By Gareth Vaughan

Four investment banking firms have pitched to Yellow Pages Group's banks as the banks move to line up an adviser for a potential sale of the heavily indebted directories business. The investment bankers, who interest.co.nz understands included UBS, Goldman Sachs JBWere, Cameron Partners and Macquarie, stated their cases on Thursday with selection from the banks expected sooner rather than later.

However, some investment banks are believed to have declined to pitch concerned about a broad spectrum of objectives among Yellow Pages' 30 odd lenders and potential conflicts of interest. In the driver's seat are the holders of Yellow Pages’ NZ$1.175 billion senior debt facility.

This group includes lead banker the BNZ, ANZ, Westpac, Deutsche Bank, Credit Agricole Corporate and Investment Bank (formerly Calyon), Barclays, Macquarie Group, Allied Irish Banks and the Royal Bank of Scotland. Yellow Pages, which has about NZ$1.72 billion of debt, is owned by Hong Kong-based Unitas Capital – formerly CCMP Capital Asia – and Canada’s Ontario Teachers’ Pension Plan. They bought the business from Telecom for NZ$2.24 billion in March 2007.

However, with Yellow Pages' earnings under pressure from tough trading conditions, advertisers and searches shifting away from traditional phone books to the internet and whopping interest payments on its debt which totaled NZ$154.3 million last year, the firm is expected to breach banking covenants. This provides Yellow Pages banks, concerned about potential losses on their loans, with the opportunity to test the market for the business.

In the post global credit crunch world the directories business is, however, viewed as being worth perhaps only half the 13 to 14 times earnings before interest, tax, depreciation and amortisation its current owners paid Telecom. Private equity groups and other directories business owners are seen as potential buyers.

Despite the banks' interest in investigating a sale, which could be either via a trade sale or initial public offering, interest.co.nz understands they could also consider a debt restructure among the firm’s existing lenders and an equity injection from shareholders. (Click here to read related story).

This was first published this morning in our Daily Banking and Finance newsletter, which is for our paying subscribers. Find out more here.