UPDATE 4-Yell boss faces months of debt talks

* Starts debt restructuring, sees completion by autumn

* Sees next quarter worse than current quarter

* Shares fall 14.6 percent

(Recasts, adds debt details, background)

By Georgina Prodhan and Tom Freke

LONDON, June 30 (Reuters) - Yell's new chairman faces months of talks with banks and shareholders as the UK directories firm seeks restructuring of its roughly 4 billion pound ($6.63 billion) debt for the second time in nine months in worsening trading conditions.

Yell (YELL.L), which appointed ex-Merrill Lynch banker Bob Wigley as chairman earlier in June, said on Tuesday that it planned to extend the maturity and change the terms of its debt facilities, a process it expected to take until the autumn.

Yell shares ended the day down 14.6 percent at 27 pence, valuing the company at about 200 million pounds.

After it has spoken with its lenders, the company will begin talks with its principal shareholders, Yell said, even as declines in revenues and core profit accelerate.

"The real problem that has emerged today is that visibility is near zero and trading is deteriorating," said an analyst, who declined to be named. "Any decision by banks or shareholders will be difficult until trading stabilises."

Yell, which operates in the United States, Britain, Spain and Latin America, has been struggling with a slump in classified advertising spending that came in the midst of a structural shift to online from print publication.

COVENANT CONCERNS

Tuesday's announcement comes just nine months after Yell agreed terms with banks for extra space on its covenants in exchange for a higher interest rate and suspending its dividend payout.

In May, the company warned that "increasingly uncertain trading conditions" meant it might need to reset the covenant levels again to avoid a breach of its debt terms.

Analysts have predicted that Yell may breach its covenants as soon as the start of next year, depending on trading conditions.

The key covenant is the ratio of net debt to earnings before income, taxes, depreciation and amortisation (EBITDA), which is tested every three months.

In March 2008 the ratio was 4.7x, 15 percent inside the limit, but this figure is expected to rise to 7 percent in September as the test tightens and EBITDA drops.

Yell said on Tuesday that EBITDA was likely to fall by about 17 percent next quarter, after an expected 11 percent decline in the current quarter.

Yell's reported debt was 4.2 billion pounds as of March 31, or 3.8 billion pounds at prevailing exchange rates.

Of this debt, the company must repay 323 million pounds by March 2010 and about 1.9 billion pounds by April 2011, it said in May.

HEAVY BURDEN

Analysts expressed concern about the terms Yell would likely get for renegotiating its debt, given the trading conditions.

"We believe any refinancing in absence of a stabilisation in trading would be on very onerous terms," analysts at Numis wrote in a note, keeping their "sell" recommendation.

They noted that a 200 basis point increase in the group's interest rate would lift its interest charge by about 80 million pounds a year.

However, the company said on Tuesday that its cash flow and conversion remained strong enough to make further debt repayments as well as interest payments.

Analysts said the process raised the possibility of a large rights issue or a debt-for-equity swap.

"The problem of Yell is the level of gearing makes a rights issue very hard," the unnamed analyst said, who added that Yell would look to raise at least 1 billion pounds from shareholders. ($1=.6029 Pound) (Additional reporting by Paul Sandle; editing by Karen Foster)