YRC Worldwide Inc. (YRCW)’s shares may plunge for a second day after union workers rejected a labor agreement yesterday that the trucker has said was required to refinance more than $1 billion of debt and stave off bankruptcy.
YRC’s Teamsters voted 61 percent against a contract extension into 2019 that retained a 15 percent wage cut and contained concessions including giving the company more operating flexibility such as hiring third-party trucking services and cracking down on absenteeism. Out of about 26,000 YRC union workers, 19,651 ballots were cast, the union said.
“It’s not going to bode well for any equity holders of the stock,” said Brad Delco, a trucking industry analyst with Stephens Inc. in Little Rock, Arkansas. “I don’t think it’s over, but it definitely makes things significantly more desperate.”
Chief Executive Officer James Welch has said the future of Overland Park, Kansas-based YRC depended on the union supporting the labor concessions, a condition for lenders to agree to refinance $952 million of bonds and bank loans maturing by March 2015. In an Oct. 30 letter to union workers, he said some companies in YRC’s position have declared bankruptcy.
The shares fell 20 percent to $12.60 in late trading yesterday. Shortly after the New York close and before the voting results were released, YRC dropped 16 percent, the biggest decline in eight weeks, after a union splinter group said the company’s proposal may fail. The stock more than doubled in 2013.
YRC amassed $1.4 billion in debt from acquisitions and what Welch called “numerous missteps” before he took the job in 2011. The company has posted profit losses of more than $3.1 billion since 2007, including a projected loss of $100 million last year.
“Our members have sacrificed billions of dollars in wages and pension benefits over the past five years and yet the company has been unable to recover from the disastrous policies of the previous management,” Jim Hoffa, Teamsters general president, said yesterday in a statement.
As of Sept. 30, the company had about $170 million of cash to face a $69.4 million bond issue that matures on Feb. 15. The company has $325.5 million of loans due in September and $556.7 million of loans and bonds maturing in March 2015.
“Despite the vote results, it is business as usual as we have approximately 15,000 trucks on the road today serving 250,000 customers,” Welch said yesterday in a statement.
The company had reached an accord with some investors and creditors that would have reduced debt by $300 million with the issue of $250 million of new shares and converting $50 million of bonds to shares. That agreement hinged on union workers accepting the labor proposal.
Welch said many union workers who mailed in their votes early may have supported the company’s proposal after learning of the $300 million debt-reduction agreement announced on Dec. 23.
“Many employees had already returned their ballots prior to Dec. 23,” Welch said in the statement. “We believe that was information employees needed to make a fully informed decision.”
The company had scheduled a meeting with lenders today in New York to discuss a $700 million loan and $450 million of asset-backed financing to refinance its high-cost debt. A spokeswoman representing the company said she didn’t know yesterday after the voting results if that meeting would still take place.
Lack of Liquidity
Without the labor agreement, “we may be unable to restructure or refinance the portions of our debt which will mature in September of 2014 and March of 2015,” YRC said in a Dec. 10 filing. “If we are unable to restructure or refinance our maturing debt, we will not have sufficient liquidity to repay the amounts owed.”
The refinancing and debt reduction would have saved YRC as much as $50 million of annual interest payments, putting the company on the road to profitability, said Chief Financial Officer Jamie Pierson in a Dec. 23 interview.
YRC’s bonds have gained over the past year as investors grew more confident the company would be able to refinance its debt. The company’s $179.1 million of 10 percent notes maturing March 2015 last traded at 98.3 cents on the dollar on Jan. 7, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. That’s up from a 12-month low of 29.5 cents on the dollar on Jan. 31, 2013.
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