ABF competitor gets another lifeline

by The City Wire staff ([email protected]) 41 views 

The financial and legal drama in the national trucking industry continues as YRC Worldwide announces an “agreement in principle” that gives the almost bankrupt company until July 2011 to restructure debt.

Failure of YRC would place Fort Smith-based ABF Freight System at the top of the national less-than-truckload market.

Overland Park, Kan.-based YRC narrowly avoided bankruptcy in January 2010 through a complex bond swap agreement with creditors. The less-than-truckload company had piled up a mountain of debt with the $1.07 billion acquisition of Roadway Corp. in 2003 and the $1.23 billion acquisition of USF Corp. in 2005.

Failure to restructure the debt would almost certainly result in a bankruptcy that could benefit ABF Freight System to the tune of about $76 million in the first year following the bankruptcy, according to Jack Waldo, a transportation sector analyst at Little Rock-based Stephens.

YRC recently reached an agreement with its creditors and the International Brotherhood of Teamsters that essentially provide the lenders with equity share and convertible debt provisions that place regular shareholders at the back of the line in the event of a bankruptcy. Shares of YRC (NASDAQ: YRCW) fell from around $3.42 as of Feb. 25 to to $2.28 on Mar. 1.

Fitch Ratings, which has said success by ABF in its lawsuit against YRC would certainly bankrupt YRC, has said it may soon downgrade the company’s outstanding debt to a highly speculative and junk category.

Chicago-based Zacks Investment Research said YRC has been able to “regain many of its clients” lost during the recession. However, Zacks is not optimistic about the near-term improvement YRC may need to survive.

“On the other side, we believe near-term possibility of bankruptcy still persist for YRC Worldwide.The company’s viability depends on its ability to become profitable but unfortunately we do not expect the company to reach that stage any time soon,” Zacks noted.

What’s more, the Zacks’ report said, YRC “gradually loosing market share” to ABF, Con-Way, Knight Transportation and other competitors.

On Nov. 1, the management at Fort Smith-based Arkansas Best Corp. decided to seek up to $750 million in financial damages from alleged violations of a National Master Freight Agreement (NMFA) by the International Brotherhood of Teamsters and others.

The NMFA, implemented April 1, 2008, was designed to cause equal labor costs and other benefit payments among trucking companies with drivers represented by the Teamsters.

YRC Worldwide, the largest less-than-truckload carrier in the U.S., received three rounds of wage and benefit concessions from the Teamsters, with the most recent announced Nov. 1 that includes up to $350 million annually through 2013. Previously, the Teamsters voted to approve a 15% pay cut among unionized YRC drivers.

ABF, the largest subsidiary of Arkansas Best and a less-than-truckload carrier that competes with YRC, was unable to obtain similar concessions from the Teamsters.

The case has made its way to the U.S. Circuit Court of Appeals in St. Louis. Responses by YRC and the Teamsters were due Mar. 7, with oral arguments before the three-judge panel scheduled for the week of April 11.

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