UPDATE 1-YRC in debt exchange talks

* 95 pct of bondholders needed to convert

* Ratings downgrades follow announcement

* Shares end down 10 percent (Adds byline, updates with ratings agency comment,)

By Carey Gillam

OVERLAND PARK, Kan., Oct 30 (Reuters) - YRC Worldwide Inc(YRCW.O) is well on the road to regaining its financial footing as it negotiates with bondholders for a debt exchange, company officials said on Friday.

YRC wants to exchange its outstanding USF 8-1/2 percent notes and its contingent convertible notes and is currently negotiating the terms of such an exchange with a committee of its noteholders, with the goal of having a deal by the end of the year, YRC Chairman Bill Zollars said on Friday.

Those talks follow a series of negotiations with lenders and labor that have helped YRC to maintain liquidity amid steep declines in volume and tough pricing competition.

"The latest credit agreement shows the support we've got from the lenders," said Zollars. "The final piece of the puzzle is the bond exchange, which we're pretty confident we'll get done before the end of the year."

The company needs at least 95 percent of its bondholders to convert by Dec. 16 or 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," well below the face value of the notes.

YRC officials said downgraded credit ratings were expected but should be temporary.

Fitch Ratings characterized the plan as a "coercive debt exchange. Fitch cut YRC's issuer default rating to a 'C' from "CC" and downgraded its secured credit facilities to 'CCC/RR2' from 'B-/RR2' among other downgrades, though senior secured notes were affirmed at 'C/RR6.' The ratings cover about $537 million in notes, an $111.5 million secured term loan and a $950 million secured revolving credit facility.

"The exchange of debt for equity is tantamount to a material reduction in terms for the note holders, while Fitch views the very real threat of a liquidity crunch and bankruptcy absent the exchange as putting pressure on note holders to participate in the transaction," Fitch said.

Shares in YRC closed down 10.1 percent at $3.65.

YRC officials said the company was positioned to grow its market share and return to its role as industry leader in the less-than-truckload (LTL) market after months of industry speculation it might be forced into bankruptcy.

"We continue to prove the naysayers wrong," said YRC chief financial officer Sheila Taylor. (Reporting by Carey Gillam)