By Stephanie Gleason Of DOW JONES DAILY BANKRUPTCY REVIEW It has only been a few years since the pack of directory publishers that filed for Chapter 11 protection emerged with revamped balance sheets and renewed focus, but analysts are already predicting that these companies are bound for a second round of debt restructurings. The signs are all around. Moody's Investors Service downgraded two major directory companies--Dex One Corp. (DEXO) and SuperMedia Inc. (SPMD)--deep into junk territory in late March. AT&T Inc. (T) said it plans to sell the majority of its yellow-pages business to a private equity firm last week. And a smaller Manhattan yellow-pages company, Ambassador Media Group, shut down and filed for Chapter 7 earlier this month, three years after a Chapter 11 restructuring. "It's concerning that the two pure-play directories companies filed for Chapter 11, emerged and are already experiencing credit issues," Fitch analyst Mike Simonton said via email, referring to Dex One and SuperMedia. "Given the trajectory of the business and their credit profiles, it's possible they could represent some of the first 'Chapter 22' candidates." AT&T's yellow-pages business, along with Dex One and SuperMedia, represent more than 70% of the directories market, according to Fitch. The announcement last Monday that AT&T plans to sell the majority of its yellow-pages business to private equity firm Cerberus Capital Management LP further supports their prediction that restructurings are imminent, analysts say. AT&T's yellow pages revenue has fallen 30% in the last two years to $3.3 billion in 2011. The sale of a majority stake in the business to Cerberus "provides additional evidence that directory publishers' credit fundamentals are deteriorating, likely pointing to a new round of restructurings in the industry," Fitch said in a news release last Tuesday. Despite the recent restructuring of their debts, falling revenues also plague Dex One and SuperMedia. Dex One, which was known as R.H. Donnelley Corp. before it emerged from Chapter 11 in January 2010, logged $1.48 billion net revenue in 2011, down from $2.2 billion in 2009 when it entered bankruptcy and $2.68 billion in 2007. SuperMedia, which filed for Chapter 11 in 2009 when it was known as Idearc Inc., had $1.64 billion in operating revenue in 2011, compared to $2.5 billion in 2009 and $3.2 billion in 2007. When Moody's downgraded Dex One and SuperMedia, it called a new round of restructuring "inevitable" for Dex One and "likely" for SuperMedia. Representatives for both companies declined to comment. The businesses are trying to transition from a quickly deteriorating print business model to the more modern online advertising realm, but it isn't an easy or equal swap. Dex One and SuperMedia are "attempting to reinvent" themselves, Moody's said when downgrading both firms, but Moody's said it has doubts that they will be able to transition from a reliance on print directories quickly enough to stabilize revenue and prevent further restructuring. According to media research and consulting firm Borrell Associates, most directory companies get only a quarter, or at most half, of their gross revenue coming from digital sales. Those within the industry say that despite print's deterioration, directory companies are well positioned to sell advertising online in the local and small-business markets and that, combined with new services such as online reputation management and some print sales, presents an opportunity for the industry. "This isn't a yellow-pages story," said Local Search Association President Negley Norton, whose association, once called the Yellow Pages Association, is transitioning away from the big books. Instead, he said, it is a story about how directory companies can better serve "these overwhelmed and underserved businesses" in the small business and local markets. He says this advertising could be worth as much as $50 billion, and newly branded directory companies--digital advertising agencies, local marketers or search engine marketers--are well-equipped to capture the market. "That's the opportunity we see," he said. But Internet advertising is more competitive and less profitable than print once was for these companies. So, as Simonton points out, it is hard to see a point where "digital growth offsets print declines at a margin that's anywhere near what the historical margins were in the business." In its annual filing with the U.S. Securities and Exchange Commission, Dex One said its "primary digital competition" includes major Internet search engines such as Google, Yahoo, and Bing. SuperMedia's report includes Facebook and Twitter as competitors with "significantly greater technological and financial resources than we do, and their accumulated customer information allows them to offer targeted advertising on a scale greater than ours." So, even if directory companies are able to capture a larger portion of the local market, it might not be enough. The "virtually unlimited online advertising inventory" has changed the game, a recent Fitch marketing report said, by indefinitely driving down the prices the prices of advertising. "It's not clear if this business will ever turn the corner," Simonton said. (Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.) -By Stephanie Gleason, Dow Jones Daily Bankruptcy Review; 202-862-1347; [email protected] --Greg Bensinger contributed to this article.