YRC opens talks with Teamsters on more givebacks; delays quarterly earnings report

Financially struggling YRC Worldwide Inc., parent of the second-largest LTL carrier in the nation that has lost more than $2.6 billion in the last six years, has initiated discussions with the International Brotherhood of Teamsters in seeking another round of wage and benefit concessions.
  
As a result of the sensitivity of those preliminary discussions with the IBT, YRC has delayed release of its third quarter earnings release. Those earnings, originally scheduled for Nov. 7, are now set for release after the stock market closes on Nov. 12.
 
YRC’s stock, once the darling of day traders and other risk takers, has been taking a beating during an otherwise bull market. After trading as high as $37 a share in mid-July, YRC’s shares have slumped to around $8.88 in trading on Nov. 7. At that price, YRC’s market capitalization is around $110 million.
  
Some large YRC shareholders are bailing.  Earlier this month, groups associated with Marc Lasry, co-founder of Avenue Capital Group, sold 549,881 shares for $5.24 million, according to the Kansas City Star.  In recent weeks, Solus Alternative Asset Management LP sold 233,197 shares and Cyrus Capital Partners sold 527,068 shares in mid-October.
  
After the Cyrus Capital sale, Lasry’s group is now the largest shareholder in Overland Park-based YRC Worldwide.
  
Noting “numerous missteps made prior to 2011 by YRC Worldwide’s previous management,” recently installed YRC CEO James Welch recently sent a “Dear Fellow Employee” letter to YRC’s 32,000 workers (including 26,000 Teamsters) detailing the “significant work” that remains in order to regain the company’s profitability.
  
Specifically, YRC has $1.4 billion in debt. Some of those debt payments come due early next year. As Welch noted in his letter, “We have limited options and a tight timeframe for addressing them.”
 
YRC has couple of debt maturities coming due in early and late 2014 and then again in early 2015.  It has $396 million due in 2014, and another $548 million due in 2015.
  
Most of that debt was incurred by a couple of billion-dollar acquisitions. Under former CEO William Zollars, YRC bought Roadway Express in 2003 and USF Corp. in 2005, saddling the company with more than $2 billion in acquisition debt.
  
The company recently retained Credit Suisse, in combination with its financial advisor, The MAEVA Group, to assist in developing “a broad range” of refinancing and recapitalization options.
  
Welch appeared to rule out a Chapter 11 bankruptcy debt reorganization filing. “We have all worked too hard and sacrificed too much to go that route and lose some of the industry’s best jobs,” Welch said in his letter. The better path is to refinance the debt before the due dates are upon us.”
  
By doing so, Welch says, YRC would improve its cash flow and be in better financial position to recapitalize and modernize its aging fleet of rolling stock.
     
As of June 30, 2013, YRC’s liquidity, including cash, cash equivalents and availability under its $400 million asset-based loan facility (ABL), was $218.7 million.  On June 30, 2012, that liquidity totaled $248.7 million.
  
YRC’s lenders have made it clear to management that it must perform better financially. Specifically, the combination of long-haul units of the former Roadway and Yellow companies has taken longer and been more complicated than originally planned.
  
Welch, a former senior YRC executive who left the company under previous CEO William Zollars, recently took over for Jeff Rogers, who was fired after performance at the national long-haul unit suffered.
 
In the second quarter, long-haul unit YRC Freight reported an operating loss of $8.5 million and an operating ratio of 101.1, a slight decrease over the 2012 second quarter. YRC’s regional carriers reported an operating profit of $25.2 million, a 10 percent increase over the year-ago quarter. The regional group posted a 94.3 OR, a performance Welch has called in line with “market levels.”
  
On Nov. 5 in Dallas, YRC convened a meeting with senior Teamsters officials to update them on the company’s most recent performance, future prospects and corporate refinancing opportunities. YRC wants to star formal negotiations, extend its current contract and increase its competitiveness in the market.
  
“An extension of our IBT contract beyond the expiration is an important step in providing our customers the service they deserve and have grown accustomed to and providing our employees long-term job stability, competitive industry-wide wages and outstanding healthcare benefits,” Welch said in a statement.
  
YRC won a 15 percent wage giveback concession in 2010. It also is paying less than full contributions to YRC workers’ health, welfare and pension funds. That contract is due to expire in 2015. Welch would like to extend that contract in order to continue—and perhaps expand—the concessions. Those concessions save YRC approximately $175 to $200 million a year.
  
Long-haul unionized rival ABF Freight, a unit of Arkansas Best Corp., recently began operating under a similar giveback agreement. It recently won a 6.5 percent wage concession that is expected to save that carrier between $55 and $65 million annually. That contract runs through 2018, a date that apparently YRC would like to extend to its Teamsters contract.
  
“Reaching an understanding would be a positive and important step in the future of this company,” Welch said in his letter to employees. In addition to securing the jobs of over 26,000 union employees, it will substantially increase the likelihood of a holistic refinancing solution to address the debt maturities in 2014 and 2015.”