The generosity of big City investors is about to be tested again.
Yell – that’s the directories company with a broken business model and a mountain of debt – has announced on Tuesday morning plans to raise £660m via firm placing and open offer at 42p.
That’s £160m more than expected and the discount is just a 12.5% to Monday’s closing price. The cash call will also increase the number of shares in issue from 770m to 2.27bn and will see earnings per share diluted by around two thirds from 20p to 6.6p.
Oh, and Yell has also announced that second quarter revenue fell by 15.6% in constant currency terms (although it is expected to stabilise in the third quarter!)
But enough of that, here’s the good news: net debt to EBITDA will fall from 6 times to….5 post the capital raise.
That’s right 5 times but don’t worry because Yell’s lenders will relax their covenants once the fund raising is completed.
So in the fiscal year to March 2011, the net debt/EBITDA covenant will be 7.5 times and the following year 5.7 times, which gives Yell headroom 56% and 33% respectively, according to forecasts from Cazenove.
All very early 2007 and very generous. But then again it’s not the lenders who are being asked to pump £660m into Yell, with the possibility of more to come.
That said, there seems little doubt Yell (which incredibly is thinking about paying a dividend again) will get its cash.
Big institutional investors have had no qualms in backing rights issues from the riskiest of companies this year, which is perhaps not surprising given that one of the aims of quantitative easing is to make it easier for company’s to refinance themselves in the bond and equity markets.
Still, this is not a stock for widows and orphans.
Shares in Yell (unsurprisingly) opened higher.
Related link:
Quantitative Easing: An Interim Report- BoE