YRC avoids bankruptcy

Less than 24 hours before a possible bankruptcy filing, YRC Worldwide said it had been tendered enough debt to successfully engineer a swap of $530 million in bonds for more than 1 billion in newly issued equity to its investors. If that deal had failed, it would have greatly altered the less-than-truckload (LTL) landscape as YRC is the market's biggest player in the United States in terms of sales.

The agreement, reached early on New Year's Eve, gives bondholders effective control of the troubled trucker. All told, 88 percent of YRC bonds were swapped in return for debt. Critically, 70 percent of the bonds issued by YRC's regional unit were tendered. According to analysts, YRC needed to attain that threshold in order for the exchange to go through. However, as recently as four days ago, only 53 percent of those bonds had been tendered.

A successful debt-for-equity swap was necessary for YRC's lenders to free up $106 million in a revolving line of credit. Without those funds, YRC would likely have failed to make $19 million in debt and fee payments due today. Failure to meet those obligations likely would have forced the company to declare bankruptcy.

Analysts note that YRC still faces significant hurdles. These include the customer defections that occurred during a protracted deal process and a still-weak LTL operating environment. Additionally, 7 percent of the company's Teamster members—most of whom are based in Chicago—are refusing to authorize the benefit concessions that the company says it needs to remain financially viable.

In the near-term, however, a bankruptcy filing has been averted. Those rivals who were banking on YRC's exit to help tighten truck capacity and firm up rates now need to rethink their 2010 scenarios, according to analysts.