Teamsters Request SEC Review YRC Credit-Default Swaps (Update3)

Dec. 22 (Bloomberg) -- International Brotherhood of Teamsters President James Hoffa is asking the U.S. Securities and Exchange Commission and New York State Attorney General Andrew Cuomo to review “questionable promotion” of credit- default swaps tied to trucking company YRC Worldwide Inc.

Hoffa sent letters to the regulators and members of Congress, the Teamsters said today in a statement distributed by PR Newswire. YRC, the biggest U.S. trucking company by sales, is seeking a debt-for-equity exchange to avert bankruptcy.

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 Dec. 17 in a regulatory filing.

Facing a slump in freight demand, YRC is locked in a struggle with a group of bondholders who own derivatives that would pay out if the company defaults, two people familiar with the situation told Bloomberg News last week. The deadline for the tender offer is 11:59 p.m. tomorrow in New York.

“The stakes are so high and the consequences potentially so imminent that we believe it is imperative that your office begin an immediate inquiry at its earliest opportunity,” Hoffa wrote in a letter addressed to Cuomo.

Goldman Sachs Group Inc., Deutsche Bank AG, TD Bank Financial Group, Barclays Capital and UBS AG “have a history of making markets in these types of derivative financial products,” Hoffa said in the letter.

Minimum Participation Rate

Goldman Sachs spokesman Michael DuVally reiterated comments from last week that the New York-based bank “neither has a position in, nor makes markets in, YRC corporate bonds or credit-default swaps.”

TD spokeswoman Susan Webb declined to comment on the letter, saying the bank “adheres to all regulations and is in compliance with all government oversight.”

Deutsche Bank spokeswoman Michele Allison and Barclays spokesman Mark Lane declined to comment. UBS spokesman Doug Morris said he couldn’t immediately comment. Spokesman Richard Bamberger said Cuomo’s staff was reviewing the letter.

YRC received approval from its bank lenders and the Teamsters allowing an amendment to the exchange offer that lowers the minimum participation rate to 80 percent from 95 percent, the company said today in a regulatory filing.

Letter to Blankfein

Last week, Hoffa wrote a letter to Goldman Sachs Chief Executive Officer Lloyd Blankfein saying the firm was creating derivatives trades that would benefit from a bankruptcy.

DuVally has confirmed the bank received that letter and said in an interview on Dec. 17 that the New York-based bank was “actively exploring ways to help” YRC.

Goldman Sachs sent e-mails to debt investors on Dec. 16 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 who declined to be identified because the negotiations aren’t public.

YRC’s $150 million of 8.5 percent notes due in April fell 0.75 cent on the dollar to 59 cents as of 11:29 a.m., according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The shares rose 25 cents, or 28 percent, to $1.14 on the Nasdaq Stock Market.

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: Pierre Paulden in New York at ppaulden@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net

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