"35 Percent of Zero" is Not Positive

A leading trucking industry analyst is predicting the demise of YRC Worldwide, the nation's largest trucking company by revenue. David Ross of Baltimore-based Stifel Nicolaus says that YRC's bankruptcy, while not imminent, "is becoming increasingly likely." Whether YRC opts for Chapter 11 reorganization or Chapter 7 liquidation is unclear. For its part, YRC's management continues to say its restructuring plan is on course despite losses in excess of $2 billion in the last 10 operating quarters.

  Don't look for respected trucking analyst David Ross of Stifel Nicolaus to be invited to any YRC Worldwide corporate golf outings anytime soon. But given YRC's dire financial conditions, those corporate golf outings probably were jettisoned months ago.

  Ross has written the trucking analysts' equivalent of an 800-pound elephant breaking wind in a closed room--he is predicting a likely bankruptcy filing by YRC Worldwide, the nation's largest trucking company.

  Downgrading his stock advisory on YRC from "hold" to "sell," Ross came out with a no-holds-barred report calling YRC's stock basically worthless. Shares are selling for about $2.07, about a 90 percent drop from year-ago values.

  Noting that YRC's 35,000 Teamsters now own about one-third of the company as a result of approval of yet another wage giveback and pension freeze, Ross calls the Teamsters' stake in the company equally worthless, noting: "35 percent of zero" is still zero.

  Ross is not exactly saying when the bankruptcy might occur, but first quarter 2010 is a good guess. That's the slowest freight period. YRC just reported a $307 million loss, including a large writedown of goodwill, in the second quarter, usually the most robust period for trucking companies.

  For its part, YRC continues to say it is on plan--whatever that plan is, survival must be No. 1 on its to-do list.

  It says it is reporting "significant progress" on its plan to manage through the recession. It thanked its major "stakeholders," including lenders and workers, for their continued flexibility while YRC tries to find its way.

  YRC can't blame its workers. The latest 5 percent wage giveback and pension freeze is estimated to be saving the company $45 million a month. That figure rises to $50 million next year--if there is a next year for YRC.

  It also is continuing to gain liquidity from expensive sale-leaseback arrangements of its terminals. That is expected to generate about $375 million in proceeds the rest of the year. Its consortium of lenders continues to give YRC extensions of its limits of debt covenants, but one must wonder how much longer that can go on.

  As Ross told the Akron Beacon Journal: "The company was over-levered and mismanaged from the top down. I don;t think the banks are going to give them any more money."

  If that happens, it's game-set-match. That's exactly what happened the weekend of Labor Day 2002 when bank lenders pulled the plug on 75-year-old Consolidated Freightways, then a $3 billion Teamsters-covered carrier. Next thing I remember from that weekend was CF terminals going on the auction block--and fetching very attractive prices during that liquidation.