Trucker YRC's debt exchange succeeds, shares drop
U.S. trucking giant YRC Worldwide said on Thursday it averted bankruptcy by successfully negotiating a critical debt-for-equity exchange that wipes out $470 million in debt and gives the struggling company access to needed credit as it restructures.
This doesn't guarantee them survival but it gives them a shot, said Dahlman Rose analyst Jason Seidl. They are still in a very difficult situation.
The deal will give noteholders 94 percent of the equity in YRC, news that sent shares down to all-time low of 80 cents early Thursday.
We do not believe there is equity value that remains in the company, supporting our $0 price target, said Baird U.S. Equity Research analyst Jon Langenfeld in a note to investors.
YRC said Thursday that holders of 88 percent of the company's outstanding notes had agreed to the swap, including 70 percent of YRC's 8-1/2 percent notes. It was that group of noteholders who had been holding up the exchange, and who have been publicly pressured in recent days by the company's union to agree to the deal.
On Wednesday, YRC had warned that if enough noteholders did not agree to the swap it might need to file for bankruptcy.
The diminished fears over a near-term bankruptcy filing triggered brisk options action in YRC January $1 puts Thursday.
YRC shares at mid-morning were off 14 percent at 85 cents. YRC rivals, including Arkansas Best Corp , Con-way Inc , and Old Dominion Freight Line fell more than 8 percent on the news of fresh life for YRC.
YRC has been working to restructure for over a year and hinged much of its hopes on relieving itself of $536.8 million owed to its bondholders. The successful exchange of $470 million in notes leaves YRC still facing more than $66 million it will need to come up with to make remaining noteholders whole.
But the debt relief is enough to appease anxious lenders and give the company more time to restructure.
The success of this note exchange marks a major turning point for YRC Worldwide, said YRC CEO Bill Zollars in a statement. With our significantly restructured balance sheet and enhanced liquidity, we will move forward from a more solid financial foundation.
Under the terms of the swap, YRC said it will issue to tendering noteholders approximately 37 million shares of common stock and 4.346 million shares of Class A convertible preferred stock which, together on an as-if converted basis, will represent approximately 94 percent of the company's total issued and outstanding common stock.
YRC said it will now be able to defer $19 million of fourth-quarter lender interest and fees, and will have access to $159.8 million in revolver reserves. As well, YRC said it expects to defer additional lender interest and fees of $20 to $25 million per quarter during 2010.
While analysts welcomed the news, they warned that the company is still not on solid footing, and faces many challenges, including recovering customers who fled to lower-priced, more stable competitors, and stemming a cash bleed.
YRC may have dodged the bullet in the short term but longer term, uncertainty remains over the fate of the company, said WhatsTrading.com option strategist Frederic Ruffy.
YRC, which is the largest U.S. trucking firm handling smaller, or less-than-truckload shipments, has laid off thousands of workers and cut deals with labor and lenders over the last year trying to survive a downturn in the economy and a heavy debt load tied to a string of acquisitions.
(Additional reporting by Doris Frankel in Chicago)
(Reporting by Carey Gillam, editing by Dave Zimmerman)
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