company intends to implement the Recapitalization pursuant to a plan of arrangement under the Canada Business Corporations Act.  The implementation of the Recapitalization is subject to a number of conditions and other risks and uncertainties including the receipt of the final approval of the court and all necessary regulatory and stock exchange approvals, as well as to other conditions. Implementation of the Recapitalization is expected to occur by the end of September 2012.

See the Pro Forma Capital Structure table

Support of Recapitalization
Noteholders holding 30.0% of the Company’s outstanding medium term notes, and representing 23.7% of the Company's Senior Unsecured Debt, have executed a support agreement with, among others, Yellow Media whereby they have agreed, subject to certain conditions, to vote in favour of and support the Recapitalization. Noteholders are represented by Moelis & Company as financial advisors and Bennett Jones LLP as legal advisors.

The Company will solicit additional support from credit facility lenders and noteholders for the Recapitalization.

Meetings
The Company will apply to the Commercial Division of the Superior Court of Québec in Montréal for an interim order in connection with the Recapitalization pursuant to which order the Company will call (i) a meeting of the affected unsecured debtholders of the Company, comprising of the credit facility lenders, the holders of the medium term notes and the holders of convertible debentures that have elected to opt-out of the shareholder vote, and (ii) a meeting of the shareholders of the Company, comprising of the holders of preferred shares and common shares and the holders of the convertible debentures that have not elected to opt-out of the shareholder vote, in both cases to obtain their support of the plan of arrangement under the Canada Business Corporations Act implementing the Recapitalization. Details of the Recapitalization will be provided in a Management Proxy Circular expected to be distributed to Senior Unsecured Debtholders, convertible debenture holders and shareholders at the beginning of August 2012. The meetings are expected to be held on September 6, 2012 at Palais Des Congrès de Montréal. 

Yellow Media’s legal advisors for the Recapitalization are Stikeman Elliott LLP and Russell Hill Advisory Services Inc.

New Board of Directors
A search committee of up to five members has been established to select the new Board of Directors of Yellow Media Inc.  Marc P. Tellier and Marc L. Reisch have been designated by Yellow Media Inc. to serve on the search committee, and two members have been designated by the initial consenting noteholders.

The new Board of Directors will consist of nine members, one of whom shall be Marc P. Tellier.  The new Board of Directors will also include a minimum of two members of the existing Board of Directors of the Company.  The candidates selected will be announced via press release prior to the debtholders’ and shareholders’ meetings.

Further Information
Further information about the Recapitalization will be available on SEDAR (www.sedar.com) and the Company's website (www.ypg.com).

A Questions & Answers document specific to the Recapitalization has also been made available on the Company’s website.

The Company expects to supplement information in the Management Proxy Circular relating to the meetings to be held in connection with the Recapitalization and otherwise to communicate information relating thereto by way of news release, the Company's website, mailing or otherwise.

U.S. Securities Laws Matters
This press release is neither an offer nor a solicitation of an offer to purchase any securities, nor is this press release an offer or solicitation of an offer to sell any securities. None of new securities to be offered as part of the Recapitalization have been nor will be registered under the U.S. Securities Exchange Act of 1933, as amended, or any securities laws of any State of the United States and, as such, may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements of the U.S. Securities Exchange Act of 1933 and applicable state laws.

Investor Conference Call
Yellow Media Inc. will hold an analyst and media call at 10:30 a.m. (Eastern Time) on July 23, 2012 to discuss the recapitalization transaction. The call may be accessed by dialing (416) 340-8018 within the Toronto area, or 1 866 223-7781 outside of Toronto. The call will be simultaneously webcast on the Company’s website at http://www.ypg.com/en/yellow-media-conference-call-webcast.

The conference call will be archived in the Investor Center of the website at www.ypg.com.  A playback of the call can also be accessed from July 23 to July 31, 2012 by dialing (905) 694-9451 from within the Toronto area, or 1 800 408-3053 outside Toronto. The conference passcode is 9739302.

About Yellow Media Inc.
Yellow Media Inc. (TSX: YLO) is media and marketing solutions company in Canada. The Company owns and operates some of Canada’s leading properties and publications including Yellow Pages™ print directories, YellowPages.ca™, Canada411.ca and RedFlagDeals.com™. Its online destinations reach approximately 8 million unique visitors monthly and its mobile applications for finding local businesses and deals have been downloaded more than 4 million times. Yellow Media Inc. is also a leader in national digital advertising through Mediative, a digital advertising and marketing solutions provider to national agencies and advertisers. For more information, visit www.ypg.com.

Caution Concerning Forward-Looking Statements
This press release contains forward-looking statements (including within the meaning of the U.S. Private Securities Litigation Reform Act of 1995) about the objectives, strategies, financial conditions, results of operations and businesses of the Company. These statements are forward-looking as they are based on our current expectations, as at July 23, 2012, about our business and the markets we operate in, and on various estimates and assumptions. Our actual results could materially differ from our expectations if known or unknown risks affect our business, or if our estimates or assumptions turn out to be inaccurate. As a result, there is no assurance that any forward-looking statements will materialize. Risks that could cause our results to differ materially from our current expectations are discussed in section 6 of our February 9, 2012 Management’s Discussion and Analysis. We disclaim any intention or obligation to update any forward-looking statements, except as required by law, even if new information becomes available, as a result of future events or for any other reason. The implementation of the Recapitalization is subject to a number of conditions to be provided in the plan of arrangement under the Canada Business Corporations Act, and other risks and uncertainties including, without limitation, court and any required regulatory approvals (including stock exchange approvals). Accordingly, there can be no assurance that the Recapitalization will occur, or that it will occur on the terms and conditions contemplated in this news release. The Recapitalization could be modified, restructured or terminated.

Contacts:

Investor Relations
Pierre Van Gheluwe
Treasurer
Tel.: (514) 934-4325
pierre.vangheluwe@ypg.com

Media
Andre Leblanc
Director, Marketing Communications
Tel.: (514) 934-7359
andre.leblanc@ypg.com

Institutional Security Holders
BMO Capital Markets Transaction Hotline
Tel.:      (416) 359-4306
Toll free:      (855) 666-4361

Canaccord Genuity Transaction Hotline
Tel.:          (416) 687-5517
Toll free:      (855) 333-5517
 

Key Terms of the Recapitalization

All amounts are in Canadian dollars, unless otherwise noted.

Parties Affected by the Recapitalization
The following stakeholders of Yellow Media will be affected by the Recapitalization:

- Holders of all the unsecured medium term notes of Yellow Media, being:

  • 6.50% unsecured medium term notes, Series 9, due July 10, 2013;
  • 6.85% unsecured medium term notes, Series 8, due December 3, 2013;
  • 5.71% unsecured medium term notes, Series 2, due April 21, 2014;
  • 7.30% unsecured medium term notes, Series 7, due February 2, 2015;
  • 5.25% unsecured medium term notes, Series 4, due February 15, 2016;
  • 5.85% unsecured medium term notes, Series 3, due November 18, 2019;
  • 7.75% unsecured medium term notes, Series 10, due March 2, 2020; and
  • 6.25% unsecured medium term notes, Series 5, due February 15, 2036;

- Lenders under the senior unsecured credit facility agreement of Yellow Media dated September 28, 2011;

  • Holders of the 6.25% convertible unsecured subordinated debentures of Yellow Media due October 1, 2017;
  • Holders of all series of preferred shares of Yellow Media; and
  • Holders of common shares of Yellow Media

Treatment of Holders of Existing Credit Facilities and Medium Term Notes (collectively, the “Senior Unsecured Debt”)

 
Treatment of Holders of Existing Convertible Debentures, Preferred and Common Shares (collectively, the “Equity Securities”)

Each holder of Equity Securities will receive:


    
No separate payment will be made for interest or unpaid dividends on the Equity Securities.

Summary Table of Treatment of Affected Parties
Pursuant to the Recapitalization and as described above, the Senior Unsecured Debtholders, debentureholders and shareholders of Yellow Media are to be allocated and issued, approximately, the amount of cash, the principal amount of Senior Secured Notes and Subordinated Unsecured Exchangeable Debentures, and the number of New Common Shares and Warrants presented in the following table:


Terms of the Senior Secured Notes


Terms of the Subordinated Unsecured Exchangeable Debentures


Terms of the Warrants

Other Matters