YRC admits bankruptcy near; ABF stands to benefit

by The City Wire staff (info@thecitywire.com) 93 views 

The death watch continues for a national trucking company that is a primary competitor with Fort Smith-based ABF Freight System.

Overland Park, Kan.-based YRC noted in its 10K annual report filed Monday (Mar. 14) that it may be at the end of its financial rope. YRC is the largest less-than-truckload carrier in the nation, and ABF is considered the second largest LTL.

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.

In early March, YRC 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) have fallen from a post Oct. 1, 2010 stock split price of $5.39 to $2.05 as of Tuesday.

YRC for the first time provided greater detail on the possibility of a bankruptcy in the Monday 10K filing with the federal Securities and Exchange Commission.

“The Pension Fund Condition has not been satisfied. As a result, a Milestone Failure has occurred and the Required Lenders have the right, but not the obligation, to declare an event of default under the Credit Agreement. We cannot provide any assurance that the Required Lenders will not declare an event of default under the Credit Agreement. If the Required Lenders declare an event of default under the Credit Agreement, we anticipate that we would seek protection under the Bankruptcy Code,” explained the YRC document.

Without more concessions from lenders and labor — and the Teamsters have already agreed to more than $350 million in labor cuts through 2013 — YRC admits that bankruptcy is the next step. Making the point even finer, the company outlined several outcomes of a bankruptcy filing. Those included:
• Our customers would likely cease or substantially reduce their use of our services to avoid the possibility of stranded freight in our network in the event we cease to operate or substantially reduce our operations;

• Our suppliers may attempt to cancel our contracts or restrict ordinary credit terms, require financial assurances of performance or refrain entirely from providing goods or services to us;

• Our employees may become distracted from performance of their duties or more easily attracted to other career opportunities;
We may have difficulty continuing to obtain and maintain contracts necessary to continue our operations and at affordable rates with competitive terms;

• Transactions outside the ordinary course of business would be subject to the prior approval of the bankruptcy court, which may limit our ability to respond timely to certain events or take advantage of certain opportunities; and,

• We may be unable to retain and motivate key executives and employees through the process of a Chapter 11 reorganization, and we may have difficulty attracting new employees.

It has been estimated that a YRC bankruptcy would result in earnings of $76 million for ABF in the first 12 months following the bankruptcy. This would be much-needed cash for the Fort Smith trucking company that has also struggled during the previous 3-5 years to make ends meet.

Arkansas Best, the parent company of ABF, reported Feb. 3 a fourth-quarter net loss of $3.11 million, an improvement of the $22.1 million in the 2009 period. The fourth quarter per share loss of 12 cents missed the consensus 9 cent per share loss among 18 analysts surveyed by Thomson Financial.

Arkansas Best, which employs about 9,500 nationwide, posted a 2010 net loss of $32.421 million, an improvement compared to a $127.522 million net loss in 2009. The 2009 income loss included a non-cash accounting charge of $64 million for the impairment of goodwill.

Total revenue in 2010 was $1.657 billion, a 12.55% gain over 2009 revenue of $1.472 billion, but still less than the $1.833 billion total revenue in 2008.