KEY POINTS:
Yellow Pages Group tried to let the numbers do the talking yesterday as the management and banking teams behind its downsized $150 million bond issue went on the charm offensive.
Concerns about the level of risk involved in the offer - particularly as the squeeze goes on global
credit markets - have already seen it scaled back from an original target of $300 million and the interest rate lifted to at least 11 per cent.
But despite having a strong story to sell about the underlying strength of the business, one number will remain top of most investors' minds.
That's the $1.475 billion of debt the business carries after being sold by Telecom to a private equity consortium for $2.24 billion in March. The group's new chairman, American telco industry veteran Jim Smith, conceded that market jitters about credit had made the bond issue a tougher sell.
But he was adamant that the Yellow Pages business and its growth prospects were so strong that concerns were being overplayed.
"The security here I think is very substantial," he said. "You've got $785 million of obligation standing in line behind this offer. Couple that with the solid nature of the business and its predictability and its stability and relative transparency."
The $785 million is the level of equity the consortium led by CCMP Capital Asia and Teachers' Private Capital have invested in the business.
Investors in the six-year secured, subordinated debt securities - which will trade on the NZX - will buy debt which ranks ahead of the private equity investors, but behind the banks that have provided the bulk of the funding.
Investment banks ABN Amro, Deutsche Bank and Barclays have underwritten $300 million of the debt - of which up to $150 million will be covered by the bond issue.
ABN Amro director of global markets David McCallum said the banks were comfortable holding the remainder of that underwritten debt.
Market commentators expect that there will be another attempt to make a public issue at some point when markets have settled down.
Most of the finance for the Yellow Pages purchase has been syndicated to 21 banks and institutions.
Smith, who has been involved in the sale of 11 directory companies to private equity groups, said New Zealand's Yellow Pages was "the very best" he had seen.
Holding up a copy of the 1928 edition of the Auckland directory, he argued that the business had a history of stable and consistent growth.
"Directories tend to be a business that is not as subject to vagaries of the market place as other products," he said.
Over the past 10 years the group had delivered revenue growth averaging 7 per cent per annum. More focus would now go on boosting earnings at an ebitda (earnings before interest, tax depreciation and amortisation) level.
The group is forecasting ebitda will rise to $171 million from $158 million in 2007.
"When this business was wrapped in the umbrella of Telecom there really wasn't a lot of attention paid to it," Smith said.
"It was a directory business in everybody's kitchen. Now there is an opportunity for attention. I want people to understand its characteristics - great cash flows, great ebitda margins, and a solid market position."