YRC extends tender offer

Amid growing concerns over customer defections, troubled LTL carrier pushes back debt-for-equity swap deadline.

By Mark B. Solomon

YRC Worldwide, Inc., said today that it is extending until the end of the day an offer to its bondholders to swap more than $530 million in debt for one billion newly issued equity shares and effective control of the troubled less-than-truckload carrier.

The extension, the fourth in about a month, comes as YRC inches closer to obtaining the bondholder approval necessary for its lenders to free up $106 million in a revolving credit line. YRC needs the funds to make $19 million in interest and fee payments due Dec. 31. Without those funds, YRC will be unable to meet its obligations and could file for bankruptcy protection as early as New Year's Eve.

As of the most recent deadline of Dec. 28, 81 percent of the company's outstanding bonds had been tendered, YRC said. That was up from 80 percent five days prior, the company said.

The sticking point appears to be getting enough investors holding bonds issued by YRC's regional subsidiary to agree to the swap. As of Dec. 28, 53 percent of those bonds had been tendered, roughly unchanged from five days ago but significantly higher than the 35-percent acceptance rate on Dec. 15.

Analysts believe YRC needs to have at least 70 percent of the holders of YRC regional bonds accept the offer. Analysts at JPMorgan Chase said on Dec. 24 that the company needs to bring in $26 million more of the notes to reach that 70 percent acceptance threshold. The analysts said the goal is an "achievable target" because the outstanding notes are held by just a few investors.

As the tender offer saga becomes more protracted and complex—involving the Teamsters union, large Wall Street investment houses and New York State Attorney General Andrew Cuomo— the increasing uncertainty over YRCs survival is giving rise to concerns over customer defections.

In its Christmas Eve research note, JPMorgan analysts said the "drawn-out process is probably taking a toll on [YRCs'] customers who are dealing with uncertainty" over the company's prospects.

Morgan said the "loss of customers over the past month appears likely to be another source of pressure" on the company's effort to remain viable even if it survives the debt-for-equity exchange process.

David G. Ross, transport analyst for investment firm Stifel Nicolaus & Co., said that his firm has heard from numerous truckers that an increasing number of YRCs customers have switched carriers in recent weeks. Many of these switches are largely because the debt-for-equity exchange "did not go through like they told shippers it would," says Ross. However, Ross added that no data currently exists to quantify the extent of the shipper defections.

A spokeswoman for YRC was unable to get comment from the company at press time on concerns over possible shipper defections.

An executive with close ties to the trucking industry told DC Velocity that two major shippers, who could not be identified, have switched all of their business from YRC. The two shippers were heavy users of the former Roadway Express, which was acquired by YRC in 2003 and then combined with the former Yellow Transportation to form YRC's new national less-than-truckload unit, YRC National.

Both the acquisition of Roadway and the subsequent integration with Yellow have since been heavily criticized as being too expensive, poorly executed and too slow to take shape.

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