U.S. trucking giant YRC Worldwide
The deal announced on Thursday gives noteholders 94 percent of the equity in YRC, diluting existing shareholders, news that sent YRC stock down to an 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, Baird U.S. Equity Research analyst Jon Langenfeld said in a note to investors.
The deal is due to close January 5.
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 debt exchange means new life for Overland Park, Kansas-based YRC, which warned on Wednesday that it might be forced to file for bankruptcy and potentially liquidate if noteholders did not agree to the swap.
There is still work to do for sure, but this is a major step and one that I think we can build on, YRC CEO Bill Zollars said in an interview with Reuters.
After several unsuccessful attempts at convincing bondholders to make the swap, YRC said on Thursday that it had swayed holders of 88 percent of the company's outstanding notes. Among that group are holders of 70 percent of YRC's 8-1/2 percent notes, the minimum threshold for making the swap work.
It was that group of noteholders who had been holding up the exchange. Many who were believed to be holding credit default swaps that would pay out in the event of YRC's failure came under public pressure in recent days from the International Brotherhood of Teamsters, which represents about 30,000 YRC workers.
It's wrong for the sake of money to hold out. Not tendering would have tanked this company, Teamsters General President Jim Hoffa said. That was our message to Wall Street.
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.
It most immediately needs to come up with $45 million to satisfy its obligations to the remaining 8-1/2 percent noteholders, said Zollars.
But the debt relief is enough to appease anxious lenders and give the company more time to restructure.
YRC said it will now be able to defer $19 million of fourth-quarter lender interest and fees, and gain access to $159.8 million in revolver reserves. Also, YRC said it expects to defer lender interest and fees of $20 million to $25 million per quarter during 2010.
While analysts welcomed the news, they warned that the company still faces many challenges, including recovering customers who fled to lower-priced, more stable competitors.
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.
Moody's Investors Service said Thursday it changed its rating outlook to stable from negative, though it remained concerned about YRC's ability to improve its financial condition over the longer-term, and noted much of YRC's liquidity relief, such as interest and pension plan payment deferrals, expire at the end of 2010.
YRC, which is the largest U.S. trucking company 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.
YRC shares were off 15 percent at 84 cents in afternoon trading, while YRC rivals, including Arkansas Best Corp
(Reporting by Carey Gillam with additional reporting by Doris Frankel in Chicago; editing by Dave Zimmerman and Tim Dobbyn)