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Solocal's deal reveals the complicated future of refinancing

Solocal’s refinancing deal announced last week may be complicated, pressured and messy but for many issuers across the capital markets whose business models — and not just their balance sheets — are under increasing pressure, it may be a sign of things to come.

When the announcement of a company’s refinancing exercise stretches over five pages it is never a sign that the deal will be a simple one — and so it was with the details of French directories firm, Solocal’s refinancing plan last week. 

The company is looking to increase its share capital by €440m with an equity raising exercise that is conditional upon the approval of an amend and extend request put to the firm’s bank lenders in return for a €400m repayment of its existing credit agreements.

The debt refinancing is being done through a 'sauvegarde financière accélérée’ (SFA) and a conciliation — both actions regarded as French court interventions and worrisome for investors. Indeed, the move has put pressure on the firm’s ratings. Fitch has downgraded Solocal from B- to C, while Moody’s on Monday put it on a review for downgrade from Caa1.

For Solocal, the financing exercise is necessary to wipe the funding slate clean, providing it with the required financial resources to push ahead with a complete company transformation that will see it focus on its online activities.

Digital desires

The push for digital is the latest transformation undergone by the directory firms. Many firms from the sector, of course, have already changed their name. Solocal itself used to be Pages Jaunes, while its UK equivalent has changed from Yellow Pages to Yell to hibu. 

But this has only been window dressing to precede the fundamental shift in character these companies must now attempt. Solocal hopes that its exercise to repair its balance sheet will allow it to accelerate its ‘Digital 2015’ strategy, in which it will push to be a leader on providing online local information.

But its refinancing scheme across the capital markets is only likely to be one of the first of a wave of firms looking for more complex, structured financing solutions for companies who have had to face up to the fact that a quick nip and tuck to the balance sheet is not enough to save their business. Something much broader and deeper is required.

Businesses both within the directories sector and beyond have already taken steps to tackle their bloated balance sheets over the past five years. Since 2009, firms have been slashing debt where they can, pushing to recapitalise and cutting their leverage ratios. 

But where the pressure isn’t just on their balance sheets but on entire business models — in other words where firms have fundamental structural problems yet still have the rationale to exist — transformative refinancing deals like Solocal’s may become the necessary option. 

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