YRC Worldwide Inc. confirmed today that it plans to issue $250 million in new common stock and convert $50 million of existing debt into equity. The Overland Park, Kan.-based less-than-truckload carrier (LTL) said both of these moves will cut its debt load by about $300 million, or more than 20 percent of its total $1.4 billion in debt.
The agreements, however, are contingent upon YRC's unionized workers' (represented by the Teamsters union) agreeing to extend the terms of the current collective bargaining agreement through March 2019. The current pact—which has called for 15 percent wage reductions and a 75 percent reduction in the company's pension contributions—is slated to expire on March 2015. Ballots are to be counted soon after Jan. 8.
The deal is also conditioned upon at least 90 percent of holders of $124 million of YRC's pension fund debt agreeing to amend and extend the current debt obligations.
Under the agreements with investors and lenders, $250 million in new YRC stock will be acquired at $15 a share. The proceeds from the stock sale will pay off $69 million in bonds due Feb. 15 and will either void or pay off another block of debt that comes due March 2015. YRC has $678 million in debt coming due at that time.
In addition, holders of about $50 million in principal of debt due March 2015 will convert those notes to common stock at a price of $15.00 to $16.01 per share, YRC said. That move is expected to reduce the company's debt by $50 million.
YRC said in a statement that the tentative refinancing agreements were a condition set by the Teamsters in return for ratifying the contract extension.
James L. Welch, YRC's CEO and president of its YRC Freight long-haul unit, said the deal would dramatically de-lever the company's balance sheet and improve the company's "creditworthiness." A ratification vote from labor, combined with more breathing room for its pension liabilities, will allow YRC to boost its investment in new equipment, technology, and employee training, said Welch. However, "if we are not successful, it would unfortunately mean some very difficult decisions for the company and its employees," he added.
YRC has said it costs about $150 million a year to service its debt, more than all its publicly traded LTL rivals combined. It has no money left to re-invest in the business after it meets its interest costs and pays wages, benefits, and regular operating expenses, the company said.
The contract proposal offers workers, in lieu of pay raises, $750 in annual bonuses over the first two years. After that, they would receive net annual raises equal to 34 cents an hour. Vacation pay would be capped at 40 hours per week or 1/58 of annual earnings. Three-week paid vacations would only be available to workers with 11 years seniority.
The first bonus would be paid in early 2014 should employees ratify the contract extension, Welch said.
Profit-sharing programs will kick in if YRC Freight achieves a 97-percent operating ratio per year starting in 2015. Workers will share in a larger percentage of profits should the unit's ratio decline further. For YRC Regional, YRC's profitable regional unit, profit sharing would begin at a 94.1 percent operating ratio. Operating ratio is the ratio of expenses to revenues and is a measure of a transport company's efficiency and profitability.
YRC Freight's third-quarter operating ratio stood at 101.2, meaning it spent a little more than $1.01 for every $1 in revenue. The company said its ratio in the quarter was impacted by problems surrounding the network revamp. YRC Regional, YRC's profitable regional unit, reported third-quarter operating ratio of at 95.5.
The contract would allow YRC, for the first time, to subcontract out 6 percent of its driver work, with supposed protections for all currently employed drivers. Some drivers have voiced concern that the protections would only apply to the originating drivers on a multistop trip. As a result, "relay" drivers, (or those drivers other than the originating driver who pick up loads at various points) could have their work subcontracted out, they warn.