KNX Knight Swift Transportation Holdings Inc

The leading transportation service provider in the world, YRC Worldwide (YRCW) received a commitment for a three-year asset-based loan (ABL) scheme worth $400 million. The introduction of this new facility will bring in fresh capital into the company and also replace the existing asset-backed securitization (ABS) facility. The deal is expected to be completed by July 22, 2011.

Earlier, in April 2011, YRC Worldwide entered into a deal with its creditors and labor union Teamsters Brotherhood to restructure its sagging finances. The lenders will inject fresh capital in return of equity capital and convertible debts. If this deal succeeds, then the lenders will gain a 72.5% equity control while the labor union will get a 25% equity control, leaving a mere 2.5% for the existing shareholders of the company. Thus, under this asset-backed securitization facility, the company will significantly dilute the wealth of the existing shareholders.

So, the introduction of this new facility will favorably position YRC Worldwide to protect its wealth. Moreover, the company has also decided to sell real estate assets worth $40 million in 2011 in order to streamline its existing debts.

Complying with its debt restructuring plans, YRC Worldwide has already divested the majority of the YRC Logistics division to a private equity firm, Austin Ventures in August 2010. So, this new asset-based loan scheme will most likely boost the company’s restructuring process as well as improve their liquidity position.

During the last two and half years, YRC Worldwide has been reeling under the threat of bankruptcy resulting from a significant fall in freight volume coupled with its highly leveraged balance sheet. Although the U.S. trucking industry is recovering from the slowdown, YRC Worldwide fails to cope with this current recovery. Currently, the company is also facing intense competition from Arkansas Best Corporation (ABFS), Heartland Express, Inc. (HTLD) and Knight Transportation Inc. (KNX).

We, thus, maintain our long-term Neutral recommendation for YRC Worldwide. Currently, YRC Worldwide has a Zacks#4 Rank, implying a short-term Sell rating on the stock.

 
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