YRC Has Until Yearend to Corral Bondholders, Avert Bankruptcy

Dec. 18 (Bloomberg) -- YRC Worldwide Inc. has less than two weeks to persuade bondholders to accept a debt exchange and prevent a bankruptcy filing that its employees’ union says may force the biggest U.S. trucking company to liquidate.

YRC, which has pushed back the deadline for the swap three times this month, must complete the tender by Dec. 31 to avoid a $19 million payment of interest and fees that would leave the trucker in an “unsustainable” position, the Overland Park, Kansas-based company said yesterday in a regulatory filing.

Bonds and shares fell yesterday as the company, which posted more than $1.7 billion in losses in the past five quarters, said the percentage of creditors who agreed to the exchange fell to 57 percent from 75 percent on Dec. 15. YRC, facing a slump in freight demand, is locked in a struggle with a group of bondholders who own derivatives that would profit if the company defaults, people familiar with the situation say.

“Bondholders are in the driver’s seat,” said David Ross, a Baltimore-based analyst at Stifel Nicolaus & Co. who has a “sell” rating on the stock. “They could force the company to file if they don’t tender enough notes, and then there is a high chance the business is liquidated.”

YRC took on debt when Yellow Corp. acquired Roadway Corp. in 2003 for $1.07 billion and then bought USF Corp. in 2005 for $1.37 billion. The company has $1.6 billion of loans and bonds, according to data compiled by Bloomberg.

Economy Not Helping

Chief Executive Officer Bill Zollars said during an earnings conference call on Oct. 30 that YRC wasn’t anticipating growth from the economy for the rest of this year, and at least the first half of 2010.

Concern is growing that the company wouldn’t survive a bankruptcy filing because customers would defect, said Iain Gold, a director in the strategic research department of the International Brotherhood of Teamsters, which represented about 40,000 YRC employees as of January.

“If you go into bankruptcy, or even just have a financial overhang that the company’s undergone recently, it’s tough to maintain customers when you’ve got competitors that are trying to underbid you on price,” Gold said.

YRC extended the deadline yesterday for the debt exchange offer to Dec. 23 and lowered the minimum participation rate for it to succeed to 80 percent from 95 percent, as the amount of bonds tendered declined. The company already postponed the exchange deadline on Dec. 9 and Dec. 16.

Bonds, Shares Fall

YRC’s $150 million of 8.5 percent notes due in April fell 1.25 cents on the dollar to 59.75 cents yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The shares declined 7 cents, or 6.8 percent, to 94 cents, after earlier rising as much as 15 percent, on the Nasdaq Stock Market.

The trucker must complete the exchange as part of agreements with its banks, the Teamsters and multi-employer pension funds, according to a Nov. 24 regulatory filing.

“YRC’s lenders have been more than accommodating,” Ross said. “The union workers have taken bigger wage and pension cuts than in the past. The issue is that they’ve had really poor senior management for many years, which made poor strategic decisions and overpaid for the acquisitions of Roadway and USF.”

Goldman Sachs

Zollars said in a statement that YRC is run by “the same management team that delivered four consecutive years of record earnings and revenue from 2003 to 2006.”

Holdouts to the debt exchange include investors that bought credit-default swaps to hedge their holdings and typically would get paid whether the company defaults or not, said the people, who declined to be identified because the discussions aren’t public.

Goldman Sachs Group Inc. was creating derivatives trades that would profit from a bankruptcy, Teamsters President James Hoffa wrote in a Dec. 16 letter to Lloyd Blankfein, chief executive officer of the New York-based bank.

Wall Street’s most profitable firm was “actively soliciting bond trades for clients and underwriting credit- default swaps to benefit from a failed exchange and resulting bankruptcy,” Hoffa wrote in the letter obtained by Bloomberg News.

Goldman Sachs spokesman Michael DuVally confirmed the bank received the letter and said in an interview yesterday that the firm was “actively exploring ways to help” YRC. He declined to elaborate on how the bank is helping.

“Goldman does not have a position in the company, nor are we making markets in the company’s bonds or credit-default swaps,” DuVally said Dec. 16.

‘Trading Here’

Goldman Sachs sent e-mails to debt investors at around 11 a.m. that day in New York, offering pricing levels on YRC bonds and credit-default swaps and saying that $25 million of the bonds and swaps were “trading here,” according to people familiar with the matter.

DuVally declined to comment further on YRC or the e-mails.

Credit-default swaps are financial instruments based on bonds and loans that are used to hedge against losses or to speculate on a company’s ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net; Pierre Paulden in New York at ppaulden@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net