* Bankruptcy allows companies to complete merger
* Filing will force deal on hold-out lenders
* Shares close higher
March 18 Dex One Corp and SuperMedia
Inc have both filed for bankruptcy protection after the
directories publishers failed to win the full support of senior
secured lenders for a change to a credit agreement needed to
complete their planned merger.
Dex One, formerly known as R.H. Donnelley Corp, and
SuperMedia agreed last year to combine their businesses, with
Dex One shareholders expected to own about 60 percent and
SuperMedia shareholders the rest of the combined company.
Unusual for bankruptcies, stockholders of both companies
will not be legally impacted by the Chapter 11 filings, and the
shares of both companies rose sharply on Monday.
The bankruptcy filings are the second ones in four years for
each of the companies.
As part of the proposed deal, Dex One and SuperMedia agreed
with a committee of senior lenders to amend their credit
agreements to extend the maturity dates of the companies' senior
secured debt up to 26 months until Dec. 31, 2016.
The credit amendment needed to be approved by 100 percent of
senior lenders for the companies to go ahead with the merger.
"While Dex One engaged extensively with its key
stakeholders, the company was unable to obtain unanimous consent
despite the broad and overwhelming lender support for the
amendments and the merger," Dex One said in the filing.
Of the 400 senior secured lender votes received, 398 were
cast in favor of the amendment plan, according to the filing.
Through a so-called prepackaged Chapter 11 process, the
companies hope to sideline the holdout creditors and win
bankruptcy court approval for the credit amendment.
In a prepackaged bankruptcy, management negotiates with
major creditors the general terms of a bankruptcy plan prior to
the chapter 11 filing.
Subject to court approval of the plans, the companies expect
the merger to be completed in 45 to 60 days, SuperMedia said.
"A substantial majority of our lenders and stockholders have
pledged their support for this transaction and we remain
committed to closing it in the first half of this year,"
SuperMedia CEO Peter McDonald said in a statement.
In a traditional bankruptcy, a company cancels its stock as
part of the restructuring and creditors often end up owning
newly issued equity in exchange for the debt they hold. But the
shares of Dex One and SuperMedia will continue to trade in both
Restructuring will extend the maturities of the secured debt
of the companies. In return, the holders of that debt will
receive higher interest rates and up to $175 million in
synergies from merging the two companies, which will make it
easier to service the debt.
Shares of SuperMedia rose 47 cents, or 11 percent, to $4.88
on Nasdaq. Shares of Dex One also rose 24 cents, or about 11
percent, to $2.35 on the New York Stock Exchange.
Dex One has assets and liabilities both about $2.8 billion,
while SuperMedia has total assets of $1.4 billion and total debt
of $1.9 billion, according to the filing.
In 2010, R.H. Donnelley Corp emerged from Chapter 11 as Dex
One Corp, after filing for bankruptcy protection in 2009 owing
to declining demand for print directories.
SuperMedia emerged from bankruptcy at the end of 2009, 9
months after filing for bankruptcy as Idearc Inc. The company
was spun off from Verizon Communications Inc in 2006.
The two firms hope their merger will allow them to better
compete in the market with reduced costs, as well as enhanced
cash flow and liquidity.
The case is Dex One Corp, Case No. 13-10533, and SuperMedia
Inc, Case No. 13-10545, U.S. Bankruptcy Court, District of