newswor thy
lifelines from lenders keep
YRC afloat … for now
Intelligrated awarded
$24 million incentive
package from Ohio
THOSE WHO THINK LENDERS CAN’T BE
lenient haven’t been following the saga of troubled carrier YRC Worldwide Inc.
As YRC’s financial condition has grown more
precarious in the past 18 months, lenders have
thrown the nation’s largest less-than-truckload (LTL)
carrier lifeline after lifeline in the form of repeated modifications of its loan
covenants. The latest and perhaps most extraordinary reprieve came on Nov. 2,
when YRC’s bondholders agreed to swap about $530 million in debt for effective
equity control of the company. Under the deal, which at this writing had not
been consummated, about 1. 1 billion new shares of equity will be issued, bringing YRC’s total shares outstanding to 1. 6 billion. Should the exchange be completed, YRC’s lenders will free up a $106 million credit line the company could
use for operating expenses. YRC will be able to eliminate $386 million in principal payments scheduled for 2010, and defer quarterly fee and interest payments to the end of 2010 and in some cases, to the end of 2011.
The swap will create significant ripple effects across the trucking landscape.
YRC’s enhanced financial flexibility and increased access to liquidity will likely
keep it operating through at least the end of next year. Shippers, carriers, and
analysts that were incorporating a YRC bankruptcy into their 2010 scenarios will
probably need to shelve that idea. And those waiting for a YRC exit to take significant capacity off the road and bring destructive price wars to a halt will have
to wait that much longer.
Shaky outlook for shareholders
For YRC’s 35,000 employees represented by the Teamsters union, the deal takes
on problematic proportions. YRC’s union employees have already agreed to two
separate wage concessions as well as pension deferrals that combined, are
expected to total $1.6 billion by the time the next contract expires in 2013,
according to estimates from investment firm Stifel, Nicolaus & Co. In return, the
workers have received 35 percent of the original 60 million shares outstanding.
Following the exchange, the bondholders will get all of the old equity as well as
most of the new, while the workers will receive options worth about 20 percent
of the new concern.
The highly dilutive nature of the debt-for-equity transaction, combined with
YRC’s continued operating struggles—daily tonnage in the third quarter fell 43
percent year over year at its national LTL unit and 25 percent a year at its regional LTL unit—could leave employees with a stake worth virtually nothing, according to some analysts. Jon A. Langenfeld, transport analyst for Robert W. Baird &
Co., said in a note that the swap “effectively represents a controlled bankruptcy.”
Langenfeld said he continues to have a price target of $0 for YRC stock, saying
there is no equity value left in the business.
To grasp the shareholders’ predicament, you only have to look at YRC’s earnings picture. YRC would need to earn about $200 million in either 2010 or 2011
to justify the value of the $1.23 per share closing price on Nov. 3, accord- p. 14
Material handling company
Intelligrated says it has accepted a
$24 million financial incentive package from the state of Ohio. The funds
will be used to expedite the integration of recently acquired FKI Logistex
and expand Intelligrated’s operations
in the Ohio cities of West Chester,
London, and Mason. The company
says it will be able to add 267 jobs in
the state and retain the 537 existing
full-time positions in Ohio.
The incentives include low-interest
research and development loans and
other loans to the Butler County
(Ohio) Port Authority to fund the
acquisition of a 282,000-square-foot
manufacturing facility in West
Chester that will be leased to
Cincinnati-based Intelligrated.
The Ohio Job Creation Tax Credit
Authority also awarded Intelligrated
a job creation tax credit to support
the project in Butler County as well
as its expansion plans in Mason and
London. The company will be
required to operate at the project site
for 13 years.
Another project to be funded is the
integration and upgrade of the FKI
Logistex and Intelligrated enterprise
resource planning (ERP) systems,
Intelligrated said. Intelligrated
bought FKI Logistex earlier this year.
“The incentive package sends a
message of the importance of
retaining high-quality manufacturing
jobs in the state. It also underscores
the strategic role of Intelligrated’s
world class material handling solutions to Ohio’s plan of becoming the
premier international gateway and
logistics hub in North America,”
Chris Cole, Intelligrated’s CEO, said
in a statement.
