Money at Work: Yellow Pages Bonds

Money at Work answers a series of set questions about a savings product currently in the market. This one asks the questions of the $150 million Yellow Pages Bond offer.

Tuesday, 4 September 2007

Who is the company behind it?
Yellow Pages is a consortium of made up of private equity group CCMP Capital Asia and Teachers' Private Capital which is the private investment arm of Ontario Teachers' Pension Plan. This group bought Yellow Pages from Telecom in April for $2.4 billion. Money raised in this bond offer will be used to fund that acquisition.

Who is the target market?
Fixed interest investors prepared to take on a bit of risk.

What return does it offer?
The offer is paying a minimum of 11%.

When was it launched?
The offer was registered on August 28 and closes on October 16.

What other products is it like or is it competing with?
This offer is bound to attract the attention of people currently invested in finance companies.

Is it long term, short term or medium term?
The bonds have a six-year term.

What is the unique selling point?
An interest rate of 11% is clearly attractive, especially when lined up against finance company offers. Also sweetening the offer is news that bondholders will get preferential entitlements and a discount on shares if Yellow Pages decides to do an initial public offering in the future.

How strong a stomach do you need for it?
Using the risk/return rule, one would say that at 11% this is a higher risk investment. It seems the risk is better priced than what is happening in the finance company sector.

What's the hitch?
The main hitch is that investors are taking on a similar level of risk in this company as someone who has an equity stake. However, the bondholder is limited in the amount of return they will get, while someone with an equity stake gets to participate in any further upside performance.

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