Banking on recent stock market gains and improved earnings, YRC Worldwide is preparing to sell up to $350 million in securities to help drive down debt. The $4.9 billion less-than-truckload operator filed a preliminary prospectus describing a potential offering with the U.S. Securities and Exchange Commission on July 22.
The prospectus sets the stage for what could be a series of stock or securities offerings that could run as high as $350 million. YRC Worldwide said the offerings could involve a combination of various types of debt securities or common stock sold from “time to time” — with no specific target date or amounts set in stone.
Nevertheless, the prospectus shows the company believes it's making significant progress in its drive to return to sustainable profitability after suffering $3.1 billion in cumulative annual net losses from 2007 through 2012. At the depths of the company's troubles in 2009 and 2010, speculation about a YRCW bankruptcy centered not around if but when. Last year, the $4.9 billion company reported its first operating profit since 2007 — $24.1 million.
The $350 million stock offering would be YRC Worldwide’s first major securities deal since a $470 million debt-for-equity swap in 2009 and a $500 million restructuring in 2011 that marked the departure of the management team led by William Zollars and the return of James Welch to YRC Worldwide as CEO.
Company officials weren't immediately available to comment on the prospectus. YRC Worldwide will release its second quarter earnings on July 29.
Under Welch, YRC Worldwide has been streamlined and reorganized, with Jeff Rogers in charge of restructuring a renamed YRC Freight. The organization shifted focus from managing global supply chains for customers to moving LTL freight in North America. YRC’s three regional LTL carriers increased their profits.
YRC Worldwide cut its consolidated net loss 70 percent and 59 percent year-over-year in the first quarter of 2013 and the 2012 fourth quarter, after reporting a bare $3 million net profit in last year's third quarter — its first net profit based on operations, not financial restructuring or a debt-for-equity swap, in years.
The company’s steady gains in operations and earnings, though still short of profitability, have not gone unnoticed on Wall Street. YRC Worldwide stock traded under $8 a share until May, before surging toward a July 11 peak of $35.79 a share, a 377 percent increase over the $7.49-a-share price on May 1.
Reports that YRC Worldwide, the nation's second-largest LTL operator, flirted with acquiring Arkansas Best, owner of the sixth-largest LTL carrier this spring, and a profile depicting Welch as a turnaround CEO in the July 17 edition of The Wall Street Journal also kept a market buzz humming that certainly didn’t hurt the company.
YRCW's stock price dropped closer to $30 in late July, but even before the prospectus was released, a Wall Street analyst said YRC’s share value is likely to grow. “Several possibilities exist for where YRCW’s stock may end up, ranging from $37 to the mid-$50s,” Thomas Albrecht of BB&T Capital Markets told investors.
Much depends on what YRC Worldwide does to reduce its $1.37 billion debt — one of the roadblocks facing the company in its long-term struggle for survival. “We believe YRCW's capital structure will see dramatic changes within the next few quarters, thereby seeing more of a balance in its EV (enterprise value) between debt and equity,” Albrecht said in a July 22 note to investors.
The value of YRC Worldwide’s stock is likely to grow, Albrecht said, “as the debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio drops, similar to what has occurred at Swift Transportation.” That ratio has dropped from 13.2 times in the third quarter of 2011 to 4.8 times in the first quarter, the analyst said.
A $350 million offering could reduce YRC Worldwide’s debt to close to $1 billion. Further refinancing assistance from the company’s lenders could lower debt further. In several interviews, Welch expressed his belief that the debt burden would ease substantially as YRC improved its earnings and attracted more investors.
“If we can move the company forward and make consistent progress, there will be opportunities along the way to convert additional debt to equity,” Welch told the JOC last year. “That’s when we will have an opportunity to really deleverage this company and start to build equity and start to attract a different kind of investor.”