Yellow Media's debt is only half the problem

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On top of the harsh news that Yellow Media has suspended its dividend and taken a whopping $2.9-billion impairment charge on the value of its goodwill, the company has also restructured its debt to give itself some breathing room.

Because Yellow Media was downgraded, the company worked with its lenders to reduce its debt load, agreeing to pay back $500-million of its bank debt and reducing the size of its revolver from $750-million to $250-million. That leaves a $500-million credit facility that has to be paid back in February 2013.

That plan proves that Yellow Media finally gets the message. For most of this year, people had been telling the firm that its debt load was unsustainable, but for so long management shrugged it off. Now they're getting serious.

"We believe that we need to take a more conservative approach to managing our capital structure," chief executive officer Marc Tellier said on a conference call Wednesday.

That's good news. But it's only half the battle. As I've said before, the company's problems are more systemic than just its leverage. Back in March, I interviewed Mr. Tellier on the day that the firm announced that it was selling Auto Trader, its biggest asset. Asked how the company was going to make money going forward, he offered only a vague answer, mentioning the prospects of real estate listings and building an online business.

The same holds true today. On the conference call, Mr. Tellier stressed that his company believes in its Yellow Pages 360 solution, which offers companies the ability to advertise using different media (print, the web etc.) and reiterated that there was still room to help businesses online. "No one can deny that Canadian small and medium business are being bombarded with somewhat overwhelming choices when it comes to digital solutions," he said

But that isn't a game plan. It's an idea. If Yellow Media is going to turn things around, it must hash out a concrete business strategy. And do it soon. Print revenues are fading and at this point it is hard to ask the markets for more money.