RE: RE: RE: RE: Worst Case Senario Don't confuse the ability to generate cash flow (or its proxy for a restructuring EBITDA) with solvency. Yellow generates lots of EBITDA. But Yellow can't pay back its debt maturities without restructuring that debt. If Yellow can renegotiate the existing credit agreement with lenders to allow the full credit line to be drawn and used to pay back MTNs, I will become an optimist again. If they cannot do that, I have spent enough time with the numbers that I see they are now in a position where only a dilutive financing or CCAA would give them any hope of meeting obligations.
When I run the numbers, the *only* hope Yellow ever had of getting out of this with the current capital structure intact was if they could draw down the credit line in full and use that to buy back 2013 MTNs for 50 cents on the dollar. If they could have done that and moved the 2014 maturity to 2018, I work out cash flow solutions to this crisis with extremely negative assumptions about future EBITDA declines worked in.
BUT, the credit line does NOT let them pay back the MTNs. Game over until that changes.
In terms of why I would like the Preferred C, that is because 1) they cannot be force converted to equity on the same horrible terms as Preferred A and 2) because I can see at least a 5% chance of Yellow escaping to a place where Preferred C would have most of par value. The math says:
5% * $25 + 95% *
= $1.25
So if I buy at 60 cents and can sell at $1.25, that's a trade. But it is not a risk free trade because CCAA might come as a surprise much quicker than you imagine.
I'm not going to argue whether the credit line is fair to the banks. I am going to argue Yellow was not diligent in how it negotiated that credit line. And now they are in a place where that credit line is a noose around their neck. The game isn't over, but they are on the hanging platform, and I think that's a preacher I see coming up the steps. :)