Debt Deal Could Cut Interest Costs Up to $50 Million, YRC Official Says
This story appears in the Feb. 10 print edition of Transport Topics.
YRC Worldwide Inc. should lower cash interest costs by $40 million to $50 million annually once a broad debt refinancing program is completed later this month, Chief Financial Officer Jamie Pierson said.
Pierson spoke with Transport Topics on Feb. 3 after closing a $300 million debt refinancing deal that was announced Jan. 31. That was the first part of the plan to lower debt that stood at $1.35 billion as 2014 began.
The company continues to meet with lenders, with the goal of finishing the refinancing by mid-to-late February.
By bringing down debt and extending maturity dates by five years, Pierson said, the company has achieved an important step.
“We have been to the table to reintroduce ourselves to the capital markets for the first time in several years,” Pierson told TT. “The anticipated capital structure will put the company on solid financial footing.”
He also made it clear that the first step in YRC’s turnaround was a favorable vote by the Teamsters union on a four-year contract extension into 2019 that continues a 15% wage reduction.
Pierson explained what he called a “beautiful thing”: the favorable union vote that cleared the way for the $300 million deal, which in turn made changes possible in pension fund debt, all clearing the way for YRC to push debt maturities into 2019.
Lenders insisted on the contract extension to provide more financial certainty in the face of debt maturity.
Interest rates on YRC debt today are about 10%, and interest costs are about $165 million annually.
While offering a range of interest rates, Pierson also told TT it was “way too premature” to give a specific rate or other financing details while talks with lenders continue.
As for the carrier’s new financial outlook, YRC on Jan. 28 said it expects earnings before interest, taxes, depreciation and amortization (EBITDA) to be between $350 million and $360 million in 2014, a $100 million improvement over 2013.
Once the financing is done, YRC expects to have $1 billion in debt, including a $700 million term loan and $299 million in capital leases, Pierson said.
YRC later this year intends to have debt that is less than three times its EBITDA, something that hasn’t happened since 2007, before its financial skid began, Pierson told TT.
He said the simplified and reduced debt structure will have other benefits beyond lower interest rates.
“We have heard the drumbeat since late 2009; some customers have been on the sidelines thinking we won’t make it,” Pierson said. “Now that we are able to push our debt out five years, we can focus on our business and capital structure. We hope they will get off the sidelines.”
Since 2007, YRC’s less-than-truckload business has declined from $9 billion. Last year’s final results haven’t been announced, but 2013 revenue after three quarters was $3.66 billion.
In addition, he said the company hopes to bring back some workers who left because of financial uncertainty.
In the Jan. 31 transaction, $250 million of common and preferred stock was issued to retire convertible notes, and $50 million in convertible notes was exchanged or converted into stock. In addition, pension fund obligations were extended to 2019.
The contract extension also includes a 75% reduction in pension fund contributions for 26,000 union workers at the company that ranks No. 5 on Transport Topics Top 100 For-Hire Carriers in the United States and Canada.
