LTL news: YRCW comes to terms with pension fund, makes amendment to credit agreement
Jeff Berman, Group News Editor -- Logistics Management, 6/18/2009
OVERLAND PARK, Kan.—Less-than-truckload transportation services provider YRC Worldwide Inc. (YRCW) said today it has made news on two fronts: one being the finalization of an agreement with the Central States Pension Fund, and the other relating to finalizing an amendment to its credit agreement.
For the pension fund, YRCW said it will “provide certain of the company’s real estate as collateral in lieu of making contribution payments during the second quarter,” with the estimated contribution payment deferral to Central States being approximately $83 million. YRCW added that this agreement requires the company to repay the deferred contributions over a three-year period beginning in January 2010.
Central States is the largest of YRCW’s International Brotherhood of Teamsters ("IBT") multi-employer defined benefit pension funds, representing 58 percent of the company's monthly pension funding obligations, according to YRCW officials. YRCW is also finalizing discussions with its other IBT multi-employer pension funds to join as participants in this same agreement. Currently, the company has deferred about $50 million related to these other funds.
This news follows a video announcement YRCW Chairman, President, and CEO Bill Zollars made to customers last week in which he said that the company’s pension requirements saddle the company with an unfair disadvantage in a crowded and competitive LTL marketplace. He added that its objective in this situation was to fix the pension fund with assistance from the federal government, as opposed to a bailout and federal financial aid.
Credit agreement: With its credit amendment agreement, YRCW and its lenders reached a deal in which YRCW and its subsidiaries may grant second priority liens on certain owned real estate, coupled with the pension deferrals. It also releases $73 million in escrow funds from its previous real estate deals used to pay down the revolving credit facility without reducing its borrowing availability under the credit facility.
In May, YRCW indicated in a 10-Q filing it may not meet its second quarter earnings before interest, taxes, depreciation and amortization(EBITDA) covenant of $45 million and had reconfigured its amendment with its credit facility lenders.
Under the original agreement laid out in February, YRCW was required to have a $45 million EBITDA in the second quarter that increased to a cumulative $130 million in the third quarter and $180 million by year-end. The new arrangement eliminates the second quarter EBITDA covenant, while its other financial covenants, including minimum liquidity comprised of cash and cash equivalents, restricted cash and availability under the credit facilities, which remain in effect.
YRCW, like most LTL carriers, has had a difficult 2009 to date. In the first quarter, it recorded a $257.4 million loss, with tonnage at its national and regional units down roughly 29 and 22 percent, respectively. Part of its quarterly decline was attributed to $65 million in estimated costs for the Yellow-Roadway integration, with the units now operating under the new YRC brand name.
In recent weeks, YRCW has made multiple executive changes for its sales, marketing, operations, finance, technologies and service, and YRC Logistics as part of what it called a new functional organizational structure. And the Kansas City Business Journal reported that a group of investors bought YRCW’s Overland Park, Kansas-based headquarters in a sale-leaseback deal that includes a potential 30-year lease for YRC.
YRCW officials told the publication that “the monetization of real estate assets is a part of YRC Worldwide’s ongoing financial strategy to weather the (economic) recession and enhance its liquidity position,” adding that “the YRC Worldwide corporate headquarters is and will continue to be located in the Overland Park, Kan., location.”
Stephens Inc. Analyst Thom Albrecht wrote in a research note this week that YRCW's financial situation continues to deteriorate to the point where it is reasonable to assess the prospects of a Chapter 11 bankruptcy filing.
Some possible options for YRCW to raise cash cited by Albrecht, include: selling its logistics division; shutting down USF Holland, the largest part of YRC Regional, which does $1-$1.2 billion in annual revenue; raising equity; and selling New Penn, a northeast-based LTL division that serves 11 states.
YRCW said in a statement that as of May 31, its cash and cash equivalents, excluding restricted cash of $61 million, was $155 million compared to $151 million at April 30, 2009. And it also said the aggregated cash balance and available unused capacity under the credit agreements was $242 million as May 31, 2009, compared to $221 million at April 30, 2009.
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