Yellow debt downgraded

Yellow debt downgraded

Copyright 2003, Traffic World, Inc.

Two major investor ratings services are downgrading the debt ratings of Yellow and Roadway in anticipation of the additional debt the truckers are expected to take on as a result of their pending merger.

Moody''s Investors Service downgraded Yellow Corp.''s senior unsecured rating to Ba2. Moody''s also assigned a Baa3 rating to $675 million of secured bank credit facilities that would be available to Yellow following its $1.1 billion acquisition of Roadway Corp., expected to close this month.

In a related action, Moody''s downgraded the rating on Roadway''s $225 million senior notes to Ba1 from Baa3 in anticipation that the acquisition will close. The rating outlook is stable.

Moody''s said it took its action because of the debt structure of the new company and other factors. It said Yellow earned a stable rating because the new $6 billion trucking giant will be a "significant participant" in the nation''s transportation infrastructure as the largest independent LTL trucker, good financial performances by Yellow and Roadway recently and other factors.

Similarly, Standard & Poor''s Ratings Services said it plans to assign a BBB rating to Yellow Corp.''s proposed $130 million senior unsecured convertible notes due 2023 and placed the rating on CreditWatch with negative implications. Ratings on Yellow (BBB/Watch Neg/A-2) remain on CreditWatch with negative implications, where they were placed following Yellow''s July 8 acquisition announcement. The cash portion of the acquisition will be funded with the proceeds from this issuance along with the proceeds from the company''s $250 million of convertible notes issued last August and the company''s new bank facility.

"The outlook will be negative," said Standard & Poor''s credit analyst Kenneth L. Farer. "The expected rating on Yellow-Roadway is lower than the current corporate credit ratings on Yellow and Roadway due to the increased debt levels and weaker financial profile of the combined entity," the analyst said.

In addition, the senior unsecured rating on the company''s outstanding debt and on the convertible notes will be BB+, one notch below the corporate credit rating due to the significant amount of secured debt relative to assets, S&P said.