Modifying its labor agreement is just one of a number of recent steps the company announced to strengthen its financial and operational position. It is moving forward with the integration of Roadway and Yellow Transportation, it has restructured debt, and it is “collateralizing” assets after Standard and Poors reduced the company's credit rating.
“We have an opportunity to improve our performance even in today's economy. That's why we're taking long-ranging actions which improve our ability to effectively, reliably and quickly serve our customers' supply chain needs today, and in the future,” said Bill Zollars, Chairman, President and CEO of YRC Worldwide Inc.
Zollars called for the transportation and logistics industry to focus on the future, noting, "In this time of unprecedented economic challenges, our industry needs to focus on continually improving our efficiency and effectiveness."
One step to preserve that future for YRC appears to be renegotiating terms of the recent labor agreement with the International Brotherhood of Teamsters. YRC and the Teamsters have reached a tentative agreement which will proceed through various approval steps before being presented to members for ratification.
In its statement, the Teamsters said, “Facing the worst economy since the 1930s, the Teamsters Union and the freight companies of YRC Worldwide Inc. have reached an agreement to provide the company with economic relief that will protect the jobs and retirement security of tens of thousands of Teamsters.” The agreement would help the company to “get through this deepening recession and protect the jobs and health, welfare and pension benefits of our freight Teamsters,” said Tyson Johnson, director of the Teamsters National Freight Division. “This is a very difficult time for our members, but this agreement will protect the livelihoods of our members and their families, which is our number one priority.”
YRC's announcement noted that Yellow Transportation, Roadway, Holland and New Penn business units had reached a tentative agreement to modify the current labor agreement for employees covered by the National Master Freight Agreement. Details were not immediately available pending further discussions with labor leadership and the affected employees.
Zollars commented, "We have already taken a number of steps to strengthen our financial position and improve both our profitability and our competitiveness, including the continued successful integration of Yellow Transportation and Roadway, the exchange of equity for notes through private transactions, modification of our non-union pension and retirement plans, sales of excess properties and, most recently, the commencement of a $100 million tender offer to purchase outstanding notes. While these efforts have been effective, the worsening macroeconomic crisis in America and the increasingly critical state of our industry mean that we must take additional measures."
Zollars added the decline in volumes and pricing was continuing to affect profits and cash flow and YRC's ability to pay down debt from operating funds. The modification to the agreement, which Zollars said YRC expected to be ratified in December, will “establish a more competitive cost structure allowing us to accelerate our market share recovery and capitalize on opportunities for future growth, while at the same time, defending the long-term prospects and job security of our employees."
Zollars said the national integration for Yellow Transportation and Roadway is progressing ahead of schedule. "With the support from our customers and the collaboration of the Teamsters, our national integration is going even better than we originally anticipated with more than 60 facilities either consolidated or in the process of consolidation. Based on this success, we continue to evaluate our initial timeline and expect that it may be further accelerated," said Zollars.
"The integrated network builds shipment densities, allowing us to expand service offerings, improve reliability and serve more direct points," added Mike Smid, President and CEO of the YRC Worldwide North American Transportation division.
Other steps YRC is taking to shore up its position include the exchange of equity for notes through private transactions, modification of non-union pension and retirement plans, sale of excess properties and the commencement of a $100 million tender offer to purchase outstanding notes. “While these efforts have been effective, the worsening macroeconomic crisis in America and the increasingly critical state of our industry mean that we must take additional measures," Zollars said, in explaining the additional step of renegotiating the labor agreement.
YRC announced earlier it had commenced a cash tender offer to pay an aggregate purchase amount (including accrued and unpaid interest) not to exceed $100 million (the "Maximum Aggregate Purchase Amount") for its contingent convertible senior notes and notes of YRC Regional Transportation, Inc. (formerly USFreightways Corporation), the company's wholly owned subsidiary. The principal purpose of the tender offer, said YRC, is to purchase notes up to the Maximum Aggregate Purchase Amount, reduce debt and interest costs, increase net income and improve leverage. The terms and conditions of the tender offer are described in an Offer to Purchase, dated November 25, 2008, and the accompanying Letter of Transmittal, which are being sent to holders of Notes.
Additionally, YRC had announced the financial impact of a credit rating change from Standard and Poors is considered a trigger event under the credit agreement. This trigger event requires the company to collateralize its remaining unencumbered assets, which primarily include its real estate and revenue equipment. The company estimates the market value of these assets to be around $1.5 billion.
"It is unfortunate that the economic environment and financial markets are causing these types of reactions," stated Bill Zollars, chairman, president and CEO of YRC Worldwide. "Yet it is important to understand these disappointing downgrades do not change our strategic plans to combine the National companies or improve our financial condition."
Despite the collateralization of these assets, the company's potential to implement multiple strategic actions is not impacted, the company said.
In the announcement, YRC pointed out:
- The company can enter into sale and leaseback transactions, including the collateralized real estate. Under the credit agreement, the first $150 million of proceeds from sale and leasebacks can be reinvested in the business or must be used to pay off its $150 million term loan. After repayment of the term loan, the company can use proceeds as it deems appropriate to manage the business.
- The company can continue to dispose of excess facilities including the expected 150 properties from the integration of Yellow Transportation and Roadway.
- The company can also complete debt-for-debt exchanges. To the extent the principal amount of the retired debt is greater than the amount paid, the difference would be recognized as a gain on extinguishment of debt and included in the company's earnings before interest, taxes, depreciation and amortization under the credit agreement.
YRC estimates one-time fees for the collateralization to be around $7 to $10 million that would be incurred during the fourth quarter 2008 and first quarter 2009. The company's pricing under its revolving credit facility remains at LIBOR plus 160 basis points, the maximum pricing under the credit facility, which matures in August 2012. The company does not have any significant long-term debt maturities until April 2010.