YRC is seeking big concession by shareholders

Nov 03, 2009 (The Kansas City Star - McClatchy-Tribune Information Services via COMTEX) -- YRCW | Quote | Chart | News | PowerRating -- YRC Worldwide Inc. shocked its shareholders Monday by asking them to surrender 95 percent ownership of the embattled trucking company to its lenders as the "final step" in a recovery plan.

Investors drove down the Overland Park-based company's share price by 64 percent, more than on any day since at least 1980, according to Bloomberg News. The stock fell $2.33 and closed at $1.32 a share.

Analysts said shareholders may have little choice but to give up significant control as YRC works through debt problems and a cash squeeze amid the deep recession.

YRC, with 40,000 employees that include 1,000 non-union workers in the Kansas City area, has laid off thousands. It also has gained pay and benefit concessions from its remaining union employees, cut those for non-union workers, squeezed compromises out of its bankers and constructed an offer intended to settle matters with its unsecured lenders.

But Jason Seidl, an analyst at Dahlman Rose & Co. who has followed the company for years, said the proposed damage to shareholders announced Monday was a bigger train wreck than he had imagined.

"I had no idea it would be this large," Seidl said. "I didn't see the train wreck hitting the school bus full of kids and nuns."

YRC shareholders will be asked to approve the stock plan at a special shareholders meeting yet to be scheduled.

"This is something we've been talking about for most of the year in terms of the final step in our comprehensive plan," YRC chief executive Bill Zollars said Monday. "We think this is going to create a situation where the company has a much stronger balance sheet and a lot more flexibility when it comes to liquidity."

Its balance sheet would be free of $536.8 million in debt owed to unsecured lenders. It also would open the taps on $106 million in new cash from its bankers. YRC wouldn't have to pay the interest on the unsecured debt and could put off payment of $25 million in other interest payments and fees.

It would give those unsecured lenders a 95 percent ownership stake in the company.

Analysts said shareholders likely had little choice. Take 5 percent of what's left or be left with nothing.

This is because YRC has essentially been trying to take most of the restructuring steps that a company would take in a bankruptcy reorganization, but without resorting to going to court.

A bankruptcy could drive away shippers and other clients at a devastating pace. It also would likely wipe out any value for the company's stock.

Monday's announcement from the company offered shareholders a presumably less costly alternative.

"In the end, we view today's announcement as an out-of-court restructuring and a positive for (the company's) long-term viability, at the expense of current shareholders," analyst Lee Klaskow wrote in a report for Longbow Research.

In its announcement, YRC outlined a deal to swap new shares for the $536.8 million in notes its unsecured lenders hold. The deal would create more than 1 billion new shares on top of the 60 million current owners hold.

The company needs current shareholders' approval because it doesn't have the authority to issue that many new shares. Once it does issue them, existing owners' stake would be diluted to only 5 percent ownership.

YRC's plan also would provide stock options to its union employees.

Unsecured lenders typically receive stock when a company is able to reorganize in a bankruptcy proceeding.

Standard & Poor's Corp. cut its rating on YRC debt to CC from CCC, citing the offer to swap stock for the debt as "a distressed-debt exchange and tantamount to a default."

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