YRC Worldwide Inc. (YRCW)’s shares sank for a second day after union workers rejected a concession-filled labor agreement that the trucker needed to refinance more than $1 billion and ward off a default.
Shares fell 13 percent to $13.58 at the close in New York, the lowest level since Dec. 16. The stock fell 16 percent yesterday before the voting results were released. YRC’s shares doubled in 2013.
YRC’s Teamsters yesterday voted 61 percent against a contract extension into 2019 that retained a 15 percent wage cut, delayed salary increases and reduced vacation time. The labor agreement would have saved the company $100 million a year, YRC said in a filing today. Out of about 26,000 YRC union workers, 19,651 ballots were cast, the union said.
“Bankruptcy cannot be ruled out at this point,” Jason Seidl, an analyst with Cowen & Co. who has a hold rating on the stock, said in a note today. “Investors will recall that this is the second major liquidity debacle the company has faced in the last five years.”
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.
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.
About $60 million of the cost savings would have come from forgoing salary increases in 2014 and 2015, reducing the amount of vacation time and making changes in health and welfare benefit rates, the company said. A crackdown on absenteeism would have saved about $25 million a year and increased flexibility, including the ability to hire third-party trucking services, would have lowered costs by $15 million, the company said in today’s filing.
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.
YRC stands to lose business to other shippers because of its financial struggles, weakening the company even more, Cowen & Co’s Seidl said in his note today.
“Even if bankruptcy is avoided or delayed, the uncertainty surrounding YRCW’s financial position is enough to make customers concerned,” he said. “Many of them may already be exploring the option of redirecting at least some freight to other carriers.”
The company had reached an accord in December 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. The ballots were mailed out on Dec. 10.
“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 canceled a meeting it had scheduled 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.
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, Chief Financial Officer Jamie Pierson said in a Dec. 23 interview.
“We would not be surprised if the re-emergence of major balance sheet problems leads many stakeholders to the conclusion that bankruptcy may now be needed to restructure the company’s finances,” Seidl said.
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