Goldman Sachs Helps YRC Avert Bankruptcy Following Hoffa’s Plea

Goldman Sachs Helps YRC Avert Bankruptcy Following Hoffa’s Plea

Jan. 1 (Bloomberg) -- Goldman Sachs Group Inc. helped YRC Worldwide Inc. complete a debt swap to avert bankruptcy after the Teamsters union said the bank was trying to profit from a failure of the largest U.S. trucker by sales.

A group consisting of Goldman Sachs, Deutsche Bank AG, Aristeia Capital LLC, Silverback Asset Management and a Smith Management LLC unit, “got us over the goal line by going into the market, buying bonds and tendering them,” YRC Chief Executive Officer Bill Zollars said yesterday.

YRC extended the deadline for the bond exchange six times in December as it sought to overcome resistance from bondholders owning derivatives that would pay out if the company defaulted. YRC, which has posted $1.7 billion in losses in the past five quarters, needed to complete the exchange by Dec. 31 to avoid a bank payment that would have left the trucker in an “unsustainable” position, the Overland Park, Kansas-based company said in a regulatory filing two weeks ago.

International Brotherhood of Teamsters President James Hoffa said in letters last month to regulators and lawmakers that Goldman Sachs and Deutsche Bank were among banks that “have a history of making markets in these types of derivative financial products.”

Goldman Sachs spokesman Michael DuVally said Dec. 17 that the bank was “actively exploring ways to help” YRC.

Bondholders with 70 percent of YRC’s $150 million of 8.5 percent notes due in April offered to tender, meeting the required threshold, the company said yesterday in a statement. That’s an increase over the 59 percent that participated by Dec. 29. Holders of 88 percent of all of the company’s outstanding bonds, with a face value of $470 million, participated in the exchange, the company said.

Profit From Failure

YRC’s $150 million of 8.5 percent notes rose 4.8 cents to 65.1 cents on the dollar yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

“The most difficult bondholders to deal with were investors with credit-default swaps that paid off if the company went bankrupt,” Zollars, 62, said in a telephone interview. “It doesn’t seem right that individual investors would make money against companies surviving, particularly in this economy.”

No so-called less-than-truckload company -- one that hauls goods for more than one customer in the same trailer -- has survived bankruptcy in the last 30 years, according to the Teamsters, the union that says it represents about 30,000 YRC employees.

“We never want to test that theory,” Zollars said. “We’re completely focused on not having to go into bankruptcy and one of the biggest ways to do that is to take nearly $500 million of debt off the balance sheet.”

Teamsters Campaign

The Teamsters urged hedge funds and banks it believed owned the debt to vote for the exchange or sell their securities. In the last two days, efforts to build support paid off, Zollars said.

“We worked closely with YRC’s advisers and other bondholders over the holidays to rally support for the exchange,” Nicholas Pappas, the co-head of flow credit trading in the Americas at Deutsche Bank, said in a statement. “We are thrilled with the outcome and support their long-term success.”

Goldman Sachs’s DuVally said yesterday “we’re pleased to have played a constructive role in the process.”

Labor ‘Breakthrough’

The “risk of public rebuke,” along with “even more legislative threats” to the market for credit-default swaps resulting from the bankruptcy of a large employer of organized labor, helped the exchange pass, CreditSights Inc. analyst Sam Goodyear in New York wrote in a report yesterday.

Hoffa said the YRC debt exchange marked “our first time doing a campaign like this where we really had to get into high finance.”

“It’s a new breakthrough for labor unions working on Wall Street to make something happen,” Hoffa said yesterday. “It’s very positive for a major company.”

Officials at Silverback and Smith declined to comment. Aristeia didn’t return calls.

UBS AG told the union it tendered its bonds, according to a Teamsters statement. Cyrus Hadidi, a partner at JMB Capital Partners in Los Angeles, also named by the Teamsters as holding a position, said his company is “fully supportive” of YRC’s restructuring efforts and has tendered all its bonds.

Interest Payment Due

YRC had to complete the exchange to avoid a $19 million interest payment. The company can now defer this payment and will have increased access to its bank lines, YRC said. It will defer additional lender interest and fees of $20 million to $25 million per quarter during 2010 depending on usage of its credit agreement and an asset-backed securitization facility.

The trucking company has a $950 million revolving credit line with a group of banks led by JPMorgan Chase & Co., as well as a $111.5 million term loan, according to data compiled by Bloomberg. YRC has $1.6 billion of loans and bonds, Bloomberg data show. The company took on debt when Yellow Corp. acquired Roadway Corp. in 2003 for $1.07 billion and then bought USF Corp. in 2005 for $1.37 billion.

Credit-default swaps are financial instruments based on bonds and loans that are used to hedge against losses or to speculate on a company’s ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

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