From SCDigest's On-Target E-Magazine
- Jan. 29, 2014 -
Logistics News: YRC Worldwide Lives to Drive Another Day
Union Strongly Approves Extending Most Concessions, after Soundly Rejecting Earlier Proposal; LTL Giant able to Restructure Crushing Debt after Vote
SCDigest Editorial Staff
Struggling less-than-truckload carrier YRC Worldwide, recently falling back into financial turmoil after seemingly having stabilized itself over the past year, has a new lease on life after a couple of key decisions went its way over the past few days.
First was a vote by the companies Teamsters union to in some manner extend most concessions truck drivers and other workers had approved in 2010 and 2012 through 2019, versus the original sunsetting of those give-backs at the end of March, 2015.
SCDigest Says: |
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| While still losing money, YRC made its first operating profit in six years in Q1 of 2013, and painted a largely rosy financial picture for the rest of the year, until dropping the unexpected bomb on the union in December.. |
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That positive vote, after the company's 25,000 union members had initially rejected the company's seemingly rushed proposal a few weeks earlier, in turned led to YRC being able to restructure some of its mammoth debt, which the company had told the union it would be unable at some point soon to repay without extending the cost-saving concessions.
YRC had about $1.4 billion in debt, much of which is due in the next two years. The company's creditors had previously said the company needed to curb its expenses by extending its current labor contract before it could secure the additional or revised financing.
Almost immediately after the vote, YRC was then able to a complete a previously arranged deal with investors and lenders that reduces its debt by $300 million. Separately, Moody's Investors Service said the company was working on two other measures covering $1.15 billion of additional debt.
All told, YRC is said to be operating with more debt than all the other publicly held LTL carriers combined.
Total company debt will be reduced by about $300 million from issuing new preferred and common stock worth $250 million and for holders of $50 million in debt to convert those debt instruments to stock. The cash raised from the equity offerings will be used to pay down debt levels.
After the former Yellow Freight launched a string of acquisitions in the 2000s (Roadway Express, Holland, USF and more) financed by debt, the recession in 2008 and subsequent major downturn in freight volumes left the renamed YRC Worldwide struggling to pay off massive debt service.
The existing labor agreement is based on three rounds of concessions the company and the union agreed on between 2008 and 2010. In those concessions, the union consented to a 15% cut in wages, suspension of pension payments and reduced vacation time for members. YRC began to make pension payments again in early 2012 at 25% of the rate paid in 2009.
That deal saved YRC an estimated $350 million in labor costs annually. It also gave the Teamster employees stock in the company and granted the labor union the right to nominate two members to the YRC board.
About 20,000 employees rejected the first version of the contract extension in December, with 61% of the vote against, in large part because the company was trying to achieved additional savings above the existing give-backs through cutting some benefits, including vacation.
(Transportation Management Article Continued Below)
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The revised YRC proposal backed off those demands, and with the support of union leadership was accepted by 66% of union members.
