Fitch Affirms R.H. Donnelley Corp IDR at 'B+'; Outlook to Negative

Business Wire, May 9, 2008

CHICAGO -- Fitch Ratings has affirmed the Issuer Default Ratings (IDR) on R.H. Donnelley Corp (RHD), R.H. Donnelley, Inc. (RHDI), Dex Media, Inc. (DXI), Dex Media East (DXE) and Dex Media West (DXW) at 'B '. Fitch expects to rate the amended RHDI credit facility 'BB /RR1' and the proposed DXW credit facility 'BB /RR1'. The Rating Outlook has been changed to Negative from Stable. See full rating list at the end of this release.

The company disclosed yesterday in its form 10-Q and on its conference call that it has launched a series of financing activities which are expected to reduce near term mandatory debt repayments, provide additional covenant flexibility and extend its maturity profile. The company intends to amend the RHDI credit facility and refinance its DXW credit facility. Fitch expects to rate each of these facilities 'BB /RR1' reflecting their priority in the capital structure and our expectation that more than 90% recovery is achievable.

The company also intends to exchange approximately $700 million in lower interest rate senior unsecured notes outstanding at RHD for $488 million of higher interest rate notes at RHDI. At the issue level, this action would be negative for RHD bonds as their recovery ratings had been dependent on residual asset value from RHDI. The bonds that are intended to be placed at RHDI will now have a higher claim on RHDI asset value (residual value remaining after RHDI secured obligations are satisfied) than the RHD bonds and thus a higher rating. If the exchange is executed as proposed and assuming there are no changes in the provisions of the bonds, Fitch expects that RHDI bonds could be assigned a 'BB-/RR3' rating reflecting the expectation that 51%-70% recovery is reasonable. The RHD bonds would likely be downgraded to 'B-/RR6' reflecting negligible recovery prospects.

The enhanced covenant and maturity flexibility provided by the potential credit facility actions are offset by materially higher interest costs (which could exceed $50 million in incremental interest). In regard to the exchange, Fitch views the action as largely neutral to the consolidated credit profile; headline leverage would be lower, but interest coverage (i.e. the capacity to service its obligations) is relatively unchanged. While Fitch acknowledges that these actions remove several near-term overhangs, the negative outlook reflects that top line pressure, the limited scalability of the cost structure and increased interest costs could make it difficult to meet our prior deleveraging expectations. Fitch will continue to monitor operating performance closely for more evidence regarding the cyclical and secular components of revenue deterioration. Acceleration of revenue declines that are sustained beyond mid-single digits and not offset by cost cuts could weigh negatively on the rating. Fitch estimates the company can endure low single digit revenue declines and still delever the balance sheet, albeit slower than previously anticipated. Future rating actions could also include the implications of potential changes to the distressed EBITDA multiple used in Fitch's analysis (Fitch presently uses 6x). A lower multiple would reflect changes in market and transaction multiples and could pressure recovery ratings.

Going forward, Fitch expects management will be exclusively focused on paying down debt under the secured facilities, however, we continue to expect consolidated leverage levels to remain above management's stated target of 6.0x (or below) in the intermediate term.

Fitch currently rates RHD and its subsidiaries as follows:

R.H. Donnelley Corp. (RHD Holding Company)

--Issuer Default Rating (IDR) 'B ';

--Senior unsecured 'B/RR5'.

R.H. Donnelley Inc. (Operating Company; subsidiary of RHD)

--IDR 'B ';

--Bank facility 'BB /RR1'.

Dex Media, Inc. (Dex Holding Company; subsidiary of RHD)

--IDR 'B ';

--Senior unsecured 'B/RR5'.

Dex Media East, Inc. (Operating Company; subsidiary of Dex)

--IDR 'B ';

--Bank facility 'BB /RR1'.

Dex Media West, Inc. (Operating Company; subsidiary of Dex)

--IDR 'B ';

--Bank facility 'BB /RR1';

--Senior unsecured 'BB /RR1';

--Senior subordinated 'B/RR5'.

For further information, see Fitch's 15-page report on R.H. Donnelley Corp and subsidiaries R.H. Donnelley, Inc. (RHDI), Dex Media, Inc. (DXI), Dex Media East (DXE) and Dex Media West (DXW) dated Feb. 11, 2008 available on the Fitch Ratings web site at www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.