Derivative Financial Instruments

6 Months Ended

Jun. 30, 2011

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

6. Derivative Financial Instruments

We do not use derivative financial instruments for trading or speculative purposes and our derivative financial instruments are limited to interest rate swap and interest rate cap agreements. The Company utilizes a combination of fixed rate debt and variable rate debt to finance its operations. The variable rate debt exposes the Company to variability in interest payments due to changes in interest rates. Management believes that it is prudent to mitigate the interest rate risk on a portion of its variable rate borrowings. To satisfy our objectives and requirements, the Company has entered into interest rate swap and interest rate cap agreements, which have not been designated as cash flow hedges, to manage our exposure to interest rate fluctuations on our variable rate debt.

All derivative financial instruments are recognized as either assets or liabilities on the condensed consolidated balance sheets with measurement at fair value. On a quarterly basis, the fair values of our interest rate swaps and interest rate caps are determined based on observable inputs. These derivative instruments have not been designated as cash flow hedges and as such, the initial fair value and any subsequent gains or losses on the change in the fair value of the interest rate swaps and interest rate caps are reported in earnings as a component of interest expense. Any gains or losses related to the quarterly fair value adjustments are presented as a non-cash operating activity on the condensed consolidated statements of cash flows.

By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the possible failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, it is not subject to credit risk. The Company minimizes the credit risk in derivative financial instruments by entering into transactions with major financial institutions with credit ratings of AA- or higher, or the equivalent dependent upon the credit rating agency.

Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

See Note 2, “Summary of Significant Accounting Policies — Fair Value of Financial Instruments” for additional information regarding our interest rate swaps and interest rate caps.

Successor Company

The Company has entered into the following interest rate swaps that effectively convert $500.0 million, or approximately 22%, of the Company’s variable rate debt to fixed rate debt as of June 30, 2011. Since the RHDI Amended and Restated Credit Facility and the Dex Media West Amended and Restated Credit Facility are subject to a LIBOR floor of 3.00% and the LIBOR rate is below that floor at June 30, 2011, both credit facilities are effectively fixed rate debt until such time LIBOR exceeds the stated floor. At June 30, 2011, approximately 88% of our total debt outstanding consisted of variable rate debt, excluding the effect of our interest rate swaps, the LIBOR floors and interest rate caps, which are discussed below. Including the effect of our interest rate swaps, total fixed rate debt comprised approximately 31% of our total debt portfolio as of June 30, 2011. The interest rate swaps mature at varying dates from February 2012 through February 2013.

Interest Rate Swaps — Dex Media East

Effective Dates	Notional Amount			Pay Rates			Maturity Dates
(amounts in millions)
February 26, 2010	$	300	(2)		1.20% - 1.796	%	February 29, 2012 — February 28, 2013
March 5, 2010		100	(1)		1.688	%	January 31, 2013
March 10, 2010		100	(1)		1.75	%	January 31, 2013
Total	$	500

Under the terms of the interest rate swap agreements, we receive variable interest based on the three-month LIBOR and pay a weighted average fixed rate of 1.5%. The weighted average rate received on our interest rate swaps was 0.3% for the six months ended June 30, 2011. These periodic payments and receipts are recorded as interest expense.

Under the terms of the interest rate cap agreements, the Company will receive payments based on the spread in rates if the three-month LIBOR rate increases above the cap rates noted in the table below. The Company paid $2.1 million for the interest rate cap agreements entered into during the first quarter of 2010. We are not required to make any future payments related to these interest rate cap agreements.

Interest Rate Caps — RHDI

Effective Dates	Notional Amount			Cap Rates			Maturity Dates
(amounts in millions)
February 26, 2010	$	200	(3)		3.0% - 3.5	%	February 29, 2012 — February 28, 2013
March 8, 2010		100	(4)		3.5	%	January 31, 2013
March 10, 2010		100	(4)		3.0	%	April 30, 2012
Total	$	400

(1)	Consists of one swap
(2)	Consists of three swaps
(3)	Consists of two caps
(4)	Consists of one cap

The following tables present the fair value of our interest rate swaps and interest rate caps at June 30, 2011 and December 31, 2010. The fair value of our interest rate swaps is presented in accounts payable and accrued liabilities and other non-current liabilities and the fair value of our interest rate caps is presented in prepaid expenses and other current assets and other non-current assets on the condensed consolidated balance sheet at June 30, 2011 and December 31, 2010. The following tables also present the (gain) loss recognized in interest expense from the change in fair value of our interest rate swaps and interest rate caps for the three and six months ended June 30, 2011 and three and five months ended June 30, 2010.

							(Gain) Loss Recognized in
							Interest Expense
							From the Change in Fair Value of
							Interest Rate Swaps
							Three Months			Six Months			Three Months		Five Months
	Fair Value Measurements at						Ended			Ended			Ended		Ended
Interest Rate Swaps	June 30, 2011			December 31, 2010			June 30, 2011			June 30, 2011			June 30, 2010		June 30, 2010
Other non-current assets	$	—		$	—		$	—		$	—		$	2,511	$	—
Accounts payable and accrued liabilities		(4,162	)		(4,376	)		(181	)		(214	)		294		3,428
Other non-current liabilities		(1,678	)		(1,989	)		508			(311	)		1,642		1,642
Total	$	(5,840	)	$	(6,365	)	$	327		$	(525	)	$	4,447	$	5,070

					Loss Recognized in
					Interest Expense
					From the Change in Fair Value of
					Interest Rate Caps
					Three Months		Six Months		Three Months		Five Months
	Fair Value Measurements at				Ended		Ended		Ended		Ended
Interest Rate Caps	June 30, 2011		December 31, 2010		June 30, 2011		June 30, 2011		June 30, 2010		June 30, 2010
Prepaid expenses and other current assets	$	2	$	5	$	—	$	3	$	23	$	66
Other non-current assets		42		303		119		261		1,091		1,520
Total	$	44	$	308	$	119	$	264	$	1,114	$	1,586

The Company recognized losses related to our interest rate swaps and interest rate caps into earnings, including accrued interest, of $2.0 million and $2.8 million during the three and six months ended June 30, 2011, respectively, and $7.1 million and $8.7 million during the three and five months ended June 30, 2010 , respectively.

Predecessor Company

During the one month ended January 31, 2010, the Predecessor Company recognized a loss to interest expense of $2.3 million associated with the change in fair value of interest rate swaps. In addition, the Predecessor Company recognized $3.0 million of losses related to interest rate swaps into earnings, including accrued interest, during the one month ended January 31, 2010.