January 27, 2014

YRC Worldwide shares jump on union vote

Employees represented by the Teamsters union agreed to extend wage and pension concessions into 2019 and take on new concessions to avoid a potential shutdown. Investors rallied on the approval but await word on YRC’s refinancing plans.

With a successful union vote in hand, YRC Worldwide Inc. turns next to face the still formidable tasks in its long turnaround.

The Overland Park trucking company desperately needs to refinance $1.4 billion in debt. It likely needs to coax back worried shippers that drifted away during the sometimes ominous campaign for union approval. And the freight carrier needs to prove that the disruptions caused by reorganizing its terminal network and operations last year have subsided.

YRC faces all that plus competitors.

“We continue to believe it faces long-term structural cost disadvantages and (market) share losses as a long-haul unionized carrier,” analyst Scott Group of Wolfe Research said in a note to clients.

The vote over the weekend by the International Brotherhood of Teamsters, however, cleared a path to tackle those problems.

Without the new labor pact, company and labor officials warned, YRC Worldwide faced potential bankruptcy. Group’s note said YRC’s risk of bankruptcy had fallen to zero.

Shares of YRC Worldwide Inc. jumped more than 10 percent in early trading Monday but ended the day down by 6.6 percent, a loss of $1.24 to $17.55.

One possible concern is the financing deal that the company may work out. Group said current shareholders may suffer a “substantial” drop in their ownership stake from potential new stock issues and debt-for-equity swaps.

Group also said the labor deal provided perhaps half of the $100 million-a-year financial boost that the company originally sought. However, it importantly locked in the company’s labor costs through March 2019 instead of March 2015.

“Essentially, now banks should have more clarity with less fear/risk of default from (the) prior contract concessions expiring,” A. Brad Delco, a research analyst at Stephens Inc., said in an email.

Bloomberg News reported Monday that a lenders meeting was set for today and that YRC Worldwide had set the interest rate on a portion of its refinancing deal.

YRC Worldwide officials were not available Monday.

Chief executive James Welch had said Sunday that news about the refinancing efforts would come early this week and that the labor stability that the pact provided was the key to making progress.

Roughly two-thirds of the 18,581 Teamsters’ ballots approved extending the 15 percent pay cut in place since 2009, the company’s 75 percent drop in pension contributions and other concessions for five more years. The agreement added new concessions that Group estimates will be worth $50 million a year to YRC.

Teamsters members overwhelmingly rejected the company’s first offer, and that set off speculation that some shippers would move freight to other more stable carriers.

YRC has not said whether it suffered any defections, but analysts will be watching for evidence when the company reports its year-end financial results next month.

Delco said shippers as a group were eager to see YRC survive both as a source of competition and as a major part of the freight industry’s capacity. The company operates YRC Freight nationwide and three other companies in regional markets.

In its most recent quarterly report, YRC said its effort to close some underused terminals and alter truck routes to ensure full loads had gone awry. Driver shortages and other problems forced up costs throughout the summer and led to the dismissal of YRC Freight’s president, Jeff Rogers.

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