If it hopes to survive as a company, YRC Worldwide needs to act quickly after Teamsters employees rejected extended wage and benefit concessions the trucking operator’s lenders made a prerequisite for refinancing $1.36 billion in debt.
However, the nation’s second-largest less-than-truckload operator has only one route forward — back through the same Teamsters who rejected the concessions.
That means either a second vote on the same failed proposal — a plan already rejected by 69 percent of the 19,000 YRC Teamsters who filled out a ballot on the contract — or an amended proposal, one that includes input from the union.
If it can’t forge an agreement with its Teamsters employees, the companies choices become less palatable and more disruptive, ranging from further cutting of its own unprofitable operations and perhaps even the sale of some profitable ones.
No Negotiations Before 'No' Vote
In a statement, CEO James Welch blamed the failure of YRC’s proposal in part on “timing of events related to our refinancing.” Many employees returned ballots before YRC secured a $300 million debt reduction agreement Dec. 23 and a larger $1.15 billion debt refinancing deal — confirmed but not announced — in January.
“We believe that was information employees needed to make a fully informed decision,” Welch said. But would that information alone change a vote?
Comments posted by Teamsters on Facebook, truckingboards.com and other online forums showed many were angry with YRC and the international union for presenting them with a proposal without negotiating beforehand. The Teamsters union agreed to allow a vote, but stayed neutral on the proposal itself.
Many Teamsters were angry with a proposal that would extend a 15 percent wage cut and 75 percent cut in company pension contributions — first agreed to in 2009 — through 2019, even when sweetened with a share in future profits.
“Our members have made huge sacrifices to keep this company alive and a majority made the decision not to sacrifice anymore,” said Tyson Johnson, director of the Teamsters National Freight Division and co-chairman of its negotiating committee.
The dissident group Teamsters for a Democratic Union called for negotiations. YRC Teamsters may accept concessions and even “changes they don’t like,” the TDU said, but not “a complete giveaway, with no bargaining by their own union.”
Debt Deadlines Loom for YRC
Whatever course it chooses, YRC Worldwide needs to act fast, as it faces the first of three major debt deadlines Feb. 15, when $69.4 million in long-term debt comes due, followed by $325.5 million Sept. 30 and $664.7 million in March 2015.
YRC Worldwide has a $1.15 billion debt refinancing deal and an additional $300 million debt-for-equity swap agreed to in December ready to go, but those agreements depend on securing concessions from those Teamster employees.
The good news is YRC Worldwide doesn’t face imminent bankruptcy — the company ended the third quarter with $233.7 million in liquidity, and should be able to cover that first round of debt, though not without considerable pain.
CEO James Welch assured shippers Jan. 10 that YRC’s trucks were still rolling and that, for now, it’s “business as usual” at YRC’s LTL carriers. But Welch will also have to move quickly and communicate clearly to hold onto shippers’ business. Shipper defections in the first quarter, typically a weaker period in trucking and one this year seeing disruptions from severe winter weather, would hurt YRC just when it needs more business.
26,000 Jobs at Stake
The breadth and depth of YRC’s defeat — despite an extensive campaign for a “yes” vote by management that included DVDs, televised town hall meetings, terminal visits and mailings — indicate a need for more than tweaks to its proposal.
“They have to modify the message and have a different messenger,” said Satish Jindel, president of transportation research firm SJ Consulting Group. The stakes for the company and its employees must be made clear, and a neutral third-party without a stake in the company may be best situated to do it. Then those who voted “no” in the last ballot “have to look at what happened at Red Star or Consolidated Freightways and ask, ‘Do I want to be in that position?’” Jindel said. Both those LTL carriers shut down, putting thousands of Teamsters out of work.
Jindel noted more than 6,000 of YRC’s 26,000 Teamsters didn’t cast a ballot. The company needs to win over more of these “independents,” too, he said.
“We believe an incredible urgency would result between Teamsters leadership and the company once all constituents recognize that the jobs of 26,000 people are at stake,” BB&T Capital Markets analyst Thomas S. Albrecht said in a note to investors Jan. 9.
Even without concessions, “We believe (but we do not know this for sure) the banks will likely work with YRC to push out maturities and terms,” Albrecht said. Absent a new contract, however, “deferred payments are about the best YRC can achieve with the banks,” the analyst said, which would mean more mounting interest payments, which would make it even harder for the company to return to profitability.
YRC Could Sell Assets
Albrecht also broached another possibility. “Selling New Penn or even the old US Freightways (Reddaway and Holland) could be options,” he said.
That’s an extreme step YRC most likely would try to avoid, and not just because those carriers are showing a profit — $57.2 million on revenue of $1.3 billion in the first nine months of 2013. “Any sale would be viewed as a ‘fire sale, which would not be done at values commensurate with existing asset values,” said Albrecht. Selling the entire regional network could hurt YRC Freight, he said, by leading to a loss of common customers. But YRC Worldwide and predecessor Yellow have sold regional businesses before — Saia, Jevic Transportation and Preston Trucking.
Such a sale would in some ways bring YRC Worldwide full circle to where it was before Yellow purchased Roadway Express in 2003 for $1.1 billion. YRC Freight would be a smaller LTL carrier than Yellow Transportation was at that time.
“All of this means that YRC Freight needs to accelerate its own operational turnaround,” Albrechtsaid. “This could involve job cuts, additional terminal reductions and a smaller geographic footprint, none of which is ideal.”
That’s why reaching an agreement on a new contract would be ideal, for all those involved, including the 250,000 shipper customers of YRC Worldwide.