Wednesday, November 13, 2013

YRC Worldwide seeking more concessions to avoid bankruptcy

This brief appeared in Ti's Americas e-newsletter, Nov. 13. The first paragraph was not included so the full brief is below.

One would think that YRC Worldwide should be on the road to financial recovery particularly with all the breaks given to them by banks and the Teamsters. However it appears that may not be the case. While third quarter consolidated operating revenues were $1.3bn, a 1.3% increase over third quarter 2012, its operating income declined from $27.3m to $5.8m. What happened?

According to James Welch, CEO of YRC Worldwide and President of YRC Freight, third quarter revenue was not enough to cover its interest expenses on debt. Added to that were costs to retool its US network. "The decline in year-over-year consolidated operational performance for the third quarter is primarily attributed to YRC Freight. Our third quarter performance was hindered by declines in service, manpower shortages and declines in yield.

Indeed, YRC Freight, the LTL division, reported a 1.3% decline in quarterly revenue to $808.7m and an operating income loss of $9.7m. Meanwhile, its Regional Transport division which includes Holland, Reddaway and New Penn, noted a 6.4% increase in operating revenue to $444m but a 26.5% decline in operating income to $20m.

With a $69m debt payment due on February 15 and owing more than $1bn in debt over the next two years, YRC Worldwide is looking to refinance or extend the due date of its debt payment. However, lenders have demanded an extension of YRC’s contract with the International Brotherhood of Teamsters into 2019 before they will extend the due dates on the company’s debts.

As such, the company has been in discussions with the Teamsters. Will the Teamsters concede once again? The existing labor agreement included a 15% cut in wages, suspension of pension payments and reduced vacation time for members. YRC began making pension payments in early 2012 at 25% of the rate it paid in 2009. While the Teamsters agreed to these changes in three rounds of concessions, it may balk at any additional extensions.

If YRC is unsuccessful in its quest for refinancing or delay of debt payments, it will more than likely face bankruptcy. According to a Kansas City Business Journal article, CEO James Welch noted in an open letter to employees, “some companies in our position have simply declared bankruptcy” but said everyone had “worked too hard and sacrificed too much” to take that route.  However, shareholders lost control over the company when it under went financial restructurings. As such, control already lies in the hands of its lenders. YRC Worldwide was once described as a cat with nine lives. Are there any lives left?