UPDATE 2-YRC shares dive 64 pct on debt exchange offer

(Contains language in 15th paragraph which may be offensive to some readers)

* Shares plunge 64 percent to $1.32 on exchange details

* Shares outstanding could rise to 1.6 bln from 60 mln

* Successful exchange to open up $106 million reserve

(Adds S&P downgrade, company comment and details)

By Carey Gillam

OVERLAND PARK, Kan., Nov 2 (Reuters) - Shares of major U.S. trucking company YRC Worldwide (YRCW.O) sank 64 percent on Monday after the company revealed that a debt exchange offer it is making may lead to the issue of a massive number of new shares and hand over the bulk of the company to noteholders.

Based on the terms of the offer, which is seen as vital for the survival of the company and is a contingency for several lender agreements, YRC may have to issue up to 1.6 billion new shares, or nearly 27 times the about 60 million currently outstanding, analysts said.

Shares closed down 64 percent at $1.32 on the Nasdaq on Monday after YRC revealed details of the exchange offer, and said it would move immediately to seek shareholder approval.

"We think that YRCW is down to the last bullet in its gun as evidenced by the dilution associated with this proposed debt-for-equity swap," RBC Capital Markets analyst John Barnes wrote in a note to investors on Monday.

"We continue to believe that the concessions granted it by its bank group and potentially other stakeholders is only acting to delay the inevitable."

But many analysts generally viewed the debt exchange as beneficial to the No. 1 U.S. less-than-truckload (LTL) carrier, which has been struggling to stay out of bankruptcy, though some thought it might not be enough to keep the company afloat.

"While the exchange offering might not be great for current shareholders, we believe YRC has significantly increased its ability to avoid bankruptcy if the exchange offer is accepted by bondholders," said Longbow Research analyst Lee Klaskow.

"The transaction would help strengthen YRC's balance sheet and increase shippers' confidence in YRC's long-term viability in our view."

YRC has insisted it is restructuring its finances in a way that will allow it to rebound from a host of financial woes.

"This group understands our comprehensive plan and the long-term value of this company," said YRC Chairman Bill Zollars of the bondholders. "The completion of the note exchange is an important milestone in our plan, which is expected to improve our cash flow and capital structure."