Grapevine-based Idearc files for bankruptcy

Apr 01, 2009 (The Dallas Morning News - McClatchy-Tribune Information Services via COMTEX) -- VZ | Quote | Chart | News | PowerRating -- Yellow-pages publisher Idearc Inc. filed for Chapter 11 bankruptcy protection Tuesday, hoping to shed some of its $9 billion debt.

The Grapevine-based company, which was spun out from Verizon Communications in late 2006, said it had already reached agreements in principle "on certain critical elements of a plan of reorganization" with its agent bank and a steering group of its secured lenders.

Under the agreement, Idearc's total debt will be reduced to a pro forma level of $3 billion of secured bank debt, with a 12 percent interest rate and a six-year term. Other bank debt and bonds will be converted to equity. Debt payments will be halved.

Operations should continue as normal during the reorganization. No layoffs are expected at the company, which employs 1,778 at its headquarters and about 6,100 people altogether.

Idearc, which expects to file a reorganization plan within 30 days, has been profitable since its inception.

"Essentially we have a company with good potential being held back by a terminally ill balance sheet," chief executive Scott W. Klein said.

That said, Idearc's revenue has been falling because the growth of its online operations has failed to keep pace with the loss of print advertising. Annual sales fell slightly more than 10 percent between 2005 and 2008 -- to $2.97 billion from $3.34 billion -- but much of that drop came just in the last year, when the poor economy hurt sales at many companies.

In an effort to slow and then reverse the revenue trend, Klein has introduced a three-product strategy that focuses on more than traditional directories and their online equivalents but also on direct mail.

"We act as an advertising agency that can help small and medium businesses market themselves in three very important arenas," Klein said.

"We had dabbled with direct mail before, but we're truly focused on it now. Small and medium businesses in this country spend $52 billion a year on direct mail, and we think we can get a piece of that market worth hundreds of millions in yearly revenues."

Idearc will complement its direct mail efforts by continuing to enhance its main Web site, SuperPages.com, which already ranks among the top 20 online. It is also rolling out new programs to boost its yellow pages business, which still accounts for most of its revenue.

One program, called SuperGuarantee, ensures satisfaction for people who buy services from companies that have display ads at SuperPages.com or in the Verizon Yellow Pages.

If, for example, you register with the free program before hiring a plumber and that plumber fails to satisfy you, Idearc will either send the plumber back to your house, hire a second plumber to complete the work or send you a $500 check.

"Most small businesses don't have the financial wherewithal to provide guarantees, so this is a real advantage for our advertisers, and we think this guarantee -- which applies to a wide range of services -- will drive far more users to our brands," Klein said.

Despite the introduction of these programs, Idearc shares have lost value. The stock is down more than 99 percent over the past year, and shares that once traded around $20 ended Tuesday at less than 4 cents apiece.

Klein said it's too early to determine whether the reorganization will wipe out current shareholders.

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