Fitch Ratings Affirms YRC Worldwide's IDR at 'BBB-'; Outlook Stable

Fitch Ratings has affirmed its ratings on YRC Worldwide Inc. (NASDAQ:YRCW) and its Roadway LLC and USF Corp. subsidiaries as follows: YRC Worldwide Inc. --Issuer Default Rating (IDR) at 'BBB-'; --Senior unsecured at 'BBB-'; --Senior unsecured credit facilities at 'BBB-'. Roadway LLC --IDR at 'BBB-'; --Senor unsecured at 'BBB-'. USF Corp. --IDR at 'BBB-'; --Senior unsecured at 'BBB-'. Fitch Ratings has also assigned a rating of 'BBB-' to YRCW's new senior unsecured credit facilities. The new credit facilities mature in 2012 and consist of a $950 million revolving credit facility and a $150 million term loan A. Fitch's ratings apply to approximately $1.2 billion in consolidated debt. The Rating Outlook for YRCW is Stable. The ratings for YRCW, along with its Roadway and USF subsidiaries, reflect the less-than-truckload (LTL) transportation and logistics company's significant market presence and expectations for positive free cash flow generation despite near-term industry demand challenges. Continued progress on realizing synergies from the Roadway and USF acquisitions will drive further efficiencies across the company that are expected to partially offset margin pressure from reduced freight volumes. Further erosion in the pricing environment and the potential for a longer-than-expected slump in demand are concerns, however, as is the potential for labor-related issues once the company begins discussions with the International Brotherhood of Teamsters (IBT) later this year or early next. After several years of robust freight demand and strong industry pricing, market conditions began to weaken last year. An economy-driven decline in demand, combined with excess industry capacity brought about by truck operators pre-buying tractors ahead of the 2007 change in emissions regulations, has resulted in reduced industry pricing power in both the LTL and truckload sectors. Although industry volumes appear to be stabilizing somewhat, shipping rates have fallen and revenue could be challenged through the remainder of 2007. Signs of a return toward more-typical seasonal shipping patterns this year are encouraging, however, as is the retirement of some older tractors within the industry, which should help to alleviate some of the industry overcapacity. With a relatively high fixed cost structure, the LTL sector is particularly sensitive to volume volatility, and the negative margin effect of this operating leverage in a declining demand environment can be seen in YRCW's operating ratio (OR), adjusted for non-recurring items, which increased to 95.8% in the second quarter of this year versus 93.1% in the second quarter of 2006. When volumes improve, however, expectations are that this operating leverage will work in the company's favor, and the OR could quickly return to the 92%-93% range. The weakened market environment has driven a decline in YRCW's credit metrics over the past year, although metrics remain in-line for the 'BBB-' rating category. Lease-adjusted leverage (adjusted debt/EBITDAR) grew to 3 times (x) at June 30 from 2.6x at June 30, 2006, while EBITDAR fixed charges coverage declined to 3.5x from 4.5x over the same period. Over the near term, debt likely will increase modestly as the company uses cash to fund acquisitions in China, as well as to provide additional liquidity ahead of the pending discussions with the IBT. Once the business cycle improves, Fitch expects YRCW's credit profile to strengthen, even with the company carrying modestly higher levels of debt. Despite credit market weakness, YRCW successfully replaced its $850 million senior unsecured revolving credit facility with the new senior unsecured credit facilities on Aug. 17. The new credit facilities increase the company's liquidity should the freight market environment remain at depressed levels for a prolonged period and provide an additional layer of liquidity protection as the company prepares for its upcoming negotiations with the IBT. Proceeds from the term loan will likely be used to pre-fund YRCW's $150 million floating rate note maturity that comes due in May 2008. The credit facilities contain an accordion feature that could increase the limit by $350 million with lender approval. In addition to the new credit facilities, YRCW has upsized its asset backed securitization (ABS) facility by $50 million to $700 million, which will further increase access to liquidity. The ABS facility is secured by receivables of the Yellow Transportation, Roadway Express, USF Holland and USF Reddaway operating units. With the slowing of the U.S. economy over the past year, and the resulting challenges facing the trucking industry, the overriding concern at this point is a further weakening of demand that could drive volume levels even lower and increase the risk that irrational pricing enters the market. FedEx Freight's plans to cut fuel surcharges on its tariffs by 25% in order to increase market share only serves to heighten concern that industry pricing may decline further. Although current expectations are for an up-tick in demand in late 2007, continued industry weakness over a longer period, significant erosion in industry pricing and/or company-specific operational troubles related to the IBT negotiations could result in a decline in YRCW's credit profile to a level inconsistent with its current ratings. Such a case could necessitate a revision of the Rating Outlook to Negative or a downgrade. Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.