Hibu re-enters Chapter 15 protection

October 2016 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

One of a number of publishing companies that has seen a multibillion-dollar restructuring fail to turn around its fortunes, UK-based Hibu Plc, the publisher of Yellow Pages, is again attempting to stop the rot by filing another bankruptcy case in the US – the second time it has done so in two years.

In this instance, seeking to discharge itself of debt in the region of $785m (£600m), Hibu filed for Chapter 15 protection – the section of the US bankruptcy code which addresses international bankruptcy issues – via one of its affiliates, YH Ltd.

Headquartered in Reading in the UK, Hibu is a multinational directories and internet services company (formerly known as Yell Group Plc) with operations in the UK, US, Spain, Argentina, Chile and Peru. In addition to its Yellow Pages publishing activities, the company also sells digital marketing and advertising products and services. These streams accounted for 55 percent of Hibu’s revenue in the fiscal year ending 31 March 2016.

And while the organisation has a significant presence in the US, a substantial amount of the firm’s debt (issued by YH Ltd) is actually located in the UK. In an attempt to get this debt under control, Hibu’s senior management took the decision earlier this year to seek protection by utilising the equivalent of Chapter 11 in the UK, i.e., Company Voluntary Arrangement (CVA).

Furthermore, the Chapter 15 filing made by Hibu (YH Ltd), which is being overseen by Judge Shelley Chapman, US bankruptcy judge for the Southern District of New York, aims to achieve formal recognition in the US of the proceedings that are taking place in the UK.

In summary, Hibu’s Chapter 15 petition consists of a proposed deal that would see creditors holding 83 percent of the company’s outstanding debt, which would wipe out all of its existing £1.15bn in liabilities in exchange for £550m in new bonds. Should Hibu’s request be given approval by Judge Chapman, the company will be temporarily protected from potential lawsuits from creditors and other interested parties in the US.

Comparing the new Chapter 15 proposal with its 2014 counterpart, the Wall Street Journal (WSJ) references statements made by Christian Henry Wells, Hibu’s general counsel and its US representative, who confirmed that Hibu’s first Chapter 15 filing involved the company striking a deal with creditors. That move shed some £800m from its overall £2.3bn debt. However, the deal also saw creditors take ownership of Hibu, which led to an increase in debt, as well as additional obligations.

Among these obligations, says the WSJ, is that Hibu is “required to make monthly payments of £500,000 into its pension plan, which are scheduled to increase in 2018”. Furthermore, the company is “being weighed down by payments it promised to lenders in 2014” and believes that “another restructuring will make it easier to service those debts and will also reduce its pension plan obligations”.

Optimistically, Mr Wells, in court documents, stated his belief that Hibu’s latest restructuring efforts will “help it achieve a more sustainable capital structure and address lingering issues tied to the earlier (2014) reorganisation”.

Yet the fact is that traditional print directory companies have been struggling for some time, with customers increasingly preferring digital products. In April 2016, Dex Media Inc concluded its fifth Chapter 11 proceedings in seven years, having received court approval of a plan to restructure a debt load of $2.4bn.

Whatever the doubts are surrounding the viability of its directories business, it of course remains to be seen whether Hibu’s second venture into Chapter 15 protection will lead to a successful restructuring of its operations, a debt that is under control and an ultimate return to profitability.

Fraser Tennant