YRC Worldwide Inc.'s long-awaited next step in its restructuring plan, announced late Friday, infuses the troubled less-than-truckload (LTL) carrier with more than $100 million in needed liquidity. The deal, however, will dilute the value of the company's existing stock to just pennies per share.
The agreement, approved virtually unanimously by the company's lenders, multi-employer pension funds, and the Teamsters union, also calls for YRC's debt-holders to exchange $165 million in debt for a 72.5-percent equity stake in the company. Under the plan, the company's 25,000 Teamsters members will retain a minority equity ownership in YRC.
In a statement, John Lamar, YRC's chief restructuring officer, said the agreements set a "solid foundation for long-term success." Lamar said the company remains on track to complete the comprehensive restructuring by the end of July.
"Saving the jobs of our 25,000 freight members at YRCW remains our number one priority so we welcome this news today," Teamster General President James P. Hoffa said in an April 29 statement. "These agreements and the support of the company's primary stakeholders represent a significant step forward in the company's restructuring plan and help to assure the continued momentum of the transaction. We will continue to be involved every step of the way to make sure this plan is completed and our members continue behind the wheels and on the docks."
However, the new agreement is so dilutive to existing shareholders that by July, they will hold only about 2.5 percent of YRC's outstanding stock. Anthony J. Alfidi, founder and CEO of his own San Francisco-based investment firm, said that based on YRC's closing stock price on Friday of $1.98 a share, reducing existing shareholders' stake in the company to 2.5 percent will have the effect of driving down the value of YRC shares to less than 5 cents a share.
By announcing a plan to "cancel the company's massive debts by using massive amounts of new equity" to bondholders, Alfidi, who has long been critical of the restructuring, said the deal is "confirmation of the company's ability to eke out an existence that defies reality."
Jon A. Langenfeld, transport analyst for Milwaukee-based Robert W. Baird & Co., was equally skeptical, openly questioning in a research note today the rationale for YRC's lenders agreeing to another round of restructuring.
"Our belief is that lenders have reacted to political and social pressure" to keep a large unionized employer afloat, Langenfeld wrote. The analyst also believes that YRC's creditors have concluded that the company is "too big to fail." Langenfeld contends YRC's shares are worthless and has issued a $0 price target on the shares.
Wall Street punished YRC on Monday, sending shares down nearly 24 percent to $1.51 a share.