February 9, 2010
YRC Worldwide stock tanked on Wall Street this week as the company launched a debt-for-equity exchange one analyst compared to a “controlled bankruptcy.”
And Standard & Poor's put a cloud over the deal, cutting the company's credit rating and saying YRC Worldwide had effectively defaulted on its debt obligations with the swap.
S&P lowered its corporate credit rating to 'CC' from 'CCC' and put YRC Worldwide on its CreditWatch list. "Under our criteria, we view a formal exchange offer at a discount by a company under substantial financial pressure as a distressed-debt exchange and tantamount to a default," Standard & Poor's said.
YRC Worldwide’s stock plunged 64 percent to close at $1.32 per share Monday on news that the debt-for-equity swap could create more than 1.5 billion new shares. The share price then fell as much as 20 percent during trading on Tuesday
The deal would wipe out more than $500 million in debt represented by USF and other bond notes due next April — nearly a third of YRC Worldwide’s $1.6 billion debt load.
If they approve the deal, the bondholders could wind up with 95 percent of the company’s common stock.
Analysts say the deal is critical to YRC’s near-term survival, and that it would relieve — but not eliminate — the threat of bankruptcy. YRC Worldwide reported a $158 million loss in the third quarter, bringing its total losses this year to $741 million.
Some trucking analysts say the deal appears to bring long-sought financial breathing room to a company that has sought repeated extensions on debt covenants. However, more than one analyst compared the debt-stock swap to a virtual Chapter 11 reorganization.
“We view today’s announcement as an out-of-court restructuring and a positive for YRC Worldwide’s long-term viability, at the expense of current shareholders,” said Lee Klaskow, vice president and senior transportation and logistics analyst at Longbow Research.
For shareholders, the swap "effectively represents a controlled bankruptcy," Jon A. Langenfeld, an equities analyst with R.W. Baird & Co., said in a report Tuesday.
The debt exchange would trigger new lending and liquidity agreements with YRC Worldwide’s banking group that would further reduce the company’s costs and increase the amount of cash it could access to spend on operations.
YRC Worldwide hopes to complete the deal by mid-December. It begins negotiations with two groups of bondholders this week.
Contact William B. Cassidy at wcassidy@joc.com.
I wonder if there is a correlation between the quality of the services provided to ALL clients, both by operations and sales excecutives, with the success of companies such as YRC. I can't help being old fashioned and thing as such.
The teamsters and Bill Zollars would like to put the threat of bankruptcy rumors to rest once and for all. Fact of the matter is they are far from out of the woods and that comapnies in this sector with deeper financial pockets than YRC will continue to exert external pressure on YRC until their demise. Unfortunately the stockholders that beleived in their brand arethe big losers. Along with the hard working men and women of YRC who built this company. This controlled bankruptcy could fall apart by February, only time will tell. I see further erosion of their market share eventually leading to YRC"S demise.
Berkshire Hathaway announces total acquisition of BNSF, offering 30%+ more than the stock closed at on the previous day.
YRC begins "controlled bankruptcy" as Langenfeld puts it. Several other trucking companies, both LTL and Truckload, aren't earning enough for reinvestment if they're profitable at all.
Obviously the future of transportation is in an industry disciplined enough to keep its head above water (railroading) instead of doing what YRC and so many others in trucking are doing. I don't see Berkshire Hathaway making any big moves toward acquiring any trucking companies right now. The future is most definitely in railroading and if you aren't finding a way to use rail you'd best be working on it if you want to compete against those who have seen the light and make rail a part of their transportation plan.
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