YRC's attempt to eliminate put option for convertibles denied by court

By Angela McDaniels

Tacoma, Wash., July 6 - YRC Worldwide, Inc. cannot eliminate the put options for its 5% net share-settled contingent convertible senior notes due 2023 and 3.375% net share-settled contingent convertible senior notes due 2023 as planned, according to an 8-K filing with the Securities and Exchange Commission.

The U.S. District Court for the District of Kansas ruled on July 1 in favor of note trustee Deutsche Bank Trust Co. Americas and concluded that the company cannot eliminate the put options without the consent of each noteholder affected.

During an exchange offer and consent solicitation in December 2009, the company received consents from holders of 94% of the convertibles to remove substantially all of the material covenants from the indentures governing the notes other than the obligation to pay principal and interest and those relating to conversion rights and to eliminate or modify the related events of default.

Holders of the 5% convertibles have a put option on Aug. 9. The next put option for the 3.375% convertibles is Nov. 26, 2012.

The company said it is evaluating its options and may elect to appeal the ruling.

As of July 1, $20.07 million principal amount of 5% convertibles and $1,601,000 principal amount of 3.375% convertibles are outstanding.

In February, the company arranged to sell up to $70 million of additional 6% convertible senior notes in two closings to a group of investors. It plans to use the proceeds from the issuance of $20.2 million of these convertibles to fund the Aug. 9 put option.

The obligation of the investors to purchase these 6% convertibles is subject to customary closing conditions. If YRC is not able to meet these conditions, it will have to use existing cash or obtain other third-party unsecured debt or equity financing to fund the put option, which would likely require the consent of a majority of its senior lenders, according to the SEC filing.

The company warned that it cannot assure that the financing can be obtained prior to Aug. 9, that it will have enough cash or that its senior lenders will grant their consent.

YRC is an Overland Park, Kan.-based provider of transportation services for the shipment of industrial, commercial and retail goods.

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