For YRC Worldwide, Inc., seeking a new collective bargaining agreement with the Teamsters union in a bid to lighten its $1.4 billion debt load, the cost of the money is just as burdensome as the total amount it owes.
The Overland Park, Kan.-based less-than-truckload (LTL) carrier is financing its debt at interest rates between 11 percent and 12 percent, according to a Nov. 6 memo from a Teamsters official obtained by DC Velocity. At those rates, YRC is paying $150 million in interest, according to the memo. "YRC needs to refinance with a lower interest rate to continue to remain in business," according to the memo.
The day before at a special meeting in Dallas, YRC told the union its interest payments are larger than all its publicly traded competitors combined. The interest burden is "strangling the company," YRC said in a handout at the meeting.
Because the refinancing process typically takes 90 days to complete, it must begin by Nov. 15 to meet the first principal payment of $69 million, which is due Feb. 15, the company said. YRC has a $326 million payment scheduled in September, and another $678 million by March 2015, the month the current labor agreement expires. At the Nov. 5 meeting, YRC asked the Teamsters for a new contract that extends into 2019. The current agreement expires in March 2015.
YRC's lenders have demanded the company have a new agreement in place before they will agree to refinance the debt at lower rates, the Teamster memo said. Any new agreement must show specific targets for growth and expenditures before its lenders will act, the memo said. However, there is no guarantee that YRC will gain debt relief if it negotiates a new contract, according to a union source.
The company said it told union leaders that it faces bankruptcy without a contract extension, according to the memo.
On Oct. 30, YRC CEO James L. Welch told YRC employees, including its 26,000 union workers, that the company has no money left to reinvest in the business after it meets its interest expense and pays wages, benefits, and regular operating expenses.
Local union leaders at the meeting are in the process of briefing the rank-and-file on the discussions. One local, Local 728 in Atlanta, said on Nov. 1 that it would reject any extension to the current contract, stating that union workers have already sacrificed enough to keep the company afloat.
According to people at the Nov. 5 meeting, YRC executives said they were willing to institute a generous profit-sharing plan in return for greater operating efficiencies and a predictable wage and benefit structure. However, management was unable to provide details when pressed by the locals, according to those sources.
On Wednesday, YRC said it would delay the release of its third-quarter results until Nov. 12 in order to conduct labor negotiations. The results were originally to be released yesterday.
