S&P places Yellow Roadway on negative CreditWatch

S&P places Yellow Roadway on negative CreditWatch    Standard & Poor's Ratings Services has placed its ratings on less-than-truckload carrier Yellow Roadway Corp., including its 'BBB-' corporate credit rating, 'on CreditWatch with negative implications' following Yellow Roadway's announcement that it will buy USF Corp, a regional LTL carrier.
   Yellow Roadway said it would pay $1.37 billion and assume about $100 million of net debt to acquire USF Corp. The transaction will be financed with a combination of cash and stock, with the cash component limited to $639 million. The acquisition is expected to close in mid-2005.
   'The acquisition-related debt and assumed USF debt will weaken somewhat Yellow Roadway's credit measures, which had been improving,' said S&P credit analyst Kenneth L. Farer.
   'Ratings on Yellow Roadway reflect the company's strong market position in the long-haul LTL trucking industry, which has high barriers to entry, and (Yellow's) moderate financial policies. These positive credit characteristics are somewhat offset by its participation in the competitive, capital-intensive, and cyclical trucking industry. Yellow's 2003 acquisition of Roadway further consolidated the trucking industry, though the increased debt level weakened the financial profile of the combined entity,' S&P explained.
   Based in Overland Park, Kan., Yellow Roadway is the largest LTL trucking company in North America with $6.8 billion in 2004 revenues, approximately $650 million higher than the combined revenues for Yellow and Roadway for the same period of 2003.
   Yellow Roadway competes with Arkansas Best ($1.7 billion revenue in 2004 revenues), the Con-Way Transportation unit of CNF Inc. ($2.4 billion), USF Corp. ($2.4 billion), and Overnite Corp. ($1.6 billion).
   'The trucking industry has a worse-than-average industry risk classification because of relatively low margins, due to the commodity nature of the product, high volatility tied to general economic cycles, high capital intensity, and intense price competition within and across industry segments,' Standard & Poor's Ratings Services noted.