Shares in YRC Worldwide lost almost a fifth of their value on Christmas Eve after North America’s biggest truck operator said it was in talks with a group of banks to ease terms of its credit facilities.
It also cancelled an offer to buy back up to $150m in senior debt after failing to finalise proposals for a 10 per cent wage cut with the Teamsters union. The wage cut, designed to sharpen YRC’s competitive edge against non-union operators, was a condition of the buy-back offer, which expired on December 23.
The company also warned that the downturn in its business has accelerated in the fourth quarter, with weakening volumes and prices. Its average daily US tonnage was 11.8 per cent lower in October and November than a year earlier, compared with a 7.2 per cent decline in the third quarter.
Trucking is widely seen as a barometer of future US economic activity. In spite of lower diesel prices, the industry continues to suffer from a drop in volumes and ferocious competition.
Justin Yagerman, analyst at Wachovia Securities, said that YRC’s tonnages have probably shrank further this month in line with weak manufacturing activity, harsh winter weather and lacklustre retail sales.
“The cancellation of its tender offer combined with alarming tonnage declines in the fourth quarter will drive heightened uncertainty over YRC’s ability to remain an ongoing concern,” Mr Yagerman added.
Moody’s immediately cut YRC’s credit ratings, pointing to its rising debt load and the overall weakness of the US trucking industry. The rating agency said that YRC was at risk of defaulting on some of its debt in 2010.
YRC said that it aimed to complete talks with its banks by late January “that would enhance the company’s financial flexibility, including changes to its leverage ratio”.
Bill Zollars, chief executive, said: “Given the economic uncertainty, we believe it is more productive to pursue a revised arrangement with our banks as an alternative to completing the tender offer.”
YRC said it expects the Teamsters to ratify the wage cut around the end of the year. In exchange, unionised employees will receive a 15 per cent equity stake in the company.
YRC expects to maintain sufficient liquidity to fund operations through the wage cuts, the sale of “excess facilities”, sale and leaseback deals on terminals and a reduction in equipment purchases next year.