Legal troubles continue for YRC

Legal troubles continue to mount for YRC Worldwide, making the going even tougher for the the nation’s largest trucking — and the primary competitor of Fort Smith-based ABF Freight System — in its bid to avoid bankruptcy in 2011.

On Feb. 15, The City Wire reported that Fitch Ratings believes a lawsuit filed by ABF  that seeks $750 million in damages holds the potential to bankrupt financially-troubled YRC.

YRC ended 2010 with almost $1.5 billion in debt and obligations, yet generated full year cash flow of only $1.1 million. Also, YRC also faces a critical Feb. 28 deadline to qualify for debt restructuring or some other “qualifying transaction” as part of an agreement with the Teamsters. The qualifying transaction must be in place by March 15.

Fitch Ratings has said the inability to pull together a complicated “qualifying transaction” could bankrupt YRC.

What would a bankruptcy mean for Arkansas Best Corp., and its largest subsidiary, ABF?

Possibly more than $75.9 million in earnings — a welcome chunk of change for Arkansas Best which lost $32.4 million in 2010.

“I will say that we think ABF would be the primary beneficiary of a YRCW failure and have previously estimated it could lead to roughly $3.00 in annual earnings per share,” noted Jack Waldo, a transportation sector analyst at Little Rock-based Stephens.

Waldo declined to comment on the YRC situation.

On Nov. 1, the management at Fort Smith-based Arkansas Best Corp. decided to seek up to $750 million in financial damages from YRC over alleged violations of a National Master Freight Agreement (NMFA) by the International Brotherhood of Teamsters and others. The lawsuit was dismissed Dec. 16 by U.S. District Court Judge Susan Webber Wright, and the company on Jan. 19 filed an appeal with the U.S. Court of Appeals in St. Louis.

Add to that a class action lawsuit against Overland Park, Kan.-based YRC claiming that YRC executives failed to fully disclose the company’s financial picture to shareholders and potential shareholders.

The New York law firm of Robbins Geller Rudman & Dowd announced Feb. 7 its pursuit of a class action to represent individuals and institutions buying YRC shares between April 24, 2008 and Nov. 2, 2009.

“Specifically, the complaint alleges that defendants’ statements were materially false and misleading because they misrepresented and overstated the financial condition of the Company and had the intended effect of causing YRC shares to trade at artificially inflated levels throughout the Class Period – reaching a Class Period high of over $20 per share during August 2008,” noted a statement from the firm.

The YRC shares (NASDAQ: YRCW) didn’t stay at $20 long. The shares closed out the first trading day of 2009 at $3.34.

“During the same period in which the price of YRC stock fell over 60% as a result of defendants’ fraud being revealed, the Standard & Poor’s 500 securities index was relatively unchanged,” notes the Robbins Geller filing. “On November 2, 2009, however, as investors learned the truth about the Company and the true condition of its business, the price of YRC stock collapsed.”

Continuing, the filing noted: “On November 2, 2009, YRC shocked investors when it revealed, for the first time, that the Company was performing well below expectations and that it now expected to convert over half a billion dollars of debt into shares of Company stock, thereby effectively giving bondholders as much as 95% of the equity of the Company and resulting in the resignation of seven of its nine directors.”

Indeed the price did collapse. On Oct. 30, 2009, the closing price was $3.65. A day later, the share price closed at $1.32, and closed out 2009 at 84 cents per share.

In commentary at Seeking Alpha, Rizzi Capital said it believes YRC will survive, but did note the reality facing the less-than-truckload transportation company: “Let’s not kid ourselves, if the company fails to raise the extra liquidity by the end of the month, the stock will fall to zero and the company goes bankrupt. But in a bankruptcy situation, everybody, including the unions, and senior debt holders are heavily damaged. As such, it is in their best interest to keep the company as a going concern and to take the necessary steps to raise additional liquidity without triggering a Chapter 11 filing.”