MONTREAL - A Quebec judge has postponed making any decision on an effort by seven banking creditors to thwart Yellow Media's plan to cut its $1.8-billion debt.
Justice Robert Mongeon of Quebec Superior Court rejected arguments Monday by the Montreal directories publisher that he didn't have the power to amend his initial order made July 23.
He also decided to postpone a ruling on their motion until a Sept. 10 fairness hearing, according to a lawyer with McMillan, counsel for the company's lenders, who were owed $369 million plus interest by Yellow Media as of last Sept. 28.
"The judge decided to postpone it until then on the basis that it was better to deal with all the issues at one time when all the facts are known," Andrew Kent said in an email.
Mongeon said the hearing could last several days.
"He thinks that there is a significant chance that whichever way he rules on the lenders motion the losing party may seek to appeal," Kent said.
Led by the Bank of Nova Scotia, the lenders are Canada's Big Six banks — the Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank, Royal Bank and Toronto-Dominion — plus the Caisse Centrale Desjardins.
Under Yellow's plan, the banks would receive shares, bonds and cash in exchange for their debt.
Yellow spokesman Andre Leblanc said the company is pleased with the court's decision.
"The court has decided to let the process follow its due course and, as was originally planned, allow the different stakeholders to vote on the proposed plan," he said in an email.
"We are pleased that the process is continuing and we look forward to the implementation of the recapitalization plan on schedule."
The lenders wanted Mongeon to revoke or at least suspend his interim order pending the full hearing. They also want the court to declare that Yellow Media's credit agreement with them does not constitute a "security" within the meaning of the Canada Business Corporations Act.
Yellow Media (TSX:YLO) has announced a plan to cut its debt to $850 million from about $1.8 billion as the struggling company continues its transition to an online company. It has said it will use credit facilities, debentures and cash in the recapitalization transaction.
In their motion heard Monday, the lenders accused Yellow of acting without first consulting them and not establishing it faced a "state of urgency."
By initiating its plan, Yellow "have used a divide-and-conquer strategy" by negotiating with a select, unidentified group of debenture holders, the lenders added.
They said Yellow's plan deprives legitimate stakeholders of "meaningful consultation before the die is cast."
"The issue of how to tailor classes of affected stakeholders in any arrangement of an insolvent corporation is of paramount importance."
Convertible debenture holders are also unhappy with Yellow's plan, arguing they have been given too little.
In May, rating agency DBRS downgraded Yellow Media to CCC from a low B, saying the decline in its print revenues was continuing. DBRS also warned of possible further downgrades.
The company recently reported a first-quarter loss of $2.9 billion and wrote down the value of its assets by about $3 billion.
Like many companies in the communications and publishing sector, Yellow Pages has been hit hard by changes in consumer behaviour as Internet services dominate the information world.
Yellow Media has been transitioning to an Internet company for the last few years.