Monday, November 2, 2009

Another day, another common stock wipeout (YRCW)

Well maybe not a total wipeout yet, but close to it. CIT Group (CIT) common stockholders aren't the only ones trying to figure out what they're left with in a reorganization today.

Trucking firm YRC Worldwide (YRCW) outlined details of its debt exchange offer, designed to give it more breathing room in terms of debt repayment. The dilution to common stockholders was larger than expected, sending shares down 55% to $1.65, a far cry from the $80dollars they fetched a few years back:

Most notably, from the release:

"In the aggregate and with full participation, noteholders would exchange approximately $536.8 million in face value of Notes plus accrued and unpaid interest for shares of common stock and new Class A Convertible Preferred Stock, which together on an as-if converted basis would represent 95% of the company's common stock, with a provision for options to be granted to the company's union employees pursuant to the company's recently ratified Amended and Restated Memorandum of Understanding on the Job Security Plan."

So, current common stock holders will own 5% of the company, BEFORE options are dolled out to current union employees.

Taking a look at recent years' financial performance, one could value this company extremely generously at 10times the previous $270million in net income, or $2.7billion. The 5% remaining for common stockholders would amount to a market value of $135million, versus the approximately $96million it's trading at right now. The difference in those figures might be panic selling, it might reflect the yet-to-be-issued stock options for union employees, or it may reflect the idea that common stockholders are not very important to management.

-->> RBC pegged fair value at zero, before the company announced the debt exchange terms. They see volume declines at YRC as worse than the competition, with ongoing operating losses.

-->> JPMorgan took a stab at valuing the company based on the proposed exchange, and sees 80cents per share as a fair price for the common stock.

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