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January 9, 2009 4:15 PM EST
CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has downgraded the Issuer Default Ratings (IDRs) and debt ratings of YRC Worldwide Inc. (NASDAQ: YRCW) and its subsidiary, YRC Regional Transportation, Inc., as follows:
YRC Worldwide Inc.
--IDR to 'CCC' from 'B';
--Secured credit facilities to 'B/RR1' from 'BB/RR1';
--Senior unsecured to 'C/RR6' from 'CCC+/RR6'.
YRC Regional Transportation, Inc.
--IDR to 'CCC' from 'B';
--Senior secured notes to 'C/RR6' from 'CCC+/RR6'.
All of the ratings for YRCW and YRC Regional Transportation have been placed on Rating Watch Negative. Fitch's ratings apply to approximately $550 million in notes, a $150 million secured term loan and a $950 million secured revolving credit facility.
The ratings for YRCW's subsidiary Roadway LLC have been withdrawn, as Roadway no longer has any rated debt outstanding.
The downgrade of YRCW's ratings reflects heightened concerns about the company's prospects in light of ongoing severe weakness in the U.S. freight market, as well as the company's announcement that it is engaged in discussions with its lenders to revise the leverage covenants in its credit facility and asset backed securitization (ABS) facility agreements. These concerns persist despite the announcement late yesterday that YRCW's unionized employees, represented by the International Brotherhood of Teamsters (IBT), have ratified amendments to the company's labor agreements that will reduce union wages through the remaining life of contracts.
Following the termination of YRCW's tender offer for $310 million of outstanding notes, the company likely ended 2008 with a debt level well above Fitch's earlier expectations, while the steep decline in volumes experienced in the fourth quarter (down 12% at YRC National Transportation and down 11% at YRC Regional Transportation, when adjusted for the unit's reorganization, through Nov. 30, 2008) is expected to drive reported EBITDA in the period below Fitch's forecasts. As a result of the revised expectations for both debt and EBITDA, Fitch expects fourth quarter leverage will be above the company's earlier forecast of 3.2 times (x) and, potentially, above the 3.5x level currently required by the covenants in YRCW's credit and ABS facilities.
In order to avoid a covenant-driven default on the two facilities, YRCW has entered into discussions with its bank group to revise the covenants. The company expects to complete these discussions by the end of January 2009. An increase in the leverage covenant would reduce near-term default concerns and increase YRCW's ability to access the liquidity available on its credit and ABS facilities while it navigates the difficult market environment and works through the operational restructuring of its YRC National Transportation unit. Should YRCW be unable to reach agreement with its bank group on revised covenants prior to the filing of the company's 10-K annual report with the U.S. Securities and Exchange Commission, a year-end leverage level above 3.5x would result in a default on the facilities, which likely would force a near-term bankruptcy filing. The ratings of YRCW and YRC Regional Transportation have been placed on Rating Watch Negative pending the outcome of these bank discussions. Fitch expects to resolve the Rating Watch Negative once the discussions are complete.
The revised labor agreements with the IBT-represented employees call for a reduction in wages of 10% in return for giving the union members a 15% equity stake in the company. YRCW estimates that the amendments will reduce labor expenses by $220 million to $250 million annually for the remaining duration of the agreements, which expire in 2013. In addition, YRCW's non-union employees also will be subject to reductions in compensation of 10% or greater, driving estimated savings of $75 million to $85 million in 2009. The revision to the labor agreements and the non-union compensation reductions represent a positive step in YRCW's restructuring and will provide a meaningful reduction in the company's cash operating expenses over the next several years. However, these savings could be overwhelmed in the near term by continued weakness in YRCW's revenues resulting from the challenging market conditions, which are not expected to improve until late 2009 at the earliest.
Beyond the immediate concerns regarding YRCW's leverage covenant, longer-term concerns include the company's debt maturities in 2010. The remaining secured $150 million in YRC Regional Transportation notes mature in April 2010, while YRCW's 5% contingent convertible senior notes include a provision that allows holders of the notes to put them back to the company at par in August 2010. Combined, the maturity and the put option could result in nearly $400 million in debt obligations in 2010, which would be especially problematic if credit markets remain tight over a prolonged period.
The recovery rating of 'RR1' on YRCW's credit facilities reflects their hard asset collateral coverage and expectations for a recovery of 90% or better in the event of a bankruptcy. The hard asset collateral backing the credit facilities includes the majority of the company's owned facilities and rolling stock. The recovery rating of 'RR6' on the YRC Regional Transportation secured notes and both sets of contingent convertible senior unsecured notes reflects expectations for a very poor recovery of less than 10% in a bankruptcy scenario. Although the YRC Regional Transportation notes are partially secured by a share in the capital stock of YRC Regional Transportation, Inc., Fitch views this collateral coverage as very weak and rates the notes on par with the unsecured obligations. YRCW's ratings could be downgraded further if the company is unsuccessful in renegotiating the covenants in its credit and ABS facility agreements or if LTL market fundamentals continue to worsen.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, Fitch Ratings. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
To sum this up, if YRC can't repay it's incredibly high level of debt then the banks that loaned money to YRC seize all equipment and real estate used as collateral (this includes all of New Penn's) and sell it all off to the highest bidder while we walk the unemployment line. Let's hope the money we ALL gave back prevents this dire situation. YRC management overpaid for Roadway and USF thus the writedowns earlier last year. They had better not screw things up this year like they did last year or we are all sunk! In the meantime we should all stay positive and be New Penn proud to be working at the best LTL freight company in the business! I bet my money that we weather this storm and turn things around this summer. Stay strong!
CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has downgraded the Issuer Default Ratings (IDRs) and debt ratings of YRC Worldwide Inc. (NASDAQ: YRCW) and its subsidiary, YRC Regional Transportation, Inc., as follows:
YRC Worldwide Inc.
--IDR to 'CCC' from 'B';
--Secured credit facilities to 'B/RR1' from 'BB/RR1';
--Senior unsecured to 'C/RR6' from 'CCC+/RR6'.
YRC Regional Transportation, Inc.
--IDR to 'CCC' from 'B';
--Senior secured notes to 'C/RR6' from 'CCC+/RR6'.
All of the ratings for YRCW and YRC Regional Transportation have been placed on Rating Watch Negative. Fitch's ratings apply to approximately $550 million in notes, a $150 million secured term loan and a $950 million secured revolving credit facility.
The ratings for YRCW's subsidiary Roadway LLC have been withdrawn, as Roadway no longer has any rated debt outstanding.
The downgrade of YRCW's ratings reflects heightened concerns about the company's prospects in light of ongoing severe weakness in the U.S. freight market, as well as the company's announcement that it is engaged in discussions with its lenders to revise the leverage covenants in its credit facility and asset backed securitization (ABS) facility agreements. These concerns persist despite the announcement late yesterday that YRCW's unionized employees, represented by the International Brotherhood of Teamsters (IBT), have ratified amendments to the company's labor agreements that will reduce union wages through the remaining life of contracts.
Following the termination of YRCW's tender offer for $310 million of outstanding notes, the company likely ended 2008 with a debt level well above Fitch's earlier expectations, while the steep decline in volumes experienced in the fourth quarter (down 12% at YRC National Transportation and down 11% at YRC Regional Transportation, when adjusted for the unit's reorganization, through Nov. 30, 2008) is expected to drive reported EBITDA in the period below Fitch's forecasts. As a result of the revised expectations for both debt and EBITDA, Fitch expects fourth quarter leverage will be above the company's earlier forecast of 3.2 times (x) and, potentially, above the 3.5x level currently required by the covenants in YRCW's credit and ABS facilities.
In order to avoid a covenant-driven default on the two facilities, YRCW has entered into discussions with its bank group to revise the covenants. The company expects to complete these discussions by the end of January 2009. An increase in the leverage covenant would reduce near-term default concerns and increase YRCW's ability to access the liquidity available on its credit and ABS facilities while it navigates the difficult market environment and works through the operational restructuring of its YRC National Transportation unit. Should YRCW be unable to reach agreement with its bank group on revised covenants prior to the filing of the company's 10-K annual report with the U.S. Securities and Exchange Commission, a year-end leverage level above 3.5x would result in a default on the facilities, which likely would force a near-term bankruptcy filing. The ratings of YRCW and YRC Regional Transportation have been placed on Rating Watch Negative pending the outcome of these bank discussions. Fitch expects to resolve the Rating Watch Negative once the discussions are complete.
The revised labor agreements with the IBT-represented employees call for a reduction in wages of 10% in return for giving the union members a 15% equity stake in the company. YRCW estimates that the amendments will reduce labor expenses by $220 million to $250 million annually for the remaining duration of the agreements, which expire in 2013. In addition, YRCW's non-union employees also will be subject to reductions in compensation of 10% or greater, driving estimated savings of $75 million to $85 million in 2009. The revision to the labor agreements and the non-union compensation reductions represent a positive step in YRCW's restructuring and will provide a meaningful reduction in the company's cash operating expenses over the next several years. However, these savings could be overwhelmed in the near term by continued weakness in YRCW's revenues resulting from the challenging market conditions, which are not expected to improve until late 2009 at the earliest.
Beyond the immediate concerns regarding YRCW's leverage covenant, longer-term concerns include the company's debt maturities in 2010. The remaining secured $150 million in YRC Regional Transportation notes mature in April 2010, while YRCW's 5% contingent convertible senior notes include a provision that allows holders of the notes to put them back to the company at par in August 2010. Combined, the maturity and the put option could result in nearly $400 million in debt obligations in 2010, which would be especially problematic if credit markets remain tight over a prolonged period.
The recovery rating of 'RR1' on YRCW's credit facilities reflects their hard asset collateral coverage and expectations for a recovery of 90% or better in the event of a bankruptcy. The hard asset collateral backing the credit facilities includes the majority of the company's owned facilities and rolling stock. The recovery rating of 'RR6' on the YRC Regional Transportation secured notes and both sets of contingent convertible senior unsecured notes reflects expectations for a very poor recovery of less than 10% in a bankruptcy scenario. Although the YRC Regional Transportation notes are partially secured by a share in the capital stock of YRC Regional Transportation, Inc., Fitch views this collateral coverage as very weak and rates the notes on par with the unsecured obligations. YRCW's ratings could be downgraded further if the company is unsuccessful in renegotiating the covenants in its credit and ABS facility agreements or if LTL market fundamentals continue to worsen.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, Fitch Ratings. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
To sum this up, if YRC can't repay it's incredibly high level of debt then the banks that loaned money to YRC seize all equipment and real estate used as collateral (this includes all of New Penn's) and sell it all off to the highest bidder while we walk the unemployment line. Let's hope the money we ALL gave back prevents this dire situation. YRC management overpaid for Roadway and USF thus the writedowns earlier last year. They had better not screw things up this year like they did last year or we are all sunk! In the meantime we should all stay positive and be New Penn proud to be working at the best LTL freight company in the business! I bet my money that we weather this storm and turn things around this summer. Stay strong!
