Actimedia Dominance Counters High Leverage

Bell Actimedia, the Canadian print directory publisher, is a highly dependable business with a marquee name and a dominant market share, but leverage is high and there is low coverage of interest expense relative to the rating category, according to John Page, senior analyst with Moody's Investors Service. The debt package is being put together for the C$3 billion leveraged buyout of Actimedia from Bell Canada by Kohlberg Kravis Roberts & Co. and the Teacher's Merchant Bank--the private equity arm of the Ontario Teachers' Pension Plan. The C$1.64 billion in credit facilities has been rated Ba3 and a C$600 million senior subordinated loan has been rated B3.

Actimedia is the dominant market provider in Canada and the ratings acknowledge the historical stability of revenues. "It has solid penetration rates at over 40% of local businesses in its Canadian markets, versus less than 30% on average in the U.S.," Page said. Furthermore, the leverage is high, but is not out of line with other transactions Moody's has rated, he noted. Meanwhile, the separation from Bell will not result in substantial customer churn, said Page. Actimedia will have exclusive ownership of the Yellow Pages trademark in Canada and continued use of Bell Canada for transitional and long-term operating services, including billing and collections for Bell customers over the next nine years and royalty free-use of the Bell trademark for 30 years, he explained. "In many respects customers will not know there is a delinkage."

Scotia Capital, CIBC World Markets and Credit Suisse First Boston are leading the bank financing (LMW, 10/28). This is split into a C$100 million revolver, a C$400 million "A" term loan and a $730 million "B" piece. The C$600 million, 10-year senior subordinated bank loan is structured so that if it is not repaid within 18 months, holders have the option of receiving senior subordinated exchange notes with the same maturity.