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Hibu Lenders to Write Off $1.2 Billion Under Restructuring

Hibu Plc lenders will write off 800 million pounds ($1.2 billion) of loans under proposals for them to take control of the U.K. yellow pages publisher in a debt for equity restructuring.

The company, formerly know as Yell, has agreement from lenders representing 32.8 percent of its debt and needs the support from at least 75 percent of all holders for the deal to be implemented, according to a statement today from the Reading, England-based company. Standard & Poor’s cut the company’s ratings to default status on March 1 after it failed to make a payment on more than 2 billion pounds of borrowings.

Hibu’s restructuring follows a collapse in earnings as competition from the Internet triggered a decline in its paper directory-based business. The company has completed several acquisitions, including the 3.07 billion-euro ($4.06 billion) 2006 purchase of Spain’s Telefonica Publiciad e Informacion, which lifted net debt to 3.72 billion pounds on Sept. 30, 2006 from 1.99 billion pounds a year earlier.

“The new capital structure is intended to support the business as it drives value from print and digital directories and develops its digital strategy,” Mike Pocock, Hibu chief executive officer, said in the statement.

Capital Structure

The debt writedown will leave Hibu owing about 580 million pounds of senior secured debt due in five years and about 920 million pounds of payment-in-kind notes maturing in 10 years. PIK notes allow a borrower to pay interest with more debt.

The company’s 630 million pound term loan A1 is quoted today at 23.7 percent of face value up from around 18 percent on March 4, according to prices compiled by Bloomberg.

Hibu told lenders in October that it would suspend payments until a restructuring agreement was found. Moody’s Investors Service reduced Hibu’s debt grade to Ca from Caa3 on Nov. 5 citing the payment suspension.

When the company didn’t make a 49 million pound interest payment in February, S&P cut its rating to default status.

Hibu’s lenders elected a group of investors including Soros Fund Management LLC to coordinate the restructuring talks last September, said two people with knowledge of the matter at that time.

Hibu’s profit before interest, tax, depreciation and amortization for the year to March 2013 dropped to 283 million pounds from 461.3 million pounds for the same period in 2012, the company reported today.

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