Fitch Downgrades YRC Worldwide's IDR to 'C' and Withdraws Ratings

Fitch Ratings has taken the following rating actions on YRC Worldwide Inc. (YRCW) and withdrawn all ratings:

--Issuer default rating (IDR) downgraded to 'C' from 'CC';

--Secured bank credit facility rating downgraded to 'CCC/RR2' from 'B-/RR2';

--Senior unsecured rating affirmed at 'C/RR6'.

In addition, Fitch has removed YRCW's ratings from Rating Watch Negative.

The rating actions follow YRCW's announcement on April 29, 2011 that it had entered into a support agreement with certain of the company's lenders on a package of actions that will constitute an out-of-court restructuring of the company. As detailed in the agreement, the transaction reduces the company's outstanding debt obligations and increases its liquidity. However, Fitch views the exchange of new equity for a portion of the outstanding bank debt obligations (including deferred interest and fees) as a coercive debt exchange (CDE) according to Fitch's CDE criteria. In addition, although it appears increasingly likely that the company will successfully complete the restructuring, until the transactions constituting the restructuring close, which is not anticipated until late July 2011, there exists a potential for the transaction to fail, in which case Fitch expects the company would be forced to file for Chapter 11 bankruptcy protection.

Although YRCW's lenders will receive a majority ownership stake in the company following the restructuring, as well as governance control with a two-thirds majority on the Board of Directors, the transaction qualifies as a CDE according to Fitch's published criteria. The latest round of concessions in the company's labor agreement with the Teamsters is contingent upon the company's lenders accepting at least a $300 million reduction in principal and fees owed to them. Not reducing the level of bank debt owed would have nullified the concession agreement with the Teamsters, which could have resulted in a liquidity crisis that would have put the company into bankruptcy. Although the lenders had, and continue to have, a first priority interest in most of the assets of the company, a bankruptcy would have been complicated and likely would have resulted in a delay in recouping amounts owed to them, likely leaving participation in the out-of-court restructuring a better, but not ideal, option.

Although the restructuring will result in modestly lower debt on YRCW's balance sheet, along with extended maturities and somewhat increased cash liquidity (assuming the lenders purchase the $100 million in new secured convertible notes), Fitch notes that YRCW will continue to face significant operational challenges and its post-restructuring leverage will remain high. Ultimately the company will need to strengthen its operational profile such that it can generate positive free cash flow on a sustainable basis. Until that time, the company will continue to run the risk of another liquidity crisis, and given that it has already undertaken essentially two out-of-court restructurings, it is likely that another liquidity squeeze would result in a bankruptcy. Fitch also notes that an adverse decision in the lawsuit brought against the company and the Teamsters by Arkansas Best Corporation still could force YRCW into a bankruptcy filing. It appears that a decision in that case will be reached in July 2011, around the time that the restructuring transaction is completed.

From a credit perspective, the key piece of the restructuring transaction involves the exchange of new convertible preferred stock, which will automatically convert into new shares of common stock equal to a 72.5% ownership stake, and $140 million of new convertible secured notes in exchange for a $305 million reduction in outstanding principal, interest and fees owed on the company's secured credit facility (which consists of both a term loan and a revolving credit facility). YRCW estimates that as of June 30, 2011, prior to the closing of the restructuring transaction, there will be $247 million in principal outstanding on the term loan and $134 million in principal outstanding on the revolver, for a total of $381 million in credit facility debt outstanding. In addition, the company estimates that, as of June 30, 2011, it will owe the lenders $166 million in deferred interest and fees, bringing the total amount owed on the credit facility to $547 million.

To facilitate the reduction in the amounts owed on the credit facility, YRCW will enter into an amended term loan with an estimated $242 million in principal outstanding (which equals the estimated $547 million owed to the banks at June 30, 2011, less $305 million). An estimated $483 million in outstanding letters of credit (LCs) issued against the existing revolver will remain in-place under the amended facility. The maturity of the amended credit agreement has been extended to March 31, 2015 from Aug. 17, 2012. The maturity of the $140 million in new convertible secured notes that will be issued to the banks also will be March 31, 2015. In addition to the new secured convertible notes that will be issued in exchange for a portion of the reduction in outstanding bank debt, YRCW also will offer the lenders the opportunity to purchase an additional $100 million in new secured convertible notes due March 31, 2015, proceeds of which will provide additional liquidity that the company may use at its discretion.

In terms of the other debt currently outstanding on YRCW's balance sheet, there will be no changes to any of the company's convertible notes, including the 6% notes due 2014, the 3.375% notes due 2023 or the 5% notes due 2023. The agreement in principle signed in February 2011 included a provision that would have exchanged equity for the principle owed on the convertible notes, but this provision has not been included in the support agreement. The approximately $152 million secured note owed to certain of the multi-employer pension plans to which the company contributes will have its maturity extended to March 31, 2015, with accrued interest and fees deferred until maturity. Currently, the pension note requires full repayment over the course of 2011 and 2012. In addition, the approximately $235 million of borrowings and LCs outstanding on YRCW's existing asset backed securitization (ABS) facility will be refinanced with proceeds from a new asset backed loan (ABL) facility.

In addition to the 72.5% of the company's post-restructuring equity that will be held by YRCW's lenders, an additional 25% ownership position will be granted to the company's Teamster-represented employees, leaving existing shareholders with a 2.5% ownership stake. All of these figures will be subject to dilution, however, from shares that could be granted as part of a new management incentive plan, as well as shares associated with both sets of new convertible notes. On top of their majority ownership position in the company, the lenders also will have the opportunity to nominate six members of the company's new nine member Board of Directors, with the other three directors consisting of two directors nominated by the Teamsters and the post-restructuring Chief Executive Officer.

The rating of 'CCC/RR2' on the company's secured credit facility reflects its substantial collateral coverage and superior recovery prospects in the 70% to 90% range in a distressed scenario. On the other hand, the rating of 'C/RR6' on the company's unsecured convertible notes reflects Fitch's expectation that recoveries on those notes would be poor, in the 0% to 10% range in a distressed scenario. The low level of expected recovery for the unsecured debt is due to the substantial amount of higher-priority secured debt in the company's capital structure.

For more information regarding YRCW's ratings may be found in Fitch's rating action commentary titled, 'Fitch Affirms YRC Worldwide's IDR at 'CC', dated Feb. 11, 2011 and the rating action commentary titled, 'Fitch Places YRC Worldwide's Ratings on Rating Watch Negative', dated March 1, 2011.

Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the ratings process other than through the medium of public disclosure.

Applicable Criteria and Related Research:

--2011 Outlook: U.S. Transportation (Dec. 17, 2010);

--Evaluating Corporate Governance (Dec. 16, 2010);

--Analysis of U.S. Corporate Pensions (Dec. 1, 2010);

--Corporate Rating Methodology (Aug. 13, 2010);

--Equity Credit for Hybrids & Other Capital Securities - Amended (Dec. 29, 2009);

--Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers (Nov. 29, 2009);

--Coercive Debt Exchange Criteria (March 3, 2009).

Applicable Criteria and Related Research:

Coercive Debt Exchange Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=427866

2011 Outlook: U.S. Transportation

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=589105

Evaluating Corporate Governance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=581405

Analysis of U.S. Corporate Pensions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=578365

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

Equity Credit for Hybrids & Other Capital Securities - Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493112

Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=489006

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