Just when you thought things couldn't possibly get any uglier for shareholders of trucking company YRC Worldwide (Nasdaq: YRCW) -- they did.

In its continuing battle to avoid bankruptcy, YRC announced last week more "creative financing" options which have the potential to keep the company afloat.  The company's proposed plan to its lenders and to the labor union would entail swapping $100 million worth of debt directly for shares of company stock. In addition, the company would restructure some of its debt to longer maturity dates. The final result will likely stomp current shareholder value into oblivion -- as if the precipitous 99.9% fall in the past five years hadn't done that already. Lenders will control 72.5% of the company, the labor union 25%, and shareholders a meager 2.5%.

Tire iron-y
Does anyone find it comical that YRC enacted a 1-for-25 reverse split in October in order to avoid delisting and will now potentially be diluting its stock to the point that it once again fails to meet the minimum listing requirements to trade on the Nasdaq? Not me, and certainly not Art Hatfield, an analyst for Morgan Keegan who currently has a price target on YRC of zero, zilch, nada! His analysis values YRC's per-share price after this diluted share offering at $0.09, or a 93% decline from Friday's close. If you factor in YRC's more than $1 billion in debt, it easily wipes out all remaining shareholder equity.

Just in case shareholders figured they were going to get a break, YRC also reported earnings before the bell Friday -- and you guessed it, they missed the mark. YRC clocked in with a loss of $2.14 per share versus expectations for a loss of $1.53. On the bright side, these figures compare to a loss in the year-ago period of $13.15 per share, so break out those pom-poms! Revenue at $1.12 billion also topped consensus expectations of $1.07 billion. Unfortunately for shareholders, there simply wasn't enough to be excited about.

The striking truth is that despite all of these efforts to avoid bankruptcy, the possibility of a default on its debt is still extremely high. Ratings agency Fitch lowered its rating on the company's debt to CCC, placing the company only one step away from a default rating.  

Between a rough winter and sluggish business, you'd think the entire sector would be swooning, but this simply isn't the case. Arkansas Best (Nasdaq: ABFS) is net cash positive and projected to grow at nearly 10% annually over the next five years while Con-Way (NYSE: CNW) generated $182 million in operating cash flow in the trailing-twelve months and pays out a 1% dividend. YRC's rivals aren't rolling in the dough, but it's clear that this is a problem confined solely to YRC.

Avoid temptation
My advice would be to overlook YRC's healthy daily volume and resist the urge to buy it based on its share price alone. Management will clearly do anything, including demolishing shareholder equity, in order to keep the company out of bankruptcy -- and even then there's no guarantee that it will survive.

Will YRC Worldwide survive or will it eventually be forced into bankruptcy by its lenders? Share your opinion in the comments section below and consider tracking YRC Worldwide and your own personalized list of companies with My Watchlist.