RHD Follows Idearc Into Chapter 11

Today R.H. Donnelley made an announcement that is unlikely to be much of a surprise. The company said it has

“filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware in order to consummate a balance sheet restructuring.”

Today’s announcement also says that RHD has worked out a deal with key creditors to reduce its debt by US$6.4 billion and eliminate about US$500 million in annual interest payments. RHD’s current total debt is about US$9 billion, so the announced deal significantly reduces the company’s leverage.

RHD follows Idearc Media, which announced its own bankruptcy back in March.

This is not surprising in part because of Idearc’s own bankruptcy as well as numerous reports in recent weeks that RHD was working with its creditor on ways to repair its balance sheet. Like Idearc, RHD’s underlying business, while troubled, still has a lot to offer, including the ability to generate cash, a large sales force and relationships with hundred of thousands of small-business advertisers. These are assets envied by media businesses with healthier balance sheets.

While bankruptcies are always painful, it appears to be the best way for both Idearc and RHD to get the fresh starts they need to build sustainable directional media businesses, something that was difficult to impossible with the debt loads the two companies are carrying. In the short run, this may seem like a black eye for the directory industry. In the longer run, it may turn out to be a positive.