YRC Worldwide Inc. says it needs the Teamsters to extend existing concessions if the company is to be able to refinance its debts.
James Welch, CEO of the Overland Park based less-than-truckload carrier (Nasdaq: YRCW), sent a letter to employees explaining why company executives are meeting with International Brotherhood of Teamsters leaders Tuesday in Dallas.
“Our lenders have made it clear the combined company needs to be performing better than it is today, and that we need a labor agreement with our Teamster employees that extends beyond our current expiration and any new debt maturities, and increases our competitiveness, before any refinancing can be completed,” Welch said in the Oct. 30 letter.
Both YRC and the Teamsters leadership in Washington have declined to comment publicly about whether there will be discussion of extending existing concessions at the Dallas meeting. However, rumors circulating throughout the union suggest the company could be seeking extensions through March 2017 or possibly March 2019.
The existing 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 percent cut in wages, suspension of pension payments through the life of the agreement and reduced vacation time for members.
The deal saves YRC saves an estimated $350 million in labor costs annually. It also gives the Teamsters 25 percent ownership of the company and the right to nominate two members to the YRC board.
Welch's letter explains that although YRC is doing better than it was before Welch took over in July 2011, it has a long way to go before it can ride easy.
He said the company is “almost $1.4 billion” in debt due to “numerous missteps” made by the company’s prior management. Those debts, Welch said, require YRC to make “huge” monthly interest payments that — along with normal expenses — consume all of the company’s extra money.
“These debts will begin coming due in early 2014, and we have limited options and a tight time frame for addressing them,” Welch said in the letter.
The company now faces two choices: declare bankruptcy, or refinance the debt. Welch said lenders will require YRC to have a longer agreement with the labor union, which represents more than 25,000 of YRC's 32,000 employees. The current agreement runs through March 2015.
Welch said that refinancing the company’s debt will improve cash flow so YRC will be in a “far better position” to invest in the company and compete in the industry.
“I believe this is the path we should take because your job is worth saving,” Welch wrote. “Management has asked the (Teamsters) to work with us to support our refinancing efforts as an important next step in our turnaround. The time is now. The closer we get to our debt payment due dates, the less control we have over our own destiny.”
This is not the first time the company has suggested that it’s looking at refinancing the debt. On Aug. 7, when the company declared its second-quarter earnings, CFO Jamie Pierson said in a Securities and Exchange Commission document that Credit Suisse Group AG (NYSE: CS) and the New York-based investment firm MAEVA Group LLC were working on “a broad range of refinancing and recapitalization options.”
In late July, Credit Suisse issued a negative report about the company, saying YRC's stock was due to sag to $7 a share. At the time of that report, YRC stock was trading for more than $29 a share. It since has dropped to less than $9 a share.