Cash flow continues to be relatively poor, especially with the addition of income taxes after the trust conversion. The only solace there is that the federal corporate rate drops from 16.5% to 15% in 2012. Normally companies trading this low usually don’t have taxes as a problem (since they are typically not making money) but in this case, the federal-provincial tax bite becomes material since debt has to be paid off with after-tax dollars.
The tax tidbit that are sending analysts into negative mode again is that their estimate is their tax cash outflow of $250M in 2012 based off of a 27% tax rate; 2012 is a double taxation year because they will have to pay in installments for two years worth of taxes; if you do the simple division by two and divide by 0.27, that gives you an estimated pre-tax income of about $463M. At a 27% rate, that is about $338M after tax.
The company has the following debt maturity schedule:
February 18, 2013: $266M + $35M Credit Facility / CP
July 10, 2013: $130M MTN maturity
December 3, 2013: $125M MTN maturity
April 21, 2014: $254.7M MTN maturity
Feburary 2, 2015: $138M MTN maturity
February 15, 2016: $319.9M MTN maturity
The company has $52M cash currently. Assuming they have zero access to the credit market for the next couple years, they will need to generate roughly $50M in free cash flow each quarter, which is a tall order given their declining revenue base. That said, if they can actually stabilize their cash situation, they will likely be able to get an extension to their facility and figure out a way how to re-finance their MTN maturities. It will not be an easy climb up from the abyss, however.
Yellow Media should survive operationally, but the question at this point is whether they will survive financially. Who will reap the rewards of the cash flow of this over-leveraged entity? Certainly not common shareholders at this point, but right now the marginal question is whether the preferred shareholders will come out of this looking like geniuses or will they be burnt as well? This is increasingly looking like a binary situation, with either the preferred shareholders going to zero (in a recapitalization), or seeing the company slowly trudge their way back up to credit-worthy status over the process of a few years. The big hurdle is 2013.