Another Day, Another Lifeline for YRC Worldwide (YRCW)

YRC Worldwide Inc. (NASDAQ: YRCW) appears to have gotten yet one more lifeline, one which continues to dilute and dilute by the looks of it.  This troubled trucking company has endured possible delisting fears, a reverse stock split, fears of bankruptcy that would wipe out shareholders entirely, heavy shareholder dilution, union woes, and analyst abandonment.  Yet here we are, another day and another huge gain.

The company announced today that it has negotiated commitments for a $400 million three-year asset-based loan that will replace its existing asset-based financing.   The company reports that key stakeholders provided support for its financial restructuring.  The Teamsters union confirmed that they approved final terms for the new asset-backed facility along with lenders and with YRC’s management.  The company announced it remains on track to close the restructuring later this month.

Caught in a liquidity squeeze for a number of months, YRC management emphasized the role that the new asset-based loan will play in its continuing operations.  It said that it helps is meet “our industry’s seasonal pattern of revenues and provides the financial flexibility and run room we need to grow the business.”  That is from John Lamar, YRC’s chief restructuring officer and lead director.

As we have noted before, this “now” $60 million market capitalization rate is very misleading.  The decline is more than evident as its 2008 revenues were $8.9 billion, but that was down to a dismal $4.33 billion in 2010.  Not all of that at all can be tied solely to the recession.

After the close of trading on Friday came an SEC filing for an offer to exchange notes and all of this appears to be just more dilution to the common stockholders who have already been almost gutted entirely.  This is one of those circumstances where, “sometimes, less is really more.”

As far as the restructuring’s progress, YRC noted in its filing, “The weak economic environment negatively impacted our customers’ needs to ship and, therefore, negatively impacted the volume of freight we serviced and the price we received for our services. In addition, we believe that many of our then-existing customers reduced their business with us due to their concerns regarding our financial condition. In 2010 and continuing into 2011, market conditions started to rebound and our customer base stabilized and as a result our volumes stabilized in the first quarter of 2010 and began to grow sequentially, seasonally adjusted, throughout the remainder of 2010 and into 2011. Pricing conditions in the industry, however, remain competitive and we believe that we will continue to face competition stemming from excess capacity in the market in the near term. As a result, we continue to experience lower year-over-year revenue (primarily a function of declining volume), operating losses and net losses.”

It also noted, “Notwithstanding the restructuring, our balance sheet would remain significantly leveraged, a significant portion of our debt would mature prior to or during 2015 and we would continue to face potentially significant future funding obligations for our single and multi-employer pension funds. Assuming we are able to complete the restructuring, we expect that cash generated from operations, together with the proceeds of the ABL facility and the Series B Notes, will be sufficient to allow us to fund our operations, to increase working capital as necessary to support our strategy and to fund planned expenditures for the foreseeable future.”

Apparently, that is all shareholders needed to hear…. or maybe all that penny-stock and low-priced stock traders needed to hear.  The shares closed at $1.15 Friday and shares were up more than 21% earlier in pre-market trading.  At 1:00 PM EST we have shares up 9.6% at $1.26 on more than 7.1 million shares.  The adjusted 52-week price range is $0.55 to $11.00 and volume appears to be set to hit 10 million shares rather than the traditional 2.6 million shares on average.

Judging YRC depends upon where you are in the capital structure.  Some consider it a turnaround, while some consider it a cult stock.  Many still consider it a bankruptcy candidate.  We’ll leave that posturing up to you to decide how to judge YRC Worldwide.

JON C. OGG