YRC Worldwide Inc. #B-# Rating Affirmed On Proposed Term Loan New Debt Rated #B#; Outlook Stable

Stocks and Financial Services Press Releases Friday July 14, 2017 09:23
NEW YORK--14 Jul--S&P Global Ratings
NEW YORK (S&P Global Ratings) July 13, 2017--S&P Global Ratings today affirmed its 'B-' corporate credit rating on Overland, Kan.-based less-than-truckload (LTL) trucking company YRC Worldwide Inc.

The outlook is stable. At the same time, we assigned our 'B' issue-level rating to the company's proposed amended $600 million secured term loan B due in 2022. The '2' recovery rating indicates our expectation for substantial recovery (70%-90%; rounded estimate: 80%) in the event of a payment default. Upon close of the amendment, we expect to withdraw our ratings on the company's existing $700 million term loan B due in 2019.

The affirmation reflects our belief that the reduction in debt pro forma for the proposed transaction, along with continued gradual improvement in YRC's operating performance, will result in credit measures commensurate with the rating. We expect credit measures to remain highly leveraged due to the company's significant off-balance-sheet debt-like obligations, which include about $10 billion in contingent obligations related to multiemployer pension plans.

YRC began prioritizing yield and freight mix over tonnage growth in the second quarter of 2014, after it extended its labor contract with the International Brotherhood of Teamsters to 2019.

The amendment would extend the term loan maturity to 2022, which we view favorably, despite the increased interest rate. Also, the company has delivered profitability improvements and good cash generation in recent years, which we expect to continue.

Following previous underinvestment, we expect YRC to continue to increase capital expenditures (capex) to upgrade its fleet and operating technology, which should also contribute to the company's improved operating performance.

The stable outlook reflects our belief that YRC will continue to benefit from gradually improving market conditions and favorable pricing. We believe that the company's credit measures will remain in line with our expectations for the rating.

We could lower our ratings on YRC in the next year if the company faces unexpected liquidity pressures or we come to believe, based on earnings prospects and debt burden, that its capital structure is unsustainable long-term.

Due to the company's highly leveraged financial risk profile, including its substantial multiemployer pension plan contingent liability, we view it as unlikely that we would raise the rating over the next 12 months.


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