YRC, lenders carve out deal to cut debt by $300 million

Clearing a significant hurdle in its latest financial restructuring, YRC Worldwide says it has reached a debt-for-equity deal with lenders and other institutional investors to reduce its debt by about $300 million.
  
The financial restructuring is contingent on a “yes” vote by some 26,000 Teamsters on a five-year labor agreement that would extend a 15 percent wage cut and other benefit concessions to its rank-and-file workers. That vote is ongoing, and results will be announced Jan. 8.
  
YRC needs the Teamsters concession as part of a longer term corporate refinancing.
In addition, the debt reduction deal is contingent on getting holders of at least 90 percent of the $124
million of the company’s pension fund debt to amend and extend the currently
outstanding note.
 
“The agreement is a momentous step toward delevering the company’s balance
sheet, significantly improving the company’s credit profile, and is expected to
secure some of the best paying jobs in the LTL industry,” James Welch,
YRC chief executive officer and president of YRC Freight, said in a statement. “The last two years have been a long and hard fought journey in turning around one of the largest trucking companies in America. After shedding a significant portion of our non-core assets and operations and with the help of our unionized and non-unionized employees, we have focused our attention back to what we do best —
North American LTL trucking,” Welch added.
 
Under the agreement, the investors will inject $250 million in cash for
newly-issued shares of common stock of YRC Worldwide at a price of $15 per
share. YRC shares jump more than 20 percent to around $18 on the day the debt-for-equity swap was announced.
  
The proceeds will be used to pay off about $69 million in existing 6 percent convertible notes
due February 2014 and defease and/or pay off the existing Series A Convertible
Notes due March 2015. YRC has $325 million in debt payment due next September and $675 million due in March 2015.
 
In addition, holders of approximately $50 million principal amount of the existing Series B Convertible Notes due March 2015 will convert those notes to common stock at a price of $15 to $16.01 per share,
further reducing debt. The Series B Note holders that participate in the proposed transaction will also consent to amend the indenture to remove substantially all covenants and release the collateral securing those notes, YRC said. The remaining Series B Convertible Notes may continue to be outstanding until their scheduled maturity of March 31, 2015.
 
Consummation of the agreement is subject to “a number of other customary conditions as well,” YRC said, but did not elaborate.
 
“These transactions will result in a substantial reduction of our debt and will position the company to address impending maturities, including the 6 percent convertible notes due in February 2014,” said Jamie Pierson, YRC Worldwide CFO. “These transactions also clear the way for us to enter the
senior debt markets to refinance our current term and asset- based loans at more
favorable interest rates.”
If the Teamster ratify continuation of the wage concession package, YRC said its improved financial picture will allow the company to increase its investment in new tractors, trailers, technology and “equally if not more importantly training and developing its people.” But that promise came with a subtle warning from the company.

“Alternatively, if we are not successful, it would unfortunately mean some very difficult decisions for the company and its employees,” added Welch.
 
YRC has lost in excess of $2.6 billion since 2006. Most of those losses are because of interest payments on more than $1.4 billion in debt. Most of that debt was incurred because of a pair of $1 billion-plus acquisitions, long-haul rival Roadway Express in 2003 and regional LTL carrier USF Corp. in 2005.

Those deals were engineered by former CEO William Zollars, who left the company two years ago.