YRCW announced that it has firmed up its restructuring plans, and investors ran for the doors.
But the deal has some upside for the struggling LTL. YRCW, technically in default under its credit agreements, announced that it had fallen short of the goals it announced after it won additional concessions from the Teamsters in Q3/10. At that time, the company expected to raise $300m in fresh equity, replace a “substantial” amount of its $1.1b in debt, and leave some equity for the shareholders.
Shares will be substantially diluted as the company raised only $100m of expensive convertible debt (versus its $300m equity goal) and swapped about 12% of its debt for convertible debt (guidance was for a “substantial” debt for equity swap).
The good news is that, if the deal closes, the company will no longer be in default with its lenders and will have a little breathing room to find a new CEO & CFO, deal with its legal challenges and figure out how to deliver profitability. The company’s CEO has announced that he will step aside and the CFO left in March.
The legal challenges are two: a class action lawsuit brought by investors who feel current management materially misled investors and, more significantly, a $750m claim from rival ABF that the Teamsters’ concessions granted to YRCW are a violation of the National Freight Agreement. To its credit, YRCW won an earlier court decision tossing the case, but ABF appealed the decision and has requested the appointment of an independent panel to decide on this question (as it had done in round 1).
On the more complicated issue of profitability, with the lenders effectively taking control of the company, YRCW may now have access to additional debt to catch up on much needed IT and rolling stock CapEx spending. The restructuring also extends the company’s pension contribution holiday and gives it time to arrange more permanent relief from a substantial amount of its
pension fund obligations.
Most LTL analysts are forecasting tonnage growth throughout 2011 but none expect the rates or volumes that YRCW need to return to profitability for at least a year so the liquidity the deal offers is much needed. And YRCW is organizing to win when profitability returns. The company announced plans to hire 100 additional salespeople and add 1,000 additional drivers for Holland this year. Meanwhile, the company continues to shed truck terminal capacity under a long term program to right size the company.
Ted Morandin
410 349 9002
Morprop (www.morprop.com) provides advice to investors and their advisors regarding industrial transportation real estate. In addition to real estate expertise, Morprop’s directors include former senior transportation executives from Yellow Corporation (now YRCW), Purolator, Conway, FedEx Freight and Vitran. Morprop also provides research and management services to the ITPN (www.itpnetwork.com), the largest transportation real estate network in North America. Network brokers have an average of approximately 20 years of industrial real estate brokerage experience in their local markets and a deep understanding of transportation real estate. The brokers in the network have moved hundreds of transportation real estate assets and have significant liquidation experience in the sector.
