YRC Worldwide, Teamsters find their fates hitched

The Teamsters didn’t mince words.

The more than $800 million in concessions that members are voting on should “send a message to the industry players who are slashing prices in an attempt to force (YRC Worldwide Inc.) out of business that (YRC) will have the resources to be here for the long haul,” Tyson Johnson, freight division director for the International Brotherhood of Teamsters, said in a statement this month.

The recession has wedged YRC and its union into an unlikely high-stakes partnership. In the pot: the fate of a massive trucking company, roughly 49,000 jobs (35,000 of them union jobs) and one of the last big Teamsters toeholds in the freight industry. YRC accounts for nearly half of the Teamsters freight division’s 80,000 members.

“If YRC were to go out of business, the Teamsters would be hard-pressed to replace those jobs,” said John Wagner Jr., president of North Kansas City-based logistics company Wagner Industries Inc.

The fragile alliance must navigate a rocky road. Union workers’ votes on whether to take an extra 5 percent wage cut and let YRC halt pension payments for 18 months, among other measures, are expected to be counted by early August. And those workers already accepted other pay cuts and pension payment deferrals earlier this year. YRC, meanwhile, lost $257.4 million in the first quarter. It also has been attempting to manage costs by integrating subsidiaries, laying off thousands and closing facilities. Other efforts have involved renegotiating debts and selling property, including its Overland Park headquarters. Full Story.....

YRC completes payment plan with largest pension fund

YRC Worldwide Inc. said Thursday that it has a long-anticipated agreement to use real estate as collateral for deferred payments to pension funds.

The Overland Park-based company said it will defer $83 million in payments to the Central States, Southeast and Southwest Areas Pension Fund. The Central States fund is a multi-employer pension fund that represents 58 percent of YRC’s monthly pension obligations.

The agreement allows YRC to put up company real estate as collateral for pension obligations. The company said it is to repay deferred pension contributions during a three-year period beginning in January 2010, with interest accruing monthly beginning July 15. YRC stopped making payments in April as negotiations continued.

YRC also said Thursday that it is working to pull other multi-employer pension funds into the arrangement. The company said it has deferred about $50 million in obligations to these funds.

YRC has said it wants pension reform, with the federal government’s help, because through the multiemployer plans it supports many retirees who never worked for the company, but whose employers went out of business. The plans already have been taking losses as the markets fell. The Central States fund ended 2008 with net assets of $17.3 billion, down more than a third from $26.8 billion at the end of 2007.

As part of the plan to defer pension payments, YRC said it has a deal with creditors that will let it grant second priority liens on property. An amendment to the company’s credit agreement releases $73 million in escrow funds from previous sales of real estates to pay down the company’s revolving credit facility without reducing its ability to draw on that facility.

The company said it has closed on $94 million in real estate sale and sale-leaseback agreements in the second quarter, through June 16. It has another $77 million in transactions under contract. Property sales have been part of the company’s strategy to maintain liquidity as volumes remain weak and it posts losses, including $257.4 million in the first quarter.

“These transactions are especially critical as we continue to face substantial headwinds from the global economic recession,” YRC Chairman and CEO Bill Zollars said in the release. “Today’s announcement marks important milestones, which are part of our overall strategy to provide us with greater financial flexibility during the economic recession, giving us additional liquidity and the ability to use our cash to support the business.”

At the end of May, YRC had cash and cash equivalents — excluding $61 million in restricted cash — of $155 million, compared to $151 million at the end of April.

YRC said Tuesday that it has accelerated its closing of facilities as part of an integration of its Yellow and Roadway networks. It now expects to be down to 400 facilities by the end of June, rather than by the end of the year, creating an estimated $250 million in annual savings.

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

Con-way, Teamsters fund settle withdrawal liability

Con-way Inc. and the $26.8 billon Teamsters Central States, Southeast and Southwest Areas Pension Fund settled a dispute over an alleged $662 million in withdrawal liability from Consolidated Freightways Corp., a Con-way subsidiary spun off to stockholders in 1996, according to an SEC filing Dec. 31 by the San Mateo, Calif.-based company.

In the settlement, Con-way agreed to pay $8 million to the pension fund and assign any future proceeds from the Consolidated Freightways bankruptcy. In 2002, Consolidated Freightways filed for Chapter 11 bankruptcy protection, and Con-way filed claims totaling $35.8 million, said Gary Frantz, Con-way director of communications.

Con-way has received $5 million so far from its claims, which the company will retain, Mr. Frantz said. He couldn’t estimate the amount Central States could eventually receive. The proceeds Con-way received amounted to 14 cents for each dollar of claims paid, according to the SEC filing.

Under the settlement, Con-way agreed to drop its federal lawsuit against Rosemont, Ill-based Central States and its arbitration demand that rejected the withdrawal liability the multiemployer fund assessed against Con-way as a result of the bankruptcy filing.

“The settlement agreement does not constitute an admission of liability by Con-way,” Mr. Frantz said.

Mark F. Angerame, Central States CFO, couldn’t be reached for comment.

Con-way has a non-union work force and has no employees in the Central States fund, Mr. Frantz said.