YRC Worldwide is some sort of ‘bellwether’ for the US trucking sector. Long troubled and having faced near bankruptcy, debt for equity swaps and heavy restructuring in the past, the still large ‘less-than-truckload’ provider seems to have concluded its latest episode of refinancing.
Reports state that at the end of last week the company reached an agreement with its bondholders for what appears to be quite a substantial restructuring of debt worth US$580m. The largest bondholder was Apollo Global Management, the former owner of CEVA and a specialist in distressed debt as well as private equity. According to the Wall Street Journal, some bond maturities have been extended to 2024, although the restructuring varies across all of the company’s $880m debt-burden.
This refinancing package follows YRC Worldwide accessing $700m of loans from the US Federal government earlier in the month. As part of the CARES act initiative, YRC will receive what is essentially a liquidity facility of $350m over four-years enabling the company to support pensions, healthcare and operational finance obligations. A further $350m will be used to support capital investment. The two loans are 3.5% above the base rate.
In return, the US Treasury is being offered a proportion of YRC’s equity. In a statement, YRC Worldwide said that it would issue to the US Treasury “shares of common stock that, after the issuance, will constitute approximately 29.6% of the Company’s fully diluted common stock outstanding”. This hardly constitutes what might be called ‘nationalisation’ as the US Federal government is a minority stockholder, although presumably an influential one. However, bearing in mind the size of YRC Worldwide’s debt, it might be asked if the equity position that the US government holds could become exposed, with the combination of the two groups of debt instruments totalling well over $1bn.
The bailout, for that is what it is, may well be useful both in the context of the wider US economy and the trucking market in the US. It ensures that YRC stays on the road and provides need capacity in certain customer segments. These are extraordinary times and the company’s finances may well recover. However, in the long-term, the question remains over the danger that such liquidity sustains over-capacity in the market at the detriment of other providers.
Source. Transport Intelligence, 14 July 2020
Author: Thomas Cullen