Summary
YRC Worldwide, which has lost close to $2 billion in the last nine quarters, has won new life. It has won an immediate deferral of some $83 million in pension payments in the second quarter, an amendment to its credit agreement with lenders regarding real estate leasebacks and is trying to win rank-and-file approval of a 14 month, $500 million pension deferral in a deal proposed by the national International Brotherhood of Teamsters leadership.
Analysis
YRC Worldwide is proving to have as many lives as a cat. This time it appears that YRC Worldwide Chairman, CEO and President William D. Zollars is the one grinning like a Cheshire.
In a remarkable series of negotiations aimed to save the troubled carrier, the largest trucking company by revenue in the country, YRC has:
1. Negotiated an immediate agreement with the Central States pension fund of the Teamsters union to defer about $83 million in pension obligations in the second quarter. Currently, YRC already has deferred about $50 million related to other Teamster pension funds.
2. It has won a new amendment with its lenders related to real estate in conjunction with the pension deferral. This allows YRC to use escrow funds from previous real estate transactions to pay down its credit facility without reducing borrowing capacity.
3. It also has completed about $94 million in sale/leaseback arrangements in the second quarter through mid-June. It anticipates closing another $77 million in terminal sale/leasebacks that are currently under contract.
4. Yellow had unused borrowing capacity of about $242 million at the end of May. That was up from $221 million at the end of April.
5. As proposed by Jim Hoffa's leadership at the International Brotherhood of Teamsters, the union is proposing to amend its National Master Freight Agreement with YRCV to defer as much as $500 million in future pension obligations for 14 months. That plan was outlined by Hoffa himself in a June 18 meeting of freight local union officers in Chicago.
The plan has to be ironed out in bargaining between the IBT and YRC and then put to a vote by the rank-and-file. Those 55,000 Teamsters who work at YRC already have approved a 10 percent wage cutback effective last April 1 in a deal that is expected to save YRC as much as $250 annually through the end of the contract in 2013.
Now the rank and file is being asked to give back more in terms of pension payments. It is unlikely that any Teamsters pension funds will grand members pension credit for time worked during this 14-month deferral period. Those Teamsters are only hoping to win back those credits at some future point--if YRC indeed survives.
The plan would give YRC a $7 per hour deferral, rising to $7.65 an hour on Aug. 1 when the next pension contribution increase was scheduled to take effect. Coupled with the $2.30 in wage cuts give earlier, that would give YRC a $10 hourly reduction in its labor costs.
Given the approximate 50,000 or so Teamsters who work at YRC currently, that would mean about a $30 million a month savings in labor for YRC, or about $360 million annually, according to my back-of-the-envelope calculations.
Is $360 million in labor savings cost enough to save YRC Worldwide? Depends. It depends on three major factors in my mind:
1. How fast will the national economic picture improve? All the major LTL carriers have suffered 20-plus percent drops in year-over-year tonnage. That hurts even the best-run carriers.
2. How long will YRC's customers stay with the company? So far, surprisingly, there have not been that many major defections. One reason is YRC is leading the discounting charge in an attempt to maintain market share.
3. How will these savings affect YRC's overall debt-to-income ratio? How lenient will YRC's lenders, who so far have shown exceptional patience and flexibility given the company's plight, be going forward?
These questions cannot be answered completely at this time, given the great unknowns within each. Still, these latest developments are positive for the company in that it strengthens YRC's balance sheet, reduces its short-term pension obligations and makes its cost structure more competitive to the likes of FedEx Freight, UPS Freight, Con-way, Estes and the rest of the LTL competition.
Internal YRC sources are confirming that after a balky start, the integration of the Roadway and Yellow long-haul networks has gone well. YRC has seen a "steady increase" in its number of daily shipments, according to a June 16 newsletter from YRC President and COO Mike Smid to employees. In that newsletter, Smid emphasizes YRC is "moving in the right direction." These hard financial numbers would appear to back up that happy talk.
