Seat Pagine Gialle SpA (PG)’s creditors will vote next month to push the company into administration or exchange more than $2 billion of debt for ownership of the Yellow Pages publisher that’s got a stock value of $35 million.
An agreement on July 10 will allow the Turin, Italy-based company to restructure bonds and loans for the second time in two years, with creditors already having wiped out 1.3 billion euros ($1.8 billion) of borrowings. When investors led by BC Partners Holdings Ltd. bought a stake in the company in 2003, it had a market capitalization of as much as 7.3 billion euros.
The carnage wrought by the Internet to the Yellow Pages business model has cost lenders to directory publishers from R.H. Donnelley Corp. in the U.S. to Britain’s Hibu Plc more than $14 billion since 2009. In Europe alone, industry debt write-offs total more than $3.5 billion in the past 12 months, according to data compiled by Bloomberg.
“We have sympathy for our creditors and any future benefit of the company will go to them as shareholders,” Andrea Servo, chief financial officer at Seat, said in a June 18 telephone interview. “But it’s a difficult business to predict in the long term and so there’s no point having long-term debt.”
Among the new owners of the company will be a distressed debt fund controlled by New York-based Avenue Capital Group LLC, co-founded by billionaire Marc Lasry and his sister Sonia Gardner. The fund holds some of the Seat’s 10.5 percent bonds due in January 2017, according company filings last year.
An external spokesman for Avenue, who asked not to be named citing company policy, declined to comment on its investment in Seat.
Seat, which was founded in 1925, reported earnings before interest, taxes, depreciation and amortization plummeted to 89.5 million euros last year, compared with 603 million euros five years ago. It is forecast to earn 32 million euros this year, Servo said.
London-based BC Partners transferred its holdings in Seat to CVC Capital Partners Ltd. in 2009 when shareholders injected 200 million euros of new capital, according to company statements.
A debt-for-equity swap in 2012 stripped control of the company from its private equity owners. Seat sought creditor protection in February last year when it said that a slump in sales meant that its debt burden was unsustainable.
The group’s net financial borrowings totaled 1.5 billion euros at the end of March, according to an earnings report. The debt comprised 713 million euros of bank borrowing, including a 571 million euro term loan and 796 million of bonds.
The company’s 550 million euros of 10.5 percent bonds due 2017 were yesterday quoted at 19.6 cents on the euro, according to data compiled by Bloomberg. Investors should recover 10 percent to 30 percent of their holdings, Standard & Poor’s said in a February report. The New York-based firm no longer grades Seat.
“After Seat’s first restructuring, investors threw good money after bad,” said Steven Mitra, a London-based partner at hedge fund LNG Capital LLP, which doesn’t hold Seat debt. “They refused to believe that the equity valuation was declining. You have to move with the times.”
When Cary, North Carolina-based R.H. Donnelley filed for Chapter 11 bankruptcy protection in May 2009 it negotiated an agreement with creditors that wiped out more than $6 billion of debt. The business, which once published 600 print directories with a combined circulation of about 80 million, is now known as Dex Media Inc. (DXM) and it has also embraced the Internet, offering online and social media marketing.
Hibu is following a similar path after the Reading, England-based company was taken over by lenders in February after they agreed to cancel about 700 million pounds ($1.2 billion) of debt.
Seat plans to use its contacts with companies throughout Italy to sell advertising packages for media operators such as Google Inc. and British Sky Broadcasting Group Plc, which is seeking to take control of broadcaster Sky Italia from 21st Century Fox Inc.
Servo, who joined the company almost 14 years ago and was appointed CFO in October, said he’s confident his sales force can help turn the company around.
“Who knows what happens in five years time, but for now companies still want a relationship with us,” he said. “They want a simple product they understand and we can be a one stop shop for advertising through any media, Internet, TV or printed newspapers.”
To contact the reporter on this story: Julie Miecamp in London at email@example.com