Moody's rates Yellow Roadway notes Ba1, cuts USF

Moody's Investors Service said it confirmed the debt ratings of Yellow Roadway Corp. and assigned a Ba1 rating to $250 million of senior unsecured floating-rate notes.

In a related action, in anticipation of Yellow Roadway's acquisition of USF Corp., Moody's downgraded the senior unsecured debt rating of USF to Ba1 from Baa1.

USF is being acquired in a transaction valued at $1.4 billion that will increase the debt of the combined group. Yellow Roadway is expected to close its acquisition of USF on or about May 24, at which time the company will issue its guaranty for the $250 million of USF notes currently outstanding.

The outlook for both companies is stable.

Moody's said the ratings take into account Yellow Roadway's successful management of its acquisition of Roadway Corp.; the company's greater market presence with considerable size and scale as the No. 2 over-the-road transportation company in the United States; the increased cash flow and profits expected from the continued strong demand for transportation services; and, the limited integration risks as USF's operations and brand will be kept separate from the existing Yellow Roadway operations.

The rating is balanced, Moody's said, by the large size of the acquisition at a relatively high purchase multiple; the different business model of the regional less than truck load (LTL) operations of USF compared to the national LTL operations of Yellow Roadway; the history of autonomy among USF's units; the lower-than-peer performance by some USF units despite the strong economic environment; the high exposure to the Teamster's work force of the combined company; and the high sensitivity of the trucking sector to changes in the economic cycle.

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