By Carey Gillam
OVERLAND PARK, Kan., Nov 2 (Reuters) - Shares of major U.S. trucking company YRC Worldwide sank 64 percent on Monday after the company revealed that a debt exchange offer it is making may lead to the issue of a massive number of new shares and hand over the bulk of the company to noteholders.
Based on the terms of the offer, which is seen as vital for the survival of the company and is a contingency for several lender agreements, YRC may have to issue up to 1.6 billion new shares, or nearly 27 times the about 60 million currently outstanding, analysts said.
Shares closed down 64 percent at $1.32 on the Nasdaq on Monday after YRC revealed details of the exchange offer, and said it would move immediately to seek shareholder approval.
'We think that YRCW is down to the last bullet in its gun as evidenced by the dilution associated with this proposed debt-for-equity swap,' RBC Capital Markets analyst John Barnes wrote in a note to investors on Monday.
'We continue to believe that the concessions granted it by its bank group and potentially other stakeholders is only acting to delay the inevitable.'
But many analysts generally viewed the debt exchange as beneficial to the No. 1 U.S. less-than-truckload (LTL) carrier, which has been struggling to stay out of bankruptcy, though some thought it might not be enough to keep the company afloat.
'While the exchange offering might not be great for current shareholders, we believe YRC has significantly increased its ability to avoid bankruptcy if the exchange offer is accepted by bondholders,' said Longbow Research analyst Lee Klaskow.
'The transaction would help strengthen YRC's balance sheet and increase shippers' confidence in YRC's long-term viability in our view.'
YRC has insisted it is restructuring its finances in a way that will allow it to rebound from a host of financial woes.
'This group understands our comprehensive plan and the long-term value of this company,' said YRC Chairman Bill Zollars of the bondholders. 'The completion of the note exchange is an important milestone in our plan, which is expected to improve our cash flow and capital structure.'
The company said on Monday it would launch the exchange offer this week for holders of its contingent convertible notes and an 8.5 percent note issue. If successful, the exchange would allow the company open access to an existing $106 million revolver reserve and to begin deferring payment of lender interest and fees of approximately $25 million per quarter.
Noteholders would exchange approximately $536.8 million of face value of the notes plus accrued and unpaid interest for shares of common stock and new Class A convertible preferred stock, which together on an as-if converted basis would represent 95 percent of the company's common stock.
YRC said it was planning to offer 5 million shares of preferred stock with an aggregate face amount of $250 million, and no less than 42 million shares of common stock.
There would be a provision for options to be granted to the company's union employees.
'Existing shareholders are screwed,' said Dahlman Rose analyst Jason Seidl. 'The company is going to do everything it can to survive,' he said.
Overland Park, Kansas-based YRC needs at least 95 percent of its bondholders to convert by Dec. 16 or it must seek further lender agreements as a range of the extensions and credit arrangements depend on a successful exchange.
YRC said upon receipt of the shareholder approval, each share of preferred stock will convert into shares of common stock, at a rate equal to 220.22 shares of common stock per $50 of liquidation preference of the preferred stock, representing an initial conversion price of $0.227 per share.
All shares of preferred stock must convert within 18 months following shareholders' approval.
With the company effectively owned by its YRC's noteholders if the exchange goes through, seven existing directors on the YRC board would resign. Four would be replaced by the company from a group of noteholder nominees, and three would be chosen by YRC management.
Standard & Poor's Ratings Services responded to the news by lowering its corporate credit rating on YRC, and placing the ratings on Creditwatch with 'negative implications.' Keywords: YRC EXCHANGE/SHARES (carey.gillam@thomsonreuters.com; +1 913 663 2658; Reuters Messaging: carey.gillam.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
OVERLAND PARK, Kan., Nov 2 (Reuters) - Shares of major U.S. trucking company YRC Worldwide sank 64 percent on Monday after the company revealed that a debt exchange offer it is making may lead to the issue of a massive number of new shares and hand over the bulk of the company to noteholders.
Based on the terms of the offer, which is seen as vital for the survival of the company and is a contingency for several lender agreements, YRC may have to issue up to 1.6 billion new shares, or nearly 27 times the about 60 million currently outstanding, analysts said.
Shares closed down 64 percent at $1.32 on the Nasdaq on Monday after YRC revealed details of the exchange offer, and said it would move immediately to seek shareholder approval.
'We think that YRCW is down to the last bullet in its gun as evidenced by the dilution associated with this proposed debt-for-equity swap,' RBC Capital Markets analyst John Barnes wrote in a note to investors on Monday.
'We continue to believe that the concessions granted it by its bank group and potentially other stakeholders is only acting to delay the inevitable.'
But many analysts generally viewed the debt exchange as beneficial to the No. 1 U.S. less-than-truckload (LTL) carrier, which has been struggling to stay out of bankruptcy, though some thought it might not be enough to keep the company afloat.
'While the exchange offering might not be great for current shareholders, we believe YRC has significantly increased its ability to avoid bankruptcy if the exchange offer is accepted by bondholders,' said Longbow Research analyst Lee Klaskow.
'The transaction would help strengthen YRC's balance sheet and increase shippers' confidence in YRC's long-term viability in our view.'
YRC has insisted it is restructuring its finances in a way that will allow it to rebound from a host of financial woes.
'This group understands our comprehensive plan and the long-term value of this company,' said YRC Chairman Bill Zollars of the bondholders. 'The completion of the note exchange is an important milestone in our plan, which is expected to improve our cash flow and capital structure.'
The company said on Monday it would launch the exchange offer this week for holders of its contingent convertible notes and an 8.5 percent note issue. If successful, the exchange would allow the company open access to an existing $106 million revolver reserve and to begin deferring payment of lender interest and fees of approximately $25 million per quarter.
Noteholders would exchange approximately $536.8 million of face value of the notes plus accrued and unpaid interest for shares of common stock and new Class A convertible preferred stock, which together on an as-if converted basis would represent 95 percent of the company's common stock.
YRC said it was planning to offer 5 million shares of preferred stock with an aggregate face amount of $250 million, and no less than 42 million shares of common stock.
There would be a provision for options to be granted to the company's union employees.
'Existing shareholders are screwed,' said Dahlman Rose analyst Jason Seidl. 'The company is going to do everything it can to survive,' he said.
Overland Park, Kansas-based YRC needs at least 95 percent of its bondholders to convert by Dec. 16 or it must seek further lender agreements as a range of the extensions and credit arrangements depend on a successful exchange.
YRC said upon receipt of the shareholder approval, each share of preferred stock will convert into shares of common stock, at a rate equal to 220.22 shares of common stock per $50 of liquidation preference of the preferred stock, representing an initial conversion price of $0.227 per share.
All shares of preferred stock must convert within 18 months following shareholders' approval.
With the company effectively owned by its YRC's noteholders if the exchange goes through, seven existing directors on the YRC board would resign. Four would be replaced by the company from a group of noteholder nominees, and three would be chosen by YRC management.
Standard & Poor's Ratings Services responded to the news by lowering its corporate credit rating on YRC, and placing the ratings on Creditwatch with 'negative implications.' Keywords: YRC EXCHANGE/SHARES (carey.gillam@thomsonreuters.com; +1 913 663 2658; Reuters Messaging: carey.gillam.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.