YRC shares plunge on details of debt exchange

By Carey Gillam

OVERLAND PARK, Kansas (Reuters) - Shares of troubled trucking giant YRC (YRCW.O) Worldwide plunged early on Monday as the company moved to launch a critical debt exchange offer this week.

Details of YRC's plan to convert roughly $500 million of debt for equity looked to be more dilutive than the market expected, analysts said.

Shares fell 53 percent to $1.71 in morning trade on Nasdaq after YRC said it will seek shareholder approval to increase its amount of authorized shares of common stock, approve an equity plan and effect a reverse stock split.

Still, 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.

"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 said Monday it would launch the exchange offer this week for holders of its contingent convertible notes and an 8.5 percent note issue. If successful, the exchange would allow the company open access to the existing $106 million revolver reserve and to begin deferring payment of lender interest and fees of approximately $25 million per quarter.

Noteholders would exchange approximately $536.8 million in face value of the notes plus accrued and unpaid interest for shares of common stock and new Class A Convertible Preferred Stock, which together on an as-if converted basis would represent 95 percent of the company's common stock.

There would be a provision for options to be granted to the company's union employees.

Overland Park, Kansas-based YRC needs at least 95 percent of its bondholders to convert by December 16 or it must seek further lender agreements as a range of the extensions and credit arrangements depend on a successful exchange.

Officials said no cash outlays to bondholders are expected, even if the vote falls shy of the needed 95 percent.

Moody's Investors Service said the plan was likely to be viewed as a "distressed exchange, and Fitch Ratings characterized the plan as a "coercive debt exchange.

(Reporting by Carey Gillam, editing by Dave Zimmerman)