The U.S. Department of the Treasury is about to become the largest shareholder in trucking firm YRC Worldwide Inc. (NASDAQ: YRCW) following the Treasury’s approval of a $700 million loan to the company. The loan is expected to be disbursed in equal tranches of $350 million once all the required documentation is completed.
YRC is the nation’s sixth-largest trucking company based on 2019 revenues of $5.1 billion, and it trails only FedEx Freight as the largest LTL (less-than-load) carrier. The company employs 30,000 people, including 24,000 members of the Teamsters Union.
The company claims to work with more than 200,000 customers, including the U.S. Departments of Defense, Energy, Homeland Security, and Customs and Border Protection. Neither the 2019 annual report nor the proxy statement identifies any agency as a 10% customer of YRC. It is safe to speculate, however, that one or more of these federal agencies depends on YRC for essential freight services.
In exchange for the loan, the Treasury will receive a 29.6% ownership stake in the company. The Treasury “will be required to vote the shares in the same proportion as all other unaffiliated shares of the Company’s common stock are voted.” In other words, the Treasury’s shares won’t affect the outcome of a shareholder vote.
According to YRC’s 2020 proxy statement, three shareholders own more than 5% of the company’s stock: Front Street Capital Management (10%), Russell Investments Group (9.7%) and BlackRock (6.8%).
The Teamsters union owns the company’s single share of Series A Preferred Stock, giving the union the right to appoint two members to YRC’s seven-member board. However, that single share votes as just one of 37.58 million shares outstanding.
In its announcement of the loan, YRC said it plans to use the first tranche of $350 million “to cover short-term contractual obligations and certain other obligations including pension and healthcare payments.” The second tranche is targeted for “essential” capital spending on trailers and tractors. Both tranches carry interest rates of LIBOR plus 3.5% comprised of 1.5% in cash and 2% in in-kind payments. Both loans mature on September 30, 2024.
YRC stock traded as high as $3.42 early Wednesday, up almost 85% from Tuesday’s close. The stock recently traded at $2.95, up 59.5%. The 52-week range is $1.29 to $4.79, and the consensus price target is $5.00. That price target may be due largely to the expected increase in demand for freight services due to the COVID-19 outbreak.