Summary
Embattled trucking giant YRC Worldwide is asking its shareholders to give up 95 percent ownership in the trucking company to lenders in what it calls a "final step" in its recovery plan. One analyst called the deal a "train wreck hitting the school bus full of kids and nuns" for shareholders, who caused a massive selloff in the stock in one day of more than 60 percent to $1.32 a share.
Analysis
Now we finally know who is going to be responsible for bailing out financially ailing LTL company YRC Worldwide: its stockholders.
YRC finally came clean in details of its debt exchange agreement with credit holders. At the expense of current shareholders who would surrender 95 percent ownership of the trucking giant, unsecured lenders would receive majority ownership in the company.
YRC stockholders stampeded to unload the stock, which dropped 64 percent in the day the agreement was announced. YRC stock sank to $1.32 a share, falling $2.33 in one day.
Jason Seidl, a longtime follower of YRC as an analyst for Dahlman Rose & Co., said the deal's details caught him by surprise.
"I had no idea it would be this large," Seidl is quoted by the Kansas City Star Web site. "I didn't see the train wreck hitting the school bus full of kids and nuns."
The deal is yet to be approved by shareholders. That will come at a special shareholders' meeting at a time and date to be announced.
The deal would erase $5328.6 million in debt owed to unsecured lenders. In exchange, YRC would get to tap into a new $106 million line of credit from its consortium of lenders. YRC would not have to pay any additional interest on its unsecured debt, forestalling another $25 million in interest and fees.
"This is something we've been talking about for most of the year in terms of the final step in our comprehensive play," YRC CEO Bill Zollars said. "We think this is going to create a situation where the company has a much stronger balance sheet and a lot more flexibility when it comes to liquidity."
YRC, which has shrunk from a $9 billion company to a company with about $5 billion in revenue the past 12 months, is sagging under its debt load. That is because of two purchases engineered by Zollars during the earlier part of this decade. YRC bought rival Roadway for $1.1 billion in 2003. It followed up that purchase with a $1.25 billion acquisition of regional trucking company USF Corp. in 2005.
When the trucking recession began in August of 2006, YRC struggled under that debt load as shippers retreated from heavy freight use. YRC has lost in excess of $2 billion in the last 10 quarters, including a $158.7 million loss in the most recent third quarter, a time when many trucking companies are reporting higher earnings. YRC has lost $741.5 million in the first nine months of this year as some of its operating units are reporting tonnage declines of as much as 35 percent.
The latest deal would create more than 1 billion new shares of stock on top of the 60 million currently owned by shareholders. Once those new shares are issued, current shareholders would own about 5 percent of the company. It needs shareholders' approval because it currently does not have authority to issue that much new stock. Under the plan, YRC's 40,000 or so Teamster employees also would receive stock options, though it is unclear how much those options would ultimately be worth.
The deal's details were panned on Wall Street, which greeted the news with a massive selloff of YRCW stock. Standard & Poor's Corp. cut YRC's debt rating to CC from CCC, calling the credit-stock swap "a distressed-debt exchange tantamount to a default."
Whether the deal ultimately "saves" YRCW is another issue. Shippers, at least some smaller ones, appear to be bolting YRCW, as rivals such as FedEx Freight, UPS Freight, Con-way and others are cutting rates in a bid to skim off some of YRCW's best customers. This is causing massive discounting in the LTL sector, a $34.5 billion part of the $680 billion trucking industry, which has been in a three-year slump as a result of the industrial recession and poor rates.
