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YRC's Total Wipeout

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After years of denying reality, YRC Worldwide (Nasdaq: YRCW  ) succumbed to the inevitable on Friday. Following its $0.81-per-share loss for the fiscal second quarter -- more than three times worse than last year's Q2 loss -- management finally called it quits.

Executing a plan first unveiled back in April, management issued new convertible notes (receiving $100 million in exchange), and replaced its asset-backed loan facility with a new $400 million ABL. In a note thanking "all the stakeholders -- including union and non-union employees, lenders and customers" for their support, management boasted that the post-restructuringYRC is now "positioned for long-term success."

Um, we're standing right here
There's just one problem with that. "Employees" ... "lenders" ... "customers ..." Notice anybody left out of YRC's thank-you note? That's right -- the shareholders.

To extricate itself from its debt-death-spiral, management had to hand over 97.5% of the company to its lenders, essentially wiping out its shareholders. Or, as YRC characterized it, it "exchanged a portion of the company's loans ... for new securities."

In doing so, YRC deprived existing shareholders of all but "approximately 2.5% of the company's outstanding stock," a number that will shrink even further through "dilution by a proposed management incentive plan and the conversion of new convertible notes."

Told you so.

What's it mean to investors?
If you owned YRC before Friday, you own a whole lot less of it today, and I feel your pain. On the other hand, if you're new to YRC, and considering buying in, maybe management's happy talk is worth listening to. According to equity researcher Zack's, YRC still has its problems. It's losing money, and also gradually losing market share to rivals Arkansas Best (Nasdaq: ABFS  ) , Con-way (NYSE: CNW  ) and Knight Transportation (NYSE: KNX  ) . It also faces competition from UPS (NYSE: UPS  ) and a renewed and reorganized FedEx (NYSE: FDX  ) Freight.

But thanks to the restructuring, YRC will soon have an extra $500 million of liquidity on tap to meet these threats -- and a greatly reduced debt load to boot. Depending on how low the stock price drops after news of the 97.5% dilution filters out, YRC stock might finally be worth a look.

Interested in investing in the new-and-improved YRC Worldwide, or simply curious to see how this all works out? Add the stock to your Fool Watchlist.

The Motley Fool owns shares of FedEx and United Parcel Service, and Motley Fool newsletter services have recommended buying shares of FedEx.

Rich Smith does not own shares of, nor is he short, any company named above. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 25, 2011, at 4:04 PM, freightvet wrote:

    Seriously, this article spins 2.5 % as positive ? Wow

    Tell that to the folks 18 months ago that lost millions after they were bullied by this company, and the union, to convert their investment into YRC stock ! Its now WORTHLESS !

    If I read the end of this article right, its like saying 97.5 of the world just perished into vapor, but Hawaii was saved and we will all go there and start the world over ? come on....

  • Report this Comment On July 25, 2011, at 5:06 PM, Trukduck wrote:

    Agreed, this is a huge loss in ownership by existing shareholders; however, I must point out this plan has been public for months. I am a YRC employee of many years and I do hope the company's performance will repay those who have lost money because of the plan. I understand it will probably take a long time if ever. The 30,000+ of us who still work for YRC have held on waiting for this to happen and we are grateful to still be employed. Please wish us luck and hold back on the bile I have read about us in the blogosphere.

  • Report this Comment On July 25, 2011, at 7:12 PM, hacklefty wrote:

    I worked at YRC for over 21 1/2 years and still have many friends employed there. Hopefully this will be the start of something good. Zollars all but destroyed two good companies.

  • Report this Comment On July 25, 2011, at 11:42 PM, zatowichi wrote:

    Honestly Rich, you've really mis-characterized the situation here. First of all, shareholders receive 2.5% of the stock...initially. But there is much more dilution on the way. The Company sold $100 million of new Series B notes that convert to common at $0.0618. That's over 1.6 billion more shares of dilution. These shares are free trading and can be converted and sold as soon as the authorized share count raise is approved. There is also a Series A note that also converts into >1 billion shares but these notes can't be converted to common for a year or two but it's dilution nonetheless. Add it all up and we're looking at the issuance of 6 billion new shares. Relative to the current share count of ~50 million, current shareholders own less than 1% of the fully diluted shares, not 2.5% as you stated. It's all in the S-1 which I suggest you read.

    Secondly, there is no--I repeat, ZERO--reduction in debt. (If you doubt this, read the 7/22 earnings release, see the table below the balance sheet which shows the pre-restructuring and post-restructuring debt situation.) How can that be, you say? They swapped debt for equity, did they not? Actually, all they did was restructure the debt which was technically in default. Essentially, all they did was extend the maturities in exchange for the equity. And did you happen to note the interest on the new loan package? Something like LIBOR + 9pts--around 10% right now! I think that says it all. So your comment about "a greatly reduced debt load" simply erroneous.

    I think you owe it to the Fool community to correct your very misleading article on this company. YRC, with a market cap of $6 billion on a diluted basis and EV of over $7 billion, is wildly, wildly overvalued.

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