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05 Feb 2008
Moody's affirms YRC's ratings; outlook changed to negative
Approximately $900 million in debt securities affected
New York, February 05, 2008 -- Moody's Investors Service has affirmed the ratings of YRC Worldwide
Inc. ('YRC'), Corporate Family Rating at Ba1.
In a related action, Moody's has changed YRC's rating
outlook to negative from stable. The outlook was changed in response
to expectations of a continued soft operating environment in the trucking
sector, in conjunction with weaker than expected operating results
that the company has recently announced for the fourth quarter of 2007.
On January 28, 2008, YRC announced fourth quarter 2007 operating
results that showed substantial deterioration in performance for the year,
citing the current weak economic environment with unexpectedly soft volume
levels at both its national and regional transportation subsidiaries.
The company also provided a limited degree of guidance as to its 2008
operating plans, but did not express likelihood for a recovery in
operating performance over the near term due to continued uncertainty
surrounding the economic conditions in the trucking sector.
YRC's Ba1 Corporate Family Rating reflects the company's leading
positions in national and regional LTL (less-than-truckload)
transportation and a reputation for strong service levels. Ratings
are also supported by its historical ability to reduce costs while integrating
large acquisitions, Roadway in particular, resulting in improved
yield through market cycles. However, during the most recent
downturn, cost reduction has not been as evident, and operating
ratios have dropped below levels expected for YRC at this point in the
cycle. Over the near term, in consideration of the current
sharp and possibly prolonged industry downturn, the Ba1 rating and
negative outlook considers uncertainty as to the restoration of profitability
in the company's core LTL businesses, and the ability of YRC
to accomplish cost improvements to accommodate a lower freight volume
The ratings also consider YRC's high total debt levels (including
Moody's standard adjustments, including pension plans) relative
to the volatility in earnings and cash flows inherent in the severely
cyclical trucking industry.
Key credit metrics such as Retained Cash Flow to Debt, EBIT / Interest,
and Debt to EBITDA are currently weaker than Ba1 peers, as they
are negatively impacted by the weak economic conditions prevailing in
the trucking sector and a high debt burden related to adjustments for
multi-employer pension plans. However, Moody's
notes that YRC has shown its commitment to reduce debt through free cash
flow, and expects that the company will resume such practices once
industry conditions allow this. In addition, YRC maintains
an adequate liquidity profile which will likely be appropriate to cover
modest unexpected cash shortfalls over the near term, barring substantial
further deterioration in market conditions.
The negative ratings outlook anticipates LTL markets will continue to
be soft through 2008, precluding any near term improvement in YRC's
operating results, and that operating ratio's will remain
in the high 90% range. Moody's also anticipates that
weaker seasonal first half 2008 cash flows and operating profits will
further stress credit metrics.
The ratings could be downgraded if the free cash flow were to be neutral
or negative in 2008, or if liquidity were to deteriorate due to
increased reliance on the credit facility to fund cash shortfall.
Ratings could also be lowered if weaker operating performance were to
impair the likelihood of compliance with financial covenants in the company's
credit facility, possibly requiring waivers or amendments of terms.
The ratings could be stabilized if free cash flows return to strongly
positive levels in 2008, with operating ratios returning to the
mid-90% range. The company will have to demonstrate
the maintenance of a solid liquidity position throughout this period,
with only minor and temporary reliance, if any, on the revolving
credit facility to cover cash requirements while maintaining ample cushion
..Issuer: Roadway LLC
....Outlook, Changed To Negative From
..Issuer: USF Corporation
....Outlook, Changed To Negative From
..Issuer: YRC Worldwide Inc.
....Outlook, Changed To Negative From
YRC Worldwide does business through two national less-than-truckload
(LTL) companies, YRC National Transportation, which comprises
the long-haul operations that comprises the legacy Yellow and Roadway
businesses (about 69% of total FY 2007 revenue), and through
YRC Regional Transportation , a regional LTL business essentially
comprising YRC's acquired USF companies (about 25% of revenue).
Through its YRC Logistics business unit, the company also offers
logistics and supply chain services. YRC's broad service
offering includes next day and expedited service throughout most of the
Michael J. Mulvaney
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
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