Trucking firm YRC Worldwide Inc. just barely avoided a bankruptcy filing almost no one wanted today when enough bondholders agreed to swap their debt for equity in the company. The swap allows the firm to delay a $19 million interest payment its management said would have put the company in an "untenable" position.
Holders of about 70 percent of $150 million bonds due in April 2010 agreed to trade their bonds for stock in the company as of today's deadline, above the threshold required to avert a bankruptcy filing. In all, bondholders representing 88 percent of the company's total outstanding debt, with a face value of $470 million, agreed to participate.
The International Brotherhood of Teamsters, which represents about 30,000 YRC employees, had lobbied banks it believed held YRC bonds hard to participate in the swap, which will permit the company to both delay the $19 million interest payment it would have had to make on Jan. 1 and defer an additional $20 to $25 million in interest payments per quarter over the coming year.
Most of the banks that held YRC debt wished to avoid forcing the company into bankruptcy, as a bankruptcy filing would probably result in the liquidation of the company. Under that scenario, holders of the company's longer-term debt would have likely recovered little or none of the money owed, while holders of derivatives linked to the company's outstanding debt would have profited from a bankruptcy filing. Short-term bondholders would have received about 80 percent of the bonds' face value in a bankruptcy.
The economic recession has hammered the fortunes of the less-than-truckload (LTL) trucking industry, in which Overland Park, Kan.-based YRC is one of the largest players. The company had run up a total of $1.7 billion in losses in the last five quarters. No LTL carrier has successfully reorganized after filing for bankruptcy.
Company chairman and CEO Bill Zollars told The Wall Street Journal that the successful swap would allow the company to "move forward from a more solid financial foundation."
Written by Sandy Smith
For HULIQ.com
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