UPDATE 1-Yell suspends dividend to reduce debt

(Adds analyst comment, share price reaction, background)

LONDON, Sept 22 (Reuters) - British directories company Yell (YELL.L) announced an aggressive debt reduction programme and said it had begun negotiating easier terms with its lenders.

In a statement, Yell said it would suspend its shareholder payouts until it had cut its debt to less than four times its earnings before interest, tax, depreciation and amortisation.

Yell did not specify when it expects to achieve this target, saying only it would do so "as rapidly as it may".

The company also said it planned to seek an increase in its covenant headroom from its lenders, adding that a number of them had already given their approval in principle. Reaching a final agreement is expected to take several weeks, Yell said.

In July, Yell reported net debt of 3.68 billion pounds ($6.72 billion) as of June 30, equivalent to 4.9 times annualised EBITDA.

The company, which borrowed heavily to finance acquisitions in the United States and Spain, said at the time it had reduced its total debt burden by 2 percent compared with three months earlier.

By 0747 GMT, Yell shares were off 2.2 percent at 89 pence, compared with a 2 percent decline of the FTSE 250 index .FTMC.

"It is encouraging to see Yell addressing the balance sheet issue and arranging greater covenant flexibility," Landsbanki analyst Charles Peacock wrote in a note, estimating that cancelling the dividend would free up about 70 million pounds in cash per year.

Yell also said its financial performance was on track to meet market expectations, with total debt falling thanks to strong cash generation. (Reporting by Myles Neligan; editing by Sue Thomas)