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

CHICAGO -- Fitch has affirmed its ratings on YRC Worldwide Inc. (NASDAQ:YRCW), as well as its Roadway LLC and USF Corp. subsidiaries, as follows:

YRC Worldwide Inc.

-- Issuer Default Rating (IDR) 'BBB-';

-- Senior unsecured 'BBB-';

-- Unsecured credit facility 'BBB-'.

Roadway LLC

-- IDR 'BBB-';

-- Senior unsecured 'BBB-'.

USF Corp.

-- IDR 'BBB-';

-- Senior unsecured 'BBB-'.

The ratings apply to approximately $1.12 billion in consolidated debt. The Outlook is Stable.

The ratings of YRCW, along with its Roadway and USF subsidiaries, reflect the transportation company's relatively good operating performance prospects, cash flow potential and stated commitment to reduce leverage, weighed against the concerns that are inherent in a cyclical industry. Subsequent to its acquisition of USF Corp. in May 2005, YRCW solidified its position as the largest trucking company in the U.S., with consolidated annual revenue approaching $10 billion, more than twice that of its next-largest competitor. YRCW's strong market position includes a family of well-known brands, a broad range of less-than-truckload (LTL), truckload and other transportation services, nationwide coverage and a diversified customer base of retailers, manufacturers and freight forwarders.

Since acquiring Roadway in 2003 and USF in 2005, YRCW has been in the process of leveraging synergy benefits to reduce costs and boost efficiency. The company's operating ratio (OR) improved to 93.9% in 2005 from 97.1% in 2003, while cash from operations increased to $498 million from $156 million over the same period. Going forward, the combination of continued improvements in pricing, combined with the attainment of additional cost synergies, should further improve both the company's OR and its cash generating capabilities. Although it is unlikely that the OR will fall to the level of the non-union regional LTLs, which have recently recorded annual ORs in the upper 80% range, management believes that YRCW has the potential to generate a consolidated OR in the low-90% range, provided the economy remains strong.

In addition to its cash on-hand, YRCW's liquidity is enhanced by an $850 million unsecured revolving credit facility and a $650 million asset backed securitization (ABS) facility. The credit facility contains an accordion feature that allows for a potential increase of up to $250 million with the lenders' consent. The ABS facility is essentially an on-balance sheet receivables sales program involving the receivables of the Yellow, Roadway, USF Holland and USF Reddaway subsidiaries. As of March 31, 2006, the credit facility had $261 million in available capacity after accounting for letters of credit and drawn amounts, while the ABS facility had $200 million available, for a total of $461 million in available liquidity between the two facilities.

In 2005, YRCW borrowed heavily to fund the USF acquisition, driving up the company's leverage in the process. Consolidated balance sheet debt grew to $1.49 billion at year-end 2005 from $658 million at year-end 2004, due, in part, to borrowings on the ABS facility and a $150 million note offering, both of which were used to fund the acquisition. In connection with the acquisition, YRCW also assumed $250 million face value of existing USF debt. As a result of its increased debt load, lease-adjusted debt to EBITDAR grew to 2.8 times (x) at year-end 2005 from 2.3x at year-end 2004. However, the company is committed to using a portion of its free cash flow in 2006 to reduce debt, with plans to lower debt to at least $1.39 billion by year end, which Fitch estimates could lower adjusted debt to EBITDAR to about 2.5x. Excluding borrowings on its ABS and revolving credit facilities, YRCW has no debt maturing until 2008, when $378 million in notes come due.

Over 70% of YRCW's workforce is represented by the International Brotherhood of Teamsters (IBT), and the pension benefits of those employees are managed by 20 separate union-sponsored multi-employer pension plans (MEPPs). The amounts contributed to the plans are defined by the company's labor agreements; in 2005, YRCW contributed $473 million to these plans. Although the plans are administered by third parties beyond YRCW's control, the company could be liable for additional contributions based on the funded status of the plans, and it would be required to cover its proportionate share of any unfunded MEPP liabilities if it were to withdraw from an underfunded plan. YRCW estimates that it could be liable for $2.5 to $3.5 billion in funding were it to withdraw from all of the MEPPs to which it currently contributes. The company, however, has indicated that it does not intend to withdraw from any of the plans.

With oil prices holding at near-record levels and signs that consumer spending could be slowing, it appears that the U.S. economy could be entering a period of slower growth. As a cyclical industry, trucking is exposed to economic volatility, and a slowdown could potentially complicate YRCW's de-leveraging plans. However, industry consolidation over the past three years, including YRCW's acquisitions, could help the industry better cope with potential volume reductions by lessening the likelihood that truckers will compete with irrational pricing. YRCW remained free cash flow positive from 2001 through 2003, despite the weakened U.S. economy at that time, and, if necessary, the company could reduce discretionary capital spending and continue to exercise the flexibility in its labor agreements to help further preserve free cash flow should the economy begin to cool.

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.