YRC Worldwide Seeks Reset of Covenants Under 2011 Agreement

YRC Worldwide Inc., the U.S. trucking company that averted bankruptcy in 2009, is seeking to change the terms of a loan agreement signed last year in order to remain in compliance with financial requirements.

The company is proposing to amend its covenants under a July credit agreement that would increase its total leverage multiple, or the ratio of debt to earnings before interest, taxes, depreciation and amortization, by 35 percent to 55 percent, YRC said today in a regulatory filing. It’s also seeking to reduce thresholds for consolidated Ebitda by 25 percent to 35 percent and for the interest-coverage ratio by 30 percent to 40 percent.

YRC, the second-biggest publicly traded trucker in the U.S., has posted a loss in five of the past six quarters as competitors including FedEx Corp. and Con-way Inc. grabbed market share by lowering prices and attracting customers. The Overland Park, Kansas-based company projected in a Feb. 28 filing that it wouldn’t earn enough money to satisfy requirements of its credit agreement and would have to renegotiate.

The company said today that since October it has exceeded its forecasted adjusted consolidated Ebitda in the aggregate, according to the filing. Suzanne Dawson, a spokeswoman for the company, didn’t immediately return a phone call seeking comment.

YRC credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, yesterday climbed to the highest level since February 2009.

Cost Comparison

A ratio of YRC’s costs compared with revenue increased in the past two quarters, while Con-way’s decreased, according to data compiled by Bloomberg. The less-than-truckload business, which relies on a healthy U.S. economy for its success, is concentrated among the top providers, with the 10 biggest carriers accounting for about 67 percent of the $33 billion U.S. and Canadian market, the data show.

In the Feb. 28 filing, the trucker’s auditor, KPMG LLP, said its financial condition raises “substantial doubt about the company’s ability to continue.” YRC has $175 million of pension payments and $48.3 million of lease obligations due this year, according to the filing.

Credit-default swaps tied to YRC increased 2.7 percentage points to 51.7 percent upfront, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. That’s in addition to 5 percent a year, meaning it would cost $5.17 million initially and $500,000 annually to protect $10 million of YRC’s debt.

Debt Restructuring

JPMorgan Chase & Co. last year arranged an out-of-court restructuring of the company’s debt. The transaction included a $175 million first-out loan that pays 7 percentage points more than the London interbank offered rate and a $225 million last-out loan that pays interest at 9.75 percentage points more than Libor, according to the Feb. 28 filing.

Both loans, which are secured by the company’s receivables, have a 1.5 percent minimum on the lending benchmark and mature in September 2014. In a liquidation lenders in first-out debt are repaid before last-out creditors.

In December 2009, the trucker extended a tender-offer deadline six times before bondholders agreed to swap equity for debt, allowing the company to delay a $19 million interest payment that would have left it in an “unsustainable” position, according to a regulatory filing at the time.

Teamsters Request

The bondholder pushback prompted International Brotherhood of Teamsters President James Hoffa to ask federal and state authorities to review “questionable promotion” of credit-default swaps tied to YRC debt. He named Goldman Sachs Group Inc., Deutsche Bank AG, Toronto Dominion Bank, Barclays Capital, and UBS AG as firms with a “history of making markets” in derivatives trades that would profit from YRC’s bankruptcy.

Goldman Sachs said at the time that the New York-based bank “neither has a position in, nor makes markets in, YRC corporate bonds or credit-default swaps.”

After YRC received bondholder approval, Bill Zollars, its chief executive officer at the time, said Goldman Sachs, Deutsche Bank, Aristeia Capital LLC, Silverback Asset Management and a Smith Management LLC unit “got us over the goal line by going into the market, buying bonds and tendering them.”

Zollars previously said that “the most difficult bondholders to deal with were investors with credit-default swaps that paid off if the company went bankrupt.”

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