Baird Equity Research is dropping its coverage of YRC Worldwide, as the trucking giant heads toward a financial restructuring that would gut its share value.
Baird’s decision to discontinue coverage of YRC anticipates the massive dilution in the value of current shareholder’s stock that would follow the July 22 restructuring.
The restructuring involves a debt-for-equity swap with YRC Worldwide’s banking group that would leave lenders holding 72.5 percent of the company’s shares.
Teamsters employees would get another 25 percent of the company’s stock, leaving only about 2.5 percent in the hands of the company’s current shareholders.
Analysts forecast the stock will drop to 5 cents a share or less. YRC’s stock has been on a roller-coaster ride over the past two weeks, propelled by short-selling.
The stock rose from 60 cents a share June 20 to $1.76 a share June 27 before dropping to $1.11 on June 29. It climbed back above $1.20 a share July 1.
“This round of restructuring converts more debt to equity and infuses new capital to the business,” Baird analyst Jon A. Langenfeld said in a July 1 note to investors.
However, “YRC still faces an underinvested capital structure, a lower industry service point perception, and an under-compensated employee base,” he said.
With the restructuring, the company’s near-term financial prospects will improve, Langenfeld said, but YRC’s long-term prospects “remain uncertain.”