Thesis

• Long one YLO series 1 or series 2 preferred share
• short 12.5 common shares
• Other series of preferred will work.  Series 1 is slightly more attractive than the others because of its near term puttable features.  Please note series 7 has a different exchange ratio

Background

• Yellow Media was structured as an income trust which meant most of its earnings was paid out as dividends before convertign back into C- corp
• Paid billions of dollars for other print directories assets funded with debt
• Print directories (yellow page) is struggling.
• Bond and equity starts to trade at distressed level.  Management saw the writing on the wall and filed the recap proposal on 07/23/2012

The Opportunity

“Each Series 1 Share may be so exchanged will be determined by dividing the then applicable Redemption Price per Series 1 Share, together with all accrued and unpaid dividends up to but excluding the date fixed for exchange, by the greater of (i) $2.00 and (ii) 95% of the weighted average trading price of the Units or New Tradable Securities”

“On and after December 31, 2012, upon at least 30 days notice, a holder of Series 1 Shares may require YPG Holdings to redeem such Series 1 Shares for a cash price of $25.00 per Series 1 Share, together with any accrued and unpaid dividends to but excluding the date fixed for redemption.”

Source: Preferred prospectus

“27. What do holders of existing preferred shares receive?

Each holder of 100 existing preferred shares, other than Series 7 preferred shares, will receive 6.25 New Common Shares and 3.57143 Warrants that are exchangeable into New Common Shares.”

“29. What do holders of existing common shares receive?

Each holder of 100 existing common shares will receive 0.5 New Common Shares and 0.28571 Warrants that are exchangeable into New Common Shares.”

Source: Recap Q&A

Accrued dividends will not be paid under the recap proposal.  The exchange ratio is simply 12.5 existing common shares for 1 preferred share.  The opportunity is to buy the preferred at $0.54 or $0.59 and short the common at $0.06*12.5 and keep the spread.

• The recap was approved by debt and shareholders on 09/06/2012.  The hearing for final approval by the Quebec Court is on 10/15/2012.  The exchange of securities will take place on 10/31/2012 if approved.
• If the recap is rejected, 12/31/2012 is when the series 1 is puttable.  YLO will convert the preferred before then to avoid any headaches.