NEW YORK/BANGALORE -- R.H. Donnelley, the granddaddy of yellow pages directories, filed for bankruptcy late on Thursday after reaching an agreement to cut billions of dollars in debt amassed during years of acquisitions.
The filing by R.H. Donnelley, which published the first yellow pages in 1886 and whose directories have a circulation of about 80 million, comes as the downturn in the economy has squeezed advertising across the media industry.
It also follows the March bankruptcy filing of its competitor Idearc Inc, which publishes the Verizon Yellow Pages.
R.H. Donnelley, which missed a $55 million interest payment deadline on Thursday, said the filing was a bid to slash its debt by about $6.4 billion. Its total cash interest expense would be slashed by about $500 million annually.
The debt reduction plan has the support of more than 50 percent of its lenders and of bondholders representing a majority of the outstanding bond debt, but did not have enough support to confirm a prearranged plan, the company said.
"This is an action that is necessary not because we had liquidity issues but because of the acquisition strategy and financing strategy for those acquisitions of the last several years," Chief Executive Officer Dave Swanson said in an interview.
Those acquisitions included its $2.23 billion purchase of Sprint Corp's yellow pages business in 2003, its 2004 purchase of the AT&T Yellow Pages in Illinois and the $9.5 billion - including debt - purchase of Dex Media (formerly part of Qwest) in 2006 from Carlyle Group.
Yellow pages were a hot acquisition in the middle of the decade for both corporate buyers and private equity firms. CCMP Capital, HM Capital, and Canadian pension funds Teachers Private Capital and the Ontario Teachers' Pension Plan, were among groups that scooped up properties during that time.
Swanson said that the company has been making operational cuts during the last 12 to 16 months due to the shrinking market for local advertising and that more cuts are not part of its restructuring plan.
The company hopes to be out of bankruptcy in 6 months as a public company listed on a major exchange.
In a Chapter 11 filing with the U.S. Bankruptcy Court for the District of Delaware, R.H. Donnelley listed total assets of about $11.88 billion and total debts of about $12.37 billion.
The company does not plan to seek debtor-in-possession, or DIP, financing. It said it has more than $300 million in cash, and that cash flow from operations will more than fund operations during bankruptcy.
Companies often rely on DIP financing to fund operations, including payroll and paying suppliers, while in bankruptcy.
The company's unsecured bonds of about $6 billion will be exchanged for 100 percent equity of the restructured company, while existing shareholders will be completely wiped out.
Competitor Idearc agreed with its lenders to reduce its total debt from around $9 billion to $3 billion in secured bank loans.
R.H. Donnelley said last week that it was seeking support of its bank lenders as part of a potential debt restructuring plan. It exercised a 30-day grace period for interest payment and received a waiver until May 28.
R.H. Donnelley currently employs about 3,555 people, according to court documents.
The case is In re: R.H. Donnelley Corp, U.S. Bankruptcy Court, District of Delaware, No 09-11833.
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