"We can't control the economic environment, but we certainly can and are controlling our response to it," said Bill Zollars, chairman, president and CEO of YRC Worldwide (YRCW). What followed Zollars' statement was a flurry of activity (or damage control, depending on your perspective).
David Ross of Stifel Nicolaus viewed the YRCW statement as a response to the sharp decline in YRCW shares, which dropped below $1.00. He pointed out that, though a press release from YRCW stated it had reached a tentative agreement with the International Brotherhood of Teamsters on modifying its current labor contract, details were not finalized. “We believe the company put concessions on the table for consideration by the Teamsters that may include wage cuts, pension payment terminations and health care co-pay. How the members vote on the labor contract changes will depend, in our view, on the proposed concessions,” said Ross. “For example, an additional 5% wage reduction might be more palatable than a 15% wage cut. And health care co-pay has historically been a non-starter for Teamsters.”
Stifel Nicolaus had released a report earlier in the day examining the drop in the YRCW share price, noting that volumes and market share had continued to suffer, with national less-than-truckload (LTL) freight volumes down 40% year-on-year in the second quarter. The report referred to the talks with the IBT and the fact it was unlikely YRCW would receive any kind of federal bailout funds. It said the company “may violate its minimum liquidity covenant as early as August or as late as November given our cash burn estimates, assuming no further pension or wage concessions.” And, it added, banks and current senior note holders appeared to be covered by the current collateral base in the event of a bankruptcy.
From the YRCW side, the company said it had, in fact, “reached a tentative agreement with the International Brotherhood of Teamsters (IBT) leadership to modify the terms of the current labor agreement for its employees covered by the National Master Freight Agreement. The proposed changes are designed to reduce the company's cost structure and preserve operating capital.”
Mike Smid, president of YRC Inc. and Chief Operations Officer or YRCW, said, "We appreciate the ongoing willingness of the Teamsters leadership to work with the company to identify ways to improve the financial position of YRC Worldwide during this severe economic recession."
The company pointed out, “Details surrounding the tentative agreement are expected to be available next week [July 13-17] following further discussions with labor leadership. The modified agreement will be voted on by YRC Worldwide employees who are represented by the IBT.”
Prior to this announcement, YRCW's Zollars issued a statement he referred to as a progress report. It updated five key areas:
Network re-engineering - In March 2009, the company took a trailblazing step forward by integrating the Yellow Transportation and Roadway networks into YRC. The move created the most comprehensive LTL network in North America, allowing the company to reduce facilities and costs, while enhancing services.
Continued support from lender group - Last month [June] the company announced an amendment to its bank agreement to provide for the immediate release of escrow funds generated from the company's prior asset sales to pay down the revolving credit facility without reducing the company's borrowing availability under the facility.
Pension fund progress - YRC Worldwide announced an agreement last month [June] with Central States, Southeast and Southwest Areas Pension Fund ("Central States"), the largest of the company's International Brotherhood of Teamsters ("IBT") multi-employer defined benefit pension funds, to provide certain of the company's real estate as collateral in lieu of pension contribution payments during the second quarter for a deferral of $83 million. Since the announcement, seven additional funds have joined as participants in the same agreement for a deferral of an additional $11 million. The company continues discussions with its remaining IBT multi-employer pension funds.
Teamsters discussions - The company is continuing face-to-face discussions with the IBT this week [July 8th] seeking to modify the terms of the current labor agreement for its employees covered by the National Master Freight Agreement. The discussions remain productive.
Retention of advisors - YRC Worldwide retained financial advisors several months ago, including Tenex Capital Management, Alvarez and Marsal and Rothschild Inc., to assist in formulating its comprehensive strategic plan to address its capital structure and liquidity needs. In this regard, Rothschild has initiated preliminary discussions with several significant holders of the company's debt securities.