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Rating Action:

Moody's revises YRC's Probability of Default Rating to Caa2\LD; upgrades CFR to Caa3

28 Jul 2011

Approximately $1 million of debt securities affected

New York, July 28, 2011 -- Moody's Investors Service revised YRC Worldwide Inc.'s ("YRCW") Probability of Default Rating ("PDR") to Caa2\LD ("Limited Default") from Caa3 in recognition of the agreed debt restructuring which will result in losses for certain existing debt holders. In a related action Moody's has raised YRCW's Corporate Family Rating to Caa3 from Ca to reflect modest but critical improvements in the company's credit profile that should result from its recently-completed financial restructuring. Moody's will remove the PDR's LD modifier after three business days. In addition, Moody's has assigned to YRCW a Speculative Grade Liquidity Rating of SGL-3. The ratings outlook is stable.

Upgrades:

..Issuer: YRC Worldwide Inc.

.... Probability of Default Rating, Upgraded to Caa2/LD from Caa3

.... Corporate Family Rating, Upgraded to Caa3 from Ca

Assignments:

..Issuer: YRC Worldwide Inc.

.... Speculative Grade Liquidity Rating, Assigned SGL-3

Outlook Actions:

..Issuer: YRC Worldwide Inc.

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

The positioning of YRCW's PDR at Caa2\LD reflects the completion of an offer to exchange a substantial majority of the company's outstanding credit facility debt for new senior secured credit facilities, convertible unsecured notes, and preferred equity, which was completed on July 22, 2011. This offer, in which lenders under the prior credit facilities receive consideration that is significantly inferior to a full repayment of the obligations at par, was conducted as part of a broader financial restructuring program designed to establish a sustainable capital structure going forward. As such Moody's views this transaction as a distressed exchange. For further details on this topic, please see our Rating Methodology "Moody's Approach to Distressed Exchanges," published March 2009.

Moody's raised YRCW's PDR to Caa2 in recognition of critical relief on its long-term debt service requirements and operating costs that the company was able to achieve through its recently-completed restructuring efforts. These transactions provided the company with important concessions on labor costs -- pension contributions in particular, as well as lower cash interest expense than YRCW would otherwise encounter without the restructuring. This, along with the recent trend toward volume and yield improvement in the less-than-truckload ('LTL') segment of the industry, suggests the potential that the company can meet near term debt service requirements through cash generated by operations, and supplemented by additional asset sales and additional borrowings under its ABL facility. However, as the refinancing involves an increase in overall debt, the company's leverage remains elevated, and pro forma credit metrics are correspondingly weak. Moody's estimates pro forma leverage (Debt to EBITDA) of over 10 times, and EBIT coverage of interest well under one time. We expect these metrics to improve through 2012, anticipating a modest improvement in profitability over this period. However, we do not expect metrics to improve to levels commensurate with companies rated higher than Caa2 over the near term.

In addition, the ratings are constrained by risks in the company's liquidity profile. YRCW's Speculative Grade Liquidity of SGL-3 reflects our assessment of that YRCW's liquidity condition as adequate relative to its near term operating plan, although not robust for a company of this size. The company has approximately $150 million in cash on hand on close of the restructuring transactions. With free cash flow that is expected to be negative as much-needed increases in capital spending are pursued over the next few years, we believe that there is risk that the company's cash reserves and availability under its ABL facility may be diminished, particularly if YRCW cannot achieve margin improvements and revenue growth as planned.

The Caa3 corporate family rating is one notch below YRCW's PDR, reflecting Moody's assessment that debt holders would experience substantial loss in the event of a future default. Although funded debt has been materially reduced through past debt exchanges, YRCW still has substantial debt and pension liabilities that are considered in recovery analysis per Moody's Loss Given Default (`LGD') methodology. Pension liabilities alone (both multi-employer pension plan as well as company-sponsored plan) represent almost one-half of the liabilities considered in YRCW's LGD waterfall. Because of the sizeable liability implied by these plans, Moody's uses a 35% family recovery assumption in the application of LGD methodology towards YRCW's ratings.

The stable ratings outlook reflects our belief that the company will be able to generate modest, but positive operating income through 2012, which will result in the generation of operating cash flow that will cover a substantial portion of YRCW's planned capital spending. Any cash shortfalls over the near term are expected to be covered through asset sales and modest increases in ABL borrowings.

Ratings could be lowered if the company is not able to restore operating margins to at least 2% or grow sales by at least 5% over the near term, possibly resulting in a tightening in liquidity due to a reduction in cash reserves, or increasing borrowings under the ABL facility. A downgrade could also occur if liquidity is further stressed by the potential for breach of financial covenants prescribed under the company's term loan facility, which tighten in 2012, or if the borrowing base availability were to diminish due to lack of growth in the company's overall revenue base.

YRCW's ratings or their outlook could be raised if the company were to improve operating margins to such levels that the company can generate sustainably positive free cash flow, while undertaking a capital spending program in excess of 5% of revenue, and improving its liquidity condition by increasing cash reserves as well as availability under its ABL facility. Debt to EBITDA of less than 6.5 times and EBIT to Interest coverage approaching one time could indicate higher rating consideration.

The principal methodology used in this rating was Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

YRC Worldwide Inc. is a less-than-truckload ('LTL') trucking company headquartered in Overland Park, Kansas.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

New York
David Berge
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's revises YRC's Probability of Default Rating to Caa2\LD; upgrades CFR to Caa3
No Related Data.
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