RLPC: YRC loan refinancing hauling in up to $250M savings - CFO

NEW YORK Tue Feb 4, 2014 2:16pm EST

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NEW YORK Feb 4 (Reuters) - Trucking company YRC Worldwide Inc, fresh off a hard-fought Teamsters contract extension that paved the way for debt restructuring, will save up to $250 million over the next five years with a leveraged loan refinancing now in the market, Chief Financial Officer Jamie Pierson told Thomson Reuters LPC.

The company, on the brink of bankruptcy about two years ago, got relief late last month from a five-year contract extension with union members that had voted down a prior version.

YRC's $1.1 billion refinancing, shelved after the first contract failed, resurfaced two days after the successful second vote. The loan, which launched January 28, is expected to close by mid- to late February.

"We think in the aggregate on a cash basis we're going to save $40 million to $50 million a year" for the five-year life of the loan, Pierson said. Those savings can be reinvested in equipment, technology and staff, he added.

The new union agreement eased the way for YRC to borrow at an opportune time. It is an issuer-friendly market for leveraged loans.

Investors clamoring for high-yielding assets and floating-rate exposure are empowering low-rated companies to slice yield spreads on debt, often with fewer lender protections.

YRC's pending refinancing will shave several percentage points off of existing commitments.

The funding will consist of a $700 million, five-year senior secured term loan and a $450 million asset-based lending facility. The new term loan retires both the outstanding term and asset-based loans, Pierson said.

Pricing is guided at 6.75 percentage points over Libor, with a 1 percent Libor floor, offered to buyers at an original issue discount of 99, sources told Thomson Reuters LPC.

As of September 30, about $299 million of the existing term loan and $326 million of the asset-based loan remained, said Pierson. Interest rates on those are 10 percent and about 8.5 percent, respectively, he said.

Debt restructuring was always planned by current YRC management, which took control in 2011, said Pierson.

"We're one to two quarters behind where I wanted to be when we refinanced, but it may have benefited us," he said. "Not because the company's doing so much better, but because the market's that much hotter."

Commitments from lenders are due February 11.

Credit Suisse leads the senior secured term loan and RBS Citizens leads the asset-based loan portion.

On top of the refinancing savings, YRC, after the union vote at the end of January, restructured other obligations to reduce total debt.

On January 31, YRC said it was retiring convertible notes with the proceeds of $250 million of new equity, and converting $50 million of debt to equity.

That streamlining "allows us to trim $300 million of debt off of our balance sheet, and now we're also able to go out to the markets at a much more reasoned levered basis and get an incredibly better interest rate than what we have been paying," said Pierson.

With the negotiations and contract extension behind it, and debt restructuring nearly complete, the focus returns to operations, he added.

"I want this to be a boring story," he said.

The Overland Park, Kansas-based company, which doesn't typically provide earnings guidance, last month said it expected adjusted Ebitda of $250-$260 million for full-year 2013 and an increase to about $350-$360 million for 2014.

The economy remains neither particularly soft nor strong, but less-than-truckload (LTL) competitors are not undercutting each other with deep pricing discounts, according to Pierson.

LTL refers to the transport of goods from various shippers that are combined in a truck, delivered to a hub and then sorted further for final delivery.

"In the LTL segment, pricing continues to be rational," Pierson said. "No-one is out there just trying to grab share with price, which benefits all of us."

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