Yellow Pages Group’s suitors are being offered financing assistance by the heavily indebted directories group’s banks as they consider bids for the business.

An information memorandum is expected to be sent to four or five potential bidders today, which could include private equity groups such as Pacific Equity Partners (PEP), CVC Asia Pacific, Kohlberg Kravis Roberts (KKR) and Telstra’s directories business Sensis.

The serious contenders are expected to be private equity firms. They will be offered a stapled financing package provided by a consortium of banks including Yellow Pages’ existing senior debt holders, who are led by the BNZ.

This five year facility could help any buyer fund the deal through a loan worth up to five times Yellow Pages’ forecast earnings before interest, tax, depreciation and amortisation (ebitda).

The group’s forecast to produce ebitda of about NZ$133 million in the year to June 2011, down from about NZ$157 million in the just completed June 2010 year.

This would mean the banks could sell Yellow Pages for up to NZ$800 million, including loans of around NZ$665 million. This would see a buyer cough up around NZ$100 million of its own equity. Telecom sold Yellow Pages  for NZ$2.2 billion in March 2007, widely seen as the peak of the market globally for such debt funded leveraged buyouts. 

With debts of at least NZ$1.7 billion and falling earnings threatening its banking covenants, Yellow Pages' has been at the mercy of its banks for several months. Indicative offers are due with the banks' and Yellow Pages' adviser Goldman Sachs JBWere by August 24.

The group's debts include a senior debt facility of NZ$1.275 billion including working capital and capital expenditure facilities, each valued at NZ$50 million. The senior debt holders include 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. The working capital facility is provided by ANZ and Westpac.

The company also has a NZ$315 million subordinated debt facility and a ‘Payment in Kind’ facility of NZ$228 million. Providers of the subordinated loans included Barclays Capital, ABN Amro and Deutsche Bank.

A sale, at a price somewhere near NZ$700 million, could see the banks get back about 50 cents in the dollar.

"The issue is what's the alternative (to a sale)? The business won't prosper under bank ownership or attract good talent," said one source.

Yellow Pages Group’s shareholders, Hong Kong-based Unitas Capital (formerly CCMP Capital Asia) and Canada’s Ontario Teachers’ Pension Plan who bought the business from Telecom just before the global cheap credit bubble burst, face a complete loss.

A standstill arrangement in place covering interest payments on the group's debt is likely to continue rolling over until a sale is completed which could be in October. Yellow Pages had interest payments of NZ$154.3 million in the June 2009 year.

All of PEP, CVC, KKR and Telstra/Sensis kicked Yellow Pages’ tyres when Goldman advised Telecom on its blockbuster sale in March 2007.

Spokeswoman Karina Keisler said Sensis would consider any business that suited its business strategy but wouldn’t specifically comment on Yellow Pages. Sydney based PEP's existing investments include Griffin's Foods, Tegel Foods, Independent Liquor, Veda Advantage and Hoyts Group. A PEP spokeswoman declined to comment on Yellow Pages. CVC and KKR didn't respond to requests for comment.

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