Yet Another Market Inefficiency ($YRCW)

Trucking company YRCW recently announced a restructuring plan that will exchange some of the company's debt for new equity, which will result in the current shareholders owning 2.5% of the company, or less after accounting for further dilution from a new management incentive plan.

The market cap is currently $47 million, which implies that the new equity will be worth $1.88 billion (=47/2.5%). That is hard to imagine, since the current enterprise value of the company is only $1 billion.

What's funny is that the same thing happened in December 2009 with the previous exchange offer.

It looks like only 16% of the shares are held by institutions, so this must be another situation where retail owners are asleep at the switch. Also, there are daytraders who think that the stock is about to "break out".

Unfortunately, it can't be shorted.

YRCW Extends Exchange Offer

72% of noteholders tendered, so they are extending the exchange offer until December 15, 2009.

More on YRCW and REG

Regency Centers sold 8 million shares at $30.75 and immediately jumps to over $33. Too exuberant.

On the YRCW exchange offer: it looks like (assuming 100% bondholder participation) the current equity gets 5% of new equity, and then the union gets cut in for 20% of the new equity after that, and then management gets cut in for 5%. So current equity = 0.95*0.8*0.05 = 3.8% of new equity. Current equity valuation is $71 million which implies the post restructuring equity would be worth $1.86 billion. That is more than the entire enterprise value today.

Sold More YRCW

Synthetically and by buying puts. Paying a premium but I think it's worth it.

November

November was a good month - the Callon Petroleum exchange went through making my bonds more valuable, even though this is not reflected in the price (they hardly trade anymore).

I have more bond trades in the pipeline and will hopefully get them written up by next week.

I will say that I would short every share of YRCW that I could borrow right now.

What I'm Doing Today

-Sold more GGC at 15.6.
-Adding capital to my short YRCW / long U.S. Freightways 8.5% note due Apr 2010 trade - see the 8-K they just filed about an exchange offer.
-Looking at adding capital to my short REG / long REG-E trade.

I need to write more about the YRCW trade. Also I am reviewing the third quarter REG earnings and conference call and I'll be posting about it later.