Trucker YRC's struggles mount, rivals set to gain

Keith Graham, a truck driver for a unit of America's biggest trucking firm, YRC Worldwide, loads a truck in Holland, Michigan September, 20, 2007.

OVERLAND PARK, Kansas (Reuters) - The countdown is on for troubled U.S. trucking giant YRC Worldwide Inc (YRCW.O).

Industry players doubt it can complete a complicated bond exchange and restructuring, and attention is now turning to how a YRC failure could boost rival trucking companies.

"If YRC makes it into the new year, I'd be very surprised," said industry consultant and analyst Dick Armstrong, of Armstrong and Associates. "I don't think they are going to make it. There will be a lot of shifts in the industry because of that."

The pessimistic view followed word from YRC on Thursday that it was falling far short of needed bondholder approval for a $537.8 million debt-to-equity exchange that is the foundation of a financial restructuring essential for YRC's survival.

The company acknowledged on Thursday it might have only days left before its liquidity becomes "unsustainable." It said it must convince bondholders to swap debt for equity by December 31 to avoid a $19 million payment of interest and fees it cannot meet.

At the same time, YRC said it was lowering the threshold for participation, but acknowledged support had fallen below even the new threshold.

"The jig may be up," wrote industry analyst Ed Wolfe in a report to investors on Friday.

Wolfe recommended the aggressive purchasing of shares of YRC rivals and said its position was "dire" as it appeared a coalition of supporters made up of lenders, bondholders and pension fund interests was "fraying."

"We believe that the odds of YRC filing for bankruptcy and exiting the industry have gone up considerably," Wolfe said in his report.

Wolfe noted the shares of rivals rose an average 9 percent on Thursday, while YRC fell about 7 percent.

YRC shares closed down 3 percent on Friday, while its rivals' shares were up.

Industry analyst Jason Seidl of Dahlman Rose had similar doubts about the odds of survival and said YRC's potential demise would be a "game changing" event for the trucking industry. In a note to investors on Friday he forecast YRC would quickly lose up to 35 percent of its customers if was forced to file for bankruptcy.

"We believe that YRC will have a difficult time meeting the newly announced threshold ... If that proves to be the case, we would not be shocked to see the carrier attempt a pre-packaged bankruptcy," Seidl said.

YRC rivals, notably Arkansas Best Corp (ABFS.O) and Con-way Inc (CNW.N), are among those expected to benefit substantially. Both have made no secret of their efforts to take advantage of YRC's financial problems to woo business in the less-than- truckload industry.

Overland Park, Kan.-based YRC has been struggling with heavy debt made more onerous by the economic downturn that cut into business in the less-than-truckload industry it dominates. It has already laid off thousands of workers and cut deals with labor and lenders as it tries to hold onto customers.

The company acquired Roadway Corp in 2003 for $1.07 billion and then bought USF Corp in 2005 for $1.37 billion, adding not only to its debt, but also creating integration challenges.

YRC initially said it thought it could obtain approval from 95 percent of its bondholders on a proposed $536.8 million bond exchange. It said it would issue 42 million shares of common stock and 5 million shares of Class A convertible preferred stock, giving noteholders 95 percent of the company's common stock and effectively wiping out existing equity holders.

But after failing to get participation, the company said on Thursday it was lowering the threshold and extending the expiration date for the third time, to 11:59 p.m. EST December 23.

The company has said the exchange offer is crucial. Following its completion, the lenders have agreed to defer nearly all of interest and fees, which are about $25 million per quarter, and allow the company access to an existing $106 million revolver reserve.

(Reporting by Carey Gillam; editing by Andre Grenon)