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YRC Worldwide Can't Shake Downward Spiral In Q2

|Includes:YRC Worldwide, Inc. (YRCW)
There is little good news from YRC Worldwide's Q2 filings.  Their per-share net losses narrowed to a penny, beating Wall Street analysts' consensus estimate of an $0.08/share loss.  That's small comfort given the looming problems the company still faces.

The LTL carrier found a way to make its August payment to its remaining bondholders without selling any mothballed freight centers.  They're issuing debt (maturity 2014) at a 6% coupon, which is 100 basis points more costly than the debt they're trying to retire (maturity 2023).  The finer point is difficult to ignore:  YRCW is faced with exchanging long-dated debt for short-term debt at a higher interest cost.  A rapidly inverting yield curve is a sign that bond underwriters are faced with selling this company's debt to increasingly skeptical buyers.  This cannot be anything but negative news for the company's credit standing or short-term solvency. 

YRCW will face further trouble with a pension contribution "snapback" poised to clobber whatever earnings it may post in early 2011.  This $300mm unfunded liability can be deferred only if the company and its union leaders agree on further concessions early enough in Q3 to allow drivers to vote for another deferral in Q4.  The negotiations deserve scrutiny but it remains to be seen whether the Teamsters can back away from their strident demands for restored benefits long enough to allow YRCW the breathing room it needs. 

The story of YRCW seems to be one step forward, one and a half steps back.  The next half step back may return it to the path it was on in 2009 - toward bankruptcy. 

Disclosure: No position in YRCW
Stocks: YRCW