The Refinancing from Hell

YRC's controller is glad that a 2014 refinancing didn't fall under 'troubled debt restructuring,' like a 2011 recapitalization did.
David McCannFebruary 10, 2015
The Refinancing from Hell

This is the second in a series of six articles about the volatile financial misfortunes and turnaround of trucking company YRC Worldwide. See parts one, three, four, five and six.

For Stephanie Fisher, the controller at YRC Worldwide, the company’s debt restructuring in 2014 was a walk in the park compared with two others undertaken a few years earlier.

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A series of transactions in July of 2011 that included what’s known as a troubled debt restructuring (TDR) was especially mind-numbing. In a TDR, lenders grant concessions to debtor organizations with financial difficulties in a bid to avoid losing principal upon the debtor’s failure. In YRC’s case, lenders forgave $305 million of the company’s debt and rewrote its remaining debt at more favorable terms, in exchange for stock and notes convertible into stock.

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Some of the particulars: the lenders received what became 4.6 million shares of common stock on a post-split basis, upon a 1-for-300 reverse stock split on Dec. 2 of that year. YRC’s shares, which had been trading for pennies and would soon have been delisted by Nasdaq, closed at $12.78 that day. The lenders also got $140 million of Series A notes convertible into common stock at the price of $34.02 per share and $100 million of Series B notes convertible at $18.54 per share.

The TDR was an enormously complex undertaking, according to Fisher — even more so than a previous dicey restructuring in 2009. “The accounting for the 2009 and 2011 restructurings was very unusual,” she says. “We had debt situations and debt facilities that even our auditor, KPMG, said they’d never seen before.”

Because of all the moving parts, completing the TDR required sifting through accounting literature to find pieces of it that addressed the specifics of the restructuring. “Accounting for the fair valuation of all the things the lenders gave up, like deferred interest, became very challenging,” says Fisher. “We had to read a lot of fine print, and a lot of it wasn’t black and white. We had to interpret it — in many cases we’d say, ‘OK, that is about our scenario, so we’ll go with these guidelines.’ There was nothing in the literature that fully addressed our very specific situation.”

The 2011 refinancing was also complicated by the fact that a majority of the lender group had also participated in YRC’s 2009 credit agreement. That required the company to account for the debt swap as a loan modification, which was much more difficult than if old debt were extinguished and new debt created, as was the case with YRC’s most recent, 2014 restructuring.

Stephanie Fisher

Stephanie Fisher: “We had to read a lot of fine print.”

“We actually did get new debt facilities [in 2011], but from an accounting perspective [when most of the lenders are the same] it looks as if you’re modifying the old debt. When you do that, you have to take the carryover basis of the old debt and apply it to the new debt. And under troubled debt restructuring accounting, you get a lot of unusual debt premiums and discounts that then have to be amortized through the income statement.” A hangover from the TDR was not flushed out of YRC’s income statement until the 2014 refinancing.

YRC further sweetened the pot for lenders by pledging to pay the 10% interest on the Series A and Series B notes through their maturity date of March 31, 2015, even for notes that were in the money and converted to equity prior to that date. Most of the Series B notes were converted in 2013, during which the stock price topped $30 on a number of occasions. The Series A notes never got into the money, but they were converted to equity as part of the 2014 refinancing.

The TDR took Fisher out of her comfort zone. She says she loves accounting for the very reason that in most cases it is black and white: “I like the fact that there’s always a right answer.”

Still, Fisher says she thrives in a fast-paced environment. “A business acquaintance asked me the other day when I was going to get tired of running nonstop, and I said, ‘Well, I’ve been doing it for five years so I guess I like it.’ ”

For Fisher, who joined YRC in 2004 after four years with Ernst & Young, the early years were good. The company was flush with cash, and in her first year she made 100% of her bonus even though she didn’t start until August, because the bonus payouts were 200% in 2004.

Then 2008 hit. The tanking economy depleted YRC’s business volume, and Fisher’s resolve to stay with the company wavered. “There were probably 6 to 12 months when I was thinking, ‘Am I making the right choice by staying here?’ But after I interviewed externally, I realized it didn’t matter that the company wasn’t doing great, because I liked the work I was doing and the people I worked with.”

By now, says Fisher, who was promoted to controller in May 2012, it’s clear that she did make the right choice. “I’m fortunate to have worked hard and been in the right place when people left the organization. If you’d told me 10 years ago that I was going to be here 10 years later and that I’d be the corporate controller, I’d have said no way.”