YRCW Restructuring Successfully Dilutes Shareholders Into Irrelevancy

The latest news from YRC Worldwide (YRCW) is confirmation of the company’s ability to eke out an existence that defies reality. Its creditors have agreed to a restructuring. The plan is to cancel the company’s massive debts by issuing massive amounts of new equity shares to debt holders. This will leave existing shareholders with no more than 2.5% of the company. Let’s do some quick math on that revaluation. YRCW closed Friday at $1.98/share. Reducing that to 2.5% means a single share after dilution will have a market value of $0.0495. The stock isn’t even worth a nickel. It will be worth even less if management exercises further dilutive rights after the new equity is issued.

This instant devaluation will immediately subject the firm to another delisting review by NASDAQ. That delisting will make it very difficult for the company to raise the $100mm in new capital it needs to survive.

The earnings call on May 6 will reveal just how long the proposed new financing will carry the company. The company’s total cash flow in 2010 was about $61.5mm, so $100mm in new financing would theoretically last more than a year at their present burn rate. If net income turns negative again, the new asset-backed loan covenants may require the surrender of assets. What are the triggers? Creditors are not fools and will not provide money for free. Let’s see the agreement’s details, please.

YRCW’s Pyrrhic victory in restructuring ultimately leaves nothing of value for individual shareholders. This can’t go on forever.

Full disclosure: No position in YRCW

About Anthony Alfidi 128 Articles

Affiliation: Alfidi Capital LLC

Anthony Alfidi is the Founder and CEO of Alfidi Capital. His firm publishes free investment research with honesty and humor.

Mr. Alfidi holds a Bachelor's degree in human resource management from the University of Notre Dame (cum laude) and an MBA in finance from the University of San Francisco. He is a life member of Beta Gamma Sigma, the academic honor society for business majors. He has been a private investor since the 1990s.

2 Comments on YRCW Restructuring Successfully Dilutes Shareholders Into Irrelevancy

  1. sop with Alfidi please!!!!!! my boyfriend read in pre-mkt this article with tgt. on yrcw 0.04, he shorted and he got killed!!! stop with this incompetent please!!!!

    • Hey “jasmine,” it sounds like your boyfriend is the incompetent one in this situation. YRCW closed at the following prices (from Yahoo Finance if you care to check for yourself):

      $1.98 on Apr. 29, 2011
      $1.51 on May 2, 2011
      $1.29 on May 3, 2011

      The share price continued to slide in subsequent days. If your boyfriend had held onto his short position, which you claim he initiated, he would have made money as the share price kept sliding. BTW, your posting is full of grammatical errors. You are incompetent, not me, and you are probably also a liar. I will continue to post my thoughts on the stock market because I am a genius and I have a moral obligation to embarrass idiots like you. Have a nice life, loser.

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