Yellow | More Q & A

[Kennesaw Kid]

according to published reports.....KK

Could the company restructure in Chapter 11 and ultimately re-emerge a viable competitor?

We do not believe so. First of all, no LTL carrier has ever successfully come out of Chapter 11. In fact, most Chapter 11 filings are unsuccessful, especially when customers have other options. Even Consolidated Freightways filed Chapter 11 in September 2002 but essentially liquidated immediately.

The reason is that the LTL business is a network business where density is very important to cover fixed costs. When a company loses freight, the operating leverage works against them, and it becomes increasingly difficult to make any money. YRC is no different. If it weren't for the $400+mm in real estate sales and termination of its participation in union pension plans (and the banks' contortionist
flexibility with fees and covenants), the company would have run out of cash much earlier this year.

The company does not have the lowest price or the best service in the industry. It also operates mainly in the long-haul LTL market, which
has become increasingly competitive (10 years ago, there were 4 main competitors; now, there are at least 8 complete options) and is in secular decline (move to more regional shipments, TL linehaul substitution, TL consolidation, etc).

 

[imported_Elwood]

Their words from the 424:

A chapter 11 case would have a significant impact on our business. It is impossible for us to predict with certainty the amount of time needed in order to complete an in-court restructuring. If we seek to implement a plan of reorganization under the U.S. Bankruptcy Code, we will need to negotiate agreements with our constituent parties regarding the terms of such plan and such negotiations could take a significant amount of time. A lengthy chapter 11 case would involve significant additional professional fees and expenses and divert the attention of management from operation of the business, as well as create concerns for customers, employees and vendors. There is a risk, due to uncertainty about the future, that (i) customers could switch to competitors; (ii) employees could be distracted from performance of their duties or more easily attracted to other career opportunities; (iii) customers may delay making payments; (iv) business partners could terminate their relationship or require financial assurances or enhanced performance; (v) parties holding letters of credit as collateral for certain of our obligations could draw down on the letters of credit; (vi) trade creditors could require payment in advance or cash on delivery; (vii) our ability to enter into new contract or to renew existing contracts and compete for new business may be adversely affected; and (viii) we may not be able to obtain the necessary financing to sustain us during the chapter 11 case.