YRC, Union Reach Tentative Deal to Save Cash, Give ‘Job Security’
This story appears in the July 13 print edition of Transport Topics.
YRC Worldwide said it has reached a new cost-cutting agreement with the Teamsters union and hired a financial adviser to work with key lenders as part of a broad effort to boost the carrier’s cash position.
While details of the tentative deal, reached July 9, weren’t disclosed, a reform group within the union said the Teamsters and the financially struggling carrier were negotiating a pension deal that could save $500 million over 14 months.
If approved by union members, the deal would be the second time this year the Teamsters agreed to concessions aimed at keeping the company afloat. The union agreed in January to a 10% wage cut in exchange for a 15% stake in the less-than-truckload carrier.
“This tentative agreement balances the need to provide job security while maintaining good quality jobs,” Tyson Johnson, Teamsters freight division director, said in a statement. “[It] should also send a message to the industry players who are slashing prices in an attempt to force YRCW out of business that YRCW will have the resources to be here for the long haul.”
The company, No. 4 on this year’s Transport Topics 100 list of the largest U.S. and Canadian for-hire carriers, has been working on several fronts to raise or preserve cash. It has sold terminals, consolidated operations, won agreements by some pension funds to accept real estate in lieu of deferred cash payments and twice renegotiated lenders’ terms.
Last week, YRC made another move to ease its debt-payment burden by announcing July 8 that it had hired investment banker Rothschild Inc. YRC said it was in “preliminary discussions with several significant holders of debt securities” to lower those debt payments.
“We are taking the steps needed to manage our plan today, and position our company for success as the economy recovers,” said William Zollars, YRC chief executive officer.
The moves are the latest steps to counter losses that drained $76 million in cash during the first quarter. Analysts have estimated YRC would report a loss from operations of nearly $90 million in the second quarter. YRC last reported a profit in the second quarter of 2008.
YRC’s losses topped $500 million in the past two quarters, mostly because of asset writedowns and network restructuring costs. Its balance sheet lists about $1.4 billion in long-term debt and lease financing obligations, which excludes any deferred pension payments that might be paid in the future.
YRC announced July 8 it had hired Rothschild, along with Tenex Capital Management and restructuring specialist Alvarez
& Marsal, after its stock price dropped 44% in two days. Shares have fallen about 90% in the past year. After closing at 89 cents a share July 8, it recovered to $1.49 the next day.
The company didn’t say which debt holders were approached or what type of restructuring was being sought.
On its Web site, London-based Rothschild describes itself as specializing in mergers and acquisitions, debt advice and restructuring. Alvarez & Marsal, New York, earned $116 million for assisting defunct investment bank Lehman Brothers with its bankruptcy case, according to Bloomberg News.
The $500 million in potential pension savings equals about
$36 million a month, or approximately $7 an hour, according to Teamsters for a Democratic Union, a group within the union. That’s more than triple the $2.30 an hour YRC saved in its January wage reduction deal that members approved by a 3-1 margin.
YRC began working three months ago to trim pension costs that the company estimated at $35 million to $45 million monthly.
Part of that goal was accomplished when Central States Fund agreed to a second-quarter deferral of cash contributions in exchange for real estate collateral, saving YRC $83 million.
Seven other funds have agreed to defer $11 million more, the July 8 statement said. That leaves $39 million still at stake in negotiations with other funds.
“An [pension] agreement would be in the best interest of all parties,” Washington attorney Herve Aitken said. Benefits would include substantial savings for YRC, job preservation for the union’s members and long-term benefits for the pension funds.
Aitken, who specializes in pension issues, said the primary benefit to the pension funds would be to help keep a major contributing employer in business, with the prospect of resuming contributions in the future. YRC said last month that 58% of its pension contributions go to the Central States Fund.
