Just a few days prior to the Teamsters voting to accept the UPS Freight contract, union members soundly rejected YRC Worldwide’s request for a contract extension. 61% of those that voted rejected the extension with 6,000 members abstaining out of an approximately 26,000 Teamsters employed by YRC. If it had passed, a 15% wage reduction agreed in 2009 as well as a 75% reduction in pension contributions would have been extended through 2019.
The extension also would have allowed YRC to reduce its debt load by $300m. Although YRC announced in December that it had reached a refinancing agreement with some of its lenders and investors, that deal was contingent on the Teamsters agreeing to the contract extension.
“While we are disappointed in the outcome of the vote, we believe that timing of events related to our refinancing did not work in our favor. Many employees had already returned their ballots prior to December 23, the date the company announced it had a refinancing agreement in place. We believe that was information employees needed to make a fully informed decision,” said YRC Worldwide CEO James Welch.
YRC has survived much turmoil in the past few years; always, it seems, with a hint of a possible bankruptcy hanging over the company. This time, however, it may face its biggest obstacle as three debt deadlines loom. The first of the three major debt deadlines is February 15, when $69.4m in long-term debt comes due, followed by $325.5m September 30 and $664.7m in March 2015. Based on its recent quarterly earnings in which it reported $233.7m in liquidity, it appears YRC should be able to cover the first debt payment.
What are YRC’s options?
Besides filing bankruptcy, there are some options YRC may consider, such as requesting a deferment in payments. However, according to BB&T Capital Markets analyst Thomas S. Albrecht, this would mean more interest payments making it even harder for YRC to return to profitability.
The company could also offer revised proposal for union members to vote on. Still, another option is the sale of one or more of its regional carriers — New Penn, Reddaway and Holland or possibly its national carrier, YRC Freight.As YRC Worldwide contemplates its options, the clock ticks and competitors update sales strategies to try to poach YRC customers who may be on the fence. YRC needs its customers and more to survive this year. The road ahead looks extremely bumpy for the company.