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Yellow Pages off the Stands?
May 29, 2009

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R.H. Donnelley sought bankruptcy protection late on Thursday after slumping advertising sales keeled over the nation's third-largest publisher, already struggling to refinance a huge debt load accumulated through years of acquisitions.

The Yellow Pages publisher filed to reorganize under Chapter 11 bankruptcy law in the U.S. Bankruptcy Court for the District of Delaware with assets of $12.1 billion and liabilities of $12.9 billion. Earlier this month, the company said its creditors and bondholders had agreed to extend the due date for interest payments till May 28.

R.H. Donnelley is not appealing for debtor-in-possession financing as it believes that a combination of $300 million cash on hand and expected cash flow from operations would be sufficient to fund its business during the restructuring. The company has already agreed with key creditors to reduce its debt by around $6.4 billion, purge roughly $500 million in annual interest expense and extend its bank maturities up to 2014.

In a way, the Cary, North Carolina-based company's fate is an indicator of the publishing industry as a whole. As an increasing number of readers shift to the internet, the print industry has taken a beating. In May 2007, before the recession tightened its grip on the economy, R.H. Donnelley was thriving, carrying a $5 billion market capitalization.

Its acquisition spree that started in the beginning of this decade had brought R.H. Donnelley's total liabilities to $12 billion by the end of last year. The company's buyout of Dex Media alone was financed with about $5 billion in debt.

"Our growth-through-acquisition strategy never anticipated the cataclysmic collapse of the U.S. economy and the local advertising market," Chief Executive David Swanson said.

As the economy started showing signs of decelerating, R.H. Donnelley swung to a loss of $2.3 billion from a $46.9 million profit in 2008. Recent attempts to resurface as an online publisher was a positive sign but the debt burden was too large to be siphoned off so soon. After the bankruptcy filing of Idearc Inc last March and now R.H. Donnelley, investors can only hope that there would not be others to follow suit.

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