YRC in Talks With Lenders

This story appears in the May 18 print edition of Transport Topics.

YRC Worldwide Inc. said last week it was talking with lenders about a possible third renegotiation of its credit agreement, and that it had deferred almost $40 million in pension-fund payments.

The less-than truckload carrier said  that unless it can restructure its obligations again, there was “a substantial risk” it won’t meet an earnings target that was set in February.

That $45 million goal for earnings before interest, tax, depreciation and amortization may not be attainable, despite several cost-reduction moves and recent freight volume improvements, YRC said.

At the same time, YRC continued talks with the Teamsters union and representatives of the several pension, health and welfare funds that provide benefits to its union workers. The company is seeking to defer cash payments to those funds and use real estate as collateral instead.

The lending agreement changes are important to YRC because it would be in default under its credit agreement if the target for EBITDA cannot be met.

“As the company attempts everything it can to raise cash (e.g., deferring pension payments and selling real estate), we believe the leniency or lack thereof of its bank group should play the biggest role in the company’s future (or lack thereof),” Stifel Nicolaus analyst David Ross wrote in a May 12 report.

In response, YRC spokeswoman Tracy Memoli said, “We are confident that we are taking the right steps by actively managing cash flow and engaging in constructive discussions with our lenders so that we can continue to meet our obligations and serve our customers. We continue to deliver on our commitment to provide outstanding service, and we look forward to doing so for many years to come.”

YRC disclosed the discussions in a fed-eral regulatory filing May 11 that detailed the company’s efforts to cut losses that escalated to $257.4 million in the first quarter, compared with $244 million in the fourth quarter of 2008 and $46.4 million in the first quarter of last year.

The company’s report also said its business volumes are improving, without giving details.

“We have experienced an increasing shipment trend as many of these customers are now returning their shipping volumes to YRC,” the filing said. Some customers diverted freight to other carriers around the time YRC combined its Roadway and Yellow Transportation LTL units March 1.

YRC said it won’t be able to meet its working capital needs for the second quarter or the full year unless it receives help from one of three sources that it cannot control: deferring pension fund payments, completing pending terminal sales and lease-backs or raising capital elsewhere.

YRC ranks No. 4 on the Transport Topics list of the 100 largest for-hire carriers in the United States and Canada.

YRC said it had successfully postponed until May 15 a $21.1 million pension payment and an $18.3 million health and welfare payment to one of the benefits funds, which was unnamed. It also said it halted pension fund payments to other funds in April until negotiations with the union and fund managers are concluded.

In the face of first-quarter freight volume declines of more than 20%, YRC has moved to raise cash by integrating its national less-than-truckload operations, cutting pay, closing some regional terminals, selling surplus facilities and signing sale/leaseback agreements for terminals still in operation.

“We cannot predict how quickly and to what extent these volumes will return,” the company’s filing said. “Our increasing number of shipments and cost actions has partially offset our revenue decline from the poor economy, but further cost reductions, which are under way, and further shipment in-creases are needed” to counter revenue shortfalls and enable the company to meet the earnings target.

In the past three months, YRC already has renegotiated its credit agreement twice before. The February adjustment made changes such as limiting cash use and giving creditors part of the proceeds from sales of surplus facilities or sale and leaseback arrangements for active terminals.

A revision was required in April to allow the carrier to propose replacing cash pen-sion payments with the pledging of some terminal assets as collateral.

YRC typically makes between $34 million and $45 million a month in pension payments.

YRC said if it can’t reach agreement on cash pension deferrals, “we will be required to make any past-due payments and commence payments on the contractually required schedule to avoid the Pension Fund from terminating our participation.”

Such an action by the fund would require the company to make a lump sum payment to the pension and benefit funds to cover existing obligations and would be a breach of its labor agreement, YRC said.

The Teamsters union has directed requests for comment on YRC’s plans to the Central States Pension Fund, which did not return calls requesting comment.