You Have to Give YRC Points for Creative Thinking

Implications
YRC Worldwide, the nation's largest trucking company which has lost close to $2 billion over the last nine quarters, is applying for $1 billion in bailout funds under the government's Troubled Asset Relief Program (TARP).

YRC Chairman and CEO William Zollars says the funds are necessary "to get the conversation started" about the company's estimated $2 billion in pension obligations to various multi-employer pension plans, including the Teamsters' Central States plan. While YRC is not a financial institution and its odds of receiving the bailout are considered slim, Zollars says it's unfair for YRC to be paying billions of pension payments when roughly half its contributions are going to workers who never were employees of YRC companies.

Analysis

Creativity is a wonderful thing. It has given us modern art, rap music, the sport of Ultimate Fighting Championship and thousands of other off-the-mainstream elements of our society.

Now comes William D. Zollars, who wants to magically change the nation's largest trucking company into a financial institution.

Zollars is chairman and CEO of YRC Worldwide, the nation's largest trucker with $8.9 billion in revenue last year. YRC has about a 20 percent market share in the less-than-truckload (LTL) sector of the industry. It has lost $1.869 billion the last nine quarters, including a pre-tax loss of $415 million in the 2009 first quarter.

YRC has admitted its losses and high debt load may cause it to run aground of its bank covenants. Those agreements state that YRC's debt cannot exceed 3.5 times earnings before interest, taxes, depreciation and amortization (EBITA).

Zollars says he plans on applying for $1 billion in TARP funds because his company is obligated to pay an estimated $2 billion this year into various pension plans.

Like most unionized trucking companies, YRC belongs to various Teamsters' multi-employer pension plans. Because more than 600 Teamsters-covered trucking companies have gone bankrupt since deregulation in 1980, YRC is in the untenable position of being one of the last surviving contributors to these multi-employer plans.

In fact, Zollars tells the Wall Street Journal in this scoop, that nearly half of YRC's annual pension contributions are going to fund workers who never worked a day in their lives at companies controlled by YRC units.

That's unfair. Hence, Zollars says, YRC deserves the bailout.

Analysts, lawyers and others who have dealt with the government in applying for TARP funds say Zollars' quest is a longshot at best. I tend to agree. After all, YRC simply is not a bank, financial or lending institution.

I do agree with Zollars that it's unfair YRC is stuck with paying for pensions of workers who never worked for his company. But unfortunately, that's how multi-employer pension plans were designed to work.

Ask UPS. The nation's largest transportation company also belongs to many multi-employer pension plans. But it saw this liability coming years ago. As a result, UPS two years ago made a decision to exit the Teamsters' largest multi-employer plan, Central States, because of the "overhang" of this liability.

As a result, UPS made a one-time payment of $6.1 billion (about half that, after taxes) to Central States in exchange for getting out from underneath its obligations to that fund. UPS could do that because that $50 billion company is profitable--even in the worst freight environment in more than 30 years.

YRC could opt to do the same thing. I estimate its withdrawal liability to be perhaps as large as $3 billion--an impossibly high figure, given YRC's precarious financial condition.

With that option off the table, YRC evidently feels it has to try the next-best thing. That's TARP.

Prediction: This will be approved the day pigs fly and Dick Cheney applies to be a fund raiser for Barack Obama's re-election bid.

I don't really believe Zollars even thinks this will fly. But as he tells the Journal, it's a way "to get the dialogue started about the pension issue."

I give Zollars points for thinking outside the box. And if it works to shave YRC's pension obligations by a substantial amount and keeps his company afloat, it was worth it.

As the 50-to-1 winner of the Kentucky Derby proved a few weeks ago, longshots do come in. At least at the race track