US CREDIT-RH Donnelley debt talks may be getting serious

By Karen Brettell

NEW YORK, April 17 (Reuters) - Yellow-pages publisher R.H.
Donnelley Corp's RHDC.PK decision not to make an interest
payment due on its bonds this week is likely a negotiating
tactic to show debtholders the company is serious about
restructuring its debt load, analysts say.

The company said on Wednesday it elected to exercise a
30-day grace period to make $55 million in interest due on its
bonds, adding that it continues to have discussions with
bondholders and bank lenders.

In its March earnings statement, R.H. Donnelley announced
plans to initiate discussions with its lenders about amending,
refinancing or debt restructuring.

The missed coupon "appears aimed at focusing the minds of
its noteholders on restructuring its debt," CreditSights
analyst Jake Newman said in a report.

"The company's body language makes us believe the company
wants to achieve a sustainable capital structure that will not
need further restructurings," he added.

R.H. Donnelley's debt totaled $9.4 billion as of the end of
2008, with around $1.4 billion coming due in 2010. Around a
third of its total debt is bank loans and about $1.4 billion of
the loans mature in 2010 and 2011.

"R.H. Donnelley's refinancing risks will be extraordinarily
high in 2010, and in the absence of a major debt restructuring,
the rate of its earnings decline will outpace attempts at
deleveraging," Thomas Ferguson, analyst at KDP Investment
Advisors said in a report.

"The risk of a bankruptcy or major restructuring has become
materially elevated," he said.

Credit default swaps insuring the company's debt are
trading at the deeply distressed level of around 92 percent
upfront, or $9.2 million to insure $10 million in debt for five
years, plus annual payments of $500,000, indicating strong
concerns over a near-term default.

The company's bonds traded on Friday at 6 cents on the
dollar, according to MarketAxess.

R.H. Donnelley has not publicly divulged specifics over
what it seeks to achieve in its debt negotiations and a
spokesman did not return a call for comment.

"If the company wants to achieve a restructuring that will
end all restructurings it seems to us the group could be in the
midst of a battle with its various bondholder constituencies,"
said CreditSights' Newman.

Different lenders including various groups of bondholders
and bank lenders often clash in a debt restructuring as they
seek to obtain the best value for the class of debt that they
hold.

"Management wants to achieve a more stable capital
structure going forward, we expect," Newman said. "That implies
debt relative to EBITDA and free cash flow that protects
creditors against cyclical declines and permits the company to
repay debt without having to refinance in the next few years."

R.H. Donnelley's earnings have suffered as revenue from
printed directories drops amid a shift to online search and
advertising.

Competitor Idearc Inc IDAR.PK filed for bankruptcy
protection last month and said it had agreed with its lenders
to reduce its total debt from around $9 billion to $3 billion
in secured bank loans. For details, see [ID:nN31427670]

CreditSights' Newman views the company as likely to want to
avoid restructuring its bank debt in a way that could
materially increase its interest expense, though a long term
restructuring will need to address the bank debt maturing in
2010 and 2011.

"A restructuring in- or out-of-court would not be
sustainable unless it addresses bank loans maturing in 2010 and
2011, we think," he said.