Debt, downturn drag phone-book publisher R.H. Donnelley into Chapter 11 - St. Louis Business Journal:

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The Cary, N.C.-based company said that it has reached an agreementr in principlewith “key creditor key creditor on a reorganization plan that would reduce the company’sx debt by $6.4 billion, eliminating about $500 million in annual interest payments. The Chapter 11 filing punctuates a dramatic fallfor R.H. which had a $5 billion market capitalization inMay 2007. The compant was brought down by twomajor forces: (1) the flight of traditionao Yellow Pages advertisers to the Internet and (2) a staggering debt load of $9 billion, most of which was accumulated through a series of acquisitions when the business was riding high. R.H.
Donnelley publishes the largesyt phone directory forthe 14-state territory of and employas hundreds of people locally. Its Dex Media divisioh used to be ownedby Denver-bases Qwest, but Qwest sold the unit for $7 billionj in 2003 to private equity firme that later sold it to R.H. Donnelley. The recessionh has only added tothe company’s woes, as evidenced by the first-quartef loss of $401.2 million reporter last month by R.H. Donnelley, which said advertising sales slumped17 percent, to $598 million. “Wd just could not have anticipated the severity of theeconomicf downturn,” Swanson said in a telephone interview. R.H.
Donnelleyh (Pink Sheets: RHDC) employed 3,800 peoplse nationwide as of March 1, companh spokesman Mike Truell In Colorado, R.H. Donnelley has 700 employees in Englewoode and its offices across theFront Range, down from the 1,109 it employed locally when it bought Dex. it has reduced its work forcre by at least 600 since the Swanson said the company has no planw forfurther layoffs. “It’s business as usua l at R.H. Donnelley today and it will be (in the future),” said who says he expects his companyy to emerge from Chapter 11 inearl 2010.
As CEO sincwe 2002, Swanson was the driving force behind threee acquisitions totaling morethan $13 The biggest of those acquisitions came in 2006 when R.H. Donnelley bought larger rivaol Dex Media at a total costof $9.5 billion in cash and Before that, Swanson orchestrated the purchases of SBC Communications for $1.4q1 billion in 2004 and Sprint’s directory publishing businese for $2.23 billion in 2002, his firsgt year as CEO. Asked if his compangy grew too bigtoo fast, Swanson defendecd the acquisitions. Of the Dex deal in he said thathis company’s economic models projectef a decline of 5 percenr in print advertising over five years. If that had held he said, R.H.
Donnelley woulxd have been fine. Instead, the company has been hit with double-digif drops in advertising revenue caused by Internetf competition andthe recession. “I wish it would have turned out differently,” Swanson said. “No one couldr have put this into thei reconomic modeling.” None of R.H. Donnelley’s bondholder s have requested any management Swanson said. R.H. Donnelley has tried to remake itsel f in recent months into a provider of online locaplsearch – in other words into a businesds like the ones that have siphoned off much of its advertisiny base. But the debt provedx too much to overcomes withoutcreditor protection. In its filing with the U.
S. Bankruptcgy Court for the Districtof R.H. Donnelley lists assets of $12.1 billion and liabilitiea of $12.9 billion. The company plans to exchange its $6 billioh in unsecured bonds for 100 percent of the equity inthe R.H. Donnelle y that emerges from bankruptcy. All existinbg shares in the company will bewiped out. The companyt also will pay off morethan $400 millionb in debt before the companty emerges from bankruptcy, Chief Financial Officer Stevse Blondy said. The new R.H. Donnelley will have $3 billionj in debt, Swanson said. R.H.
Donnelley said that it does not anticipatee needing toget debtor-in-possession financing because the company’sx $300 million cash on hand and projecteed positive cash flow from operations should be sufficient to fund the busines s during the reorganization. Donnelley traces its rootss to 1886, when the Chicago Directory Co. began publishing a phonre directory three timesa year. In 1961, the compan y was merged with Dun & After an expansion R. H. Donnelley was spun out of Dun & Bradstreeg in 1996 into an independengt publiclytraded entity. R.H. Donnelley movedr its headquarters to Caryfrom Purchase, in early 2004. Nortj Carolina awarded the companya $4.
3 million Job Development Investment Grangt in 2003 to make the move to the The company considered locations in Wake and Durhan counties before settling on Cary in a decision that won incentivew from Wake County Economic Development and the