SCDigest
Editorial Staff
| SCDigest Says: |
 YRWC (Yellow Roadway) is now under significant financial pressure to reduce debt and meet its loan covenants (financial requirements under terms of a loan).
Click Here to See Reader Feedback
|
After heady times in 2004-2006, business for most trucking companies started to slow in 2007, and then has slumped dramatically in recent months as the domestic and global economy cratered.
What will be the ultimate impact to the trucking industry and shippers?
That’s hard to say, although it’s clear much capacity has already been removed from the market, especially from independent and smaller trucking firms, as demand and rates drooped sharply earlier this year even as fuel costs soared. In May, the American Trucking Associates found that more than 800 trucking firms with at least five vehicles had left the market in Q1 2008, and many believe that number went over 1000 in Q2. That doesn’t include sole proprietors that have left the market, and was before the financial crisis and recessionary environment that has reduced freight demand even further.
Those financial pressures are now hitting even the industry’s largest carriers hard.
As reported last week by transportation industry analyst Ed Wolfe of Wolfe Research, YRCW (Yellow Roadway) is now under significant financial pressure to reduce debt and meet its loan covenants (financial requirements under terms of a loan).
Wolfe reports that YRCW ended the third quarter with a debt to EBIDTA ratio of just 3.2, “dangerously close” to its load covenants that require a maximum ratio of 3.5. Wolfe Research “believes that YRCW is likely to take further action in the near term to reduce debt and avoid a covenant breach,” which can lead to various unpleasant consequences.
What can YRCW do to reduce its debt levels? Without getting too much into the financial minutia. Wolfe says the company can use a revolving bank credit line to retire other bond debt, which would “likely extend its potential covenant breach another 2-3 quarters.”
Wolfe says the company may also look to sell assets to raise cash and retire debt, including selling redundant terminals that resulted from the Yellow acquisition of Roadway Express in 2003. Unfortunately, there may be few buyers for those terminals in this environment, a situation made worse by recent market availability of 40 small Con-Way LTL terminals and 300 DHL parcel terminals coming to market.
Is the current YRWC debt load the result of borrowing to fund Yellow’s purchases of competitors Roadway and US Freightways?
(Transportation Management Article - Continued Below)
|
Transportation Management Focus : Our Weekly Feature Article on Transportation Management Strategies, Best Practices and Technologies for the Transportation and Logistics Practioner 
Most of YRWC’s debt was issued after the Roadway merger, so it is not directly attributable to that acquisiton. 
