USPS Weighs Hiring Restructuring Advisers
The U.S. Postal Service, which is projecting a $14.1 billion loss this fiscal year, is discussing restructuring options with potential advisers, according to people with knowledge of the matter.
Officials at the Postal Service have met in recent weeks with Moelis & Co., Rothschild and Perella Weinberg Partners LP, said the people, who declined to be identified because the talks are private. As of last week, the service hadn’t hired any of the firms and was still deciding whether it needs an outside adviser, the people said.
“The Postal Service faces a difficult challenge and unless they hire the best in the business a restructuring may fall flat,” said Harry Wilson, the founder of MAEVA Advisors LLC who previously worked on a taskforce that restructured General Motors Corp. and Chrysler LLC. “In public sector restructurings, threading the political needle is as important as coming up with a great business solution.”
The service, which is structured as a self-supporting government enterprise,“will run out of cash or be dangerously close” by September 30, 2012, Chief Financial Officer Joseph Corbett said today at the service’s headquarters in Washington. The service can’t make a $5.5 billion payment due Nov. 18 to the U.S. Treasury for future retirees’ health benefits, he said.
The organization, which wants to cut 220,000 jobs by 2015, said in July it was considering a plan to close as many as 3,700 post offices, or 12 percent of its locations.
Wall Street firms have been employed by U.S. and international governments in a number of turnaround situations in recent years. Rothschild advised the U.S. Treasury Department on General Motors and Chrysler, and Moelis worked with the Dubai government on the $24.9 billion debt restructuring of Dubai World that was completed last year. Perella Weinberg is advising the U.S. government on restructuring Ally Financial Inc., which is majority-owned by Treasury.
Dave Partenheimer, a Postal Service spokesman, declined to comment on whether the service is talking with restructuring advisers. Spokesmen for Moelis, Rothschild and Perella Weinberg also declined to comment.
The investment banks have talked with the Postal Service about its finances and operations, discussions with labor unions, and negotiations with Congress about funding requirements, said one of the people. An adviser, if hired, would also help the service handle information requests from Lazard Ltd. (LAZ), which is advising the National Association of Letter Carriers labor union, the people said.
The Postal Service’s 2011 net loss narrowed to $5.1 billion in the year ended Sept. 30 because the $5.5 billion health-care payment was delayed into fiscal 2012, Corbett said. The loss in 2010, when the agency made a benefits payment equal to the deferred one, was $8.5 billion.
Mail volume fell 1.7 percent in the fiscal year and will probably fall 5.9 percent in fiscal 2012, Corbett said. Mail volumes have dropped more than 20 percent in the last five years, hurt by the recession and the increasing use of electronic communications by individuals and businesses.
The service has already hired CB Richard Ellis Group Inc. to help sell real estate as it closes locations.
“There is potential for cost cutting in real estate and labor, based on decisions around the type of service they’ll offer and where,” said Deryck Palmer, co-chairman of financial restructuring at Cadwalader, Wickersham & Taft LLP in New York. “But there’s also the opportunity to piggy-back ancillary services such as freight on their existing infrastructure, which could add revenue and defray fixed costs.”
The Postal Service union has labor contracts that bar layoffs among most of its 560,000 full-time employees. The cost of labor, including retiree benefits, represents almost 80 percent of the service’s expenses, as volume declines in an era of e-mail and electronic billing.
By comparison, labor accounted for about 60 percent of costs at United Parcel Service Inc. (UPS) last year and for about 40 percent at FedEx Corp. (FDX), according to data compiled by Bloomberg. UPS has unionized truck drivers, while FedEx drivers aren’t union members.
The American Postal Workers Union, with 250,000 members employed by or retired from the Postal Service, is the biggest union that bargains with the agency, based on current employees. In May, it ratified an agreement with a two-year wage freeze and the elimination of some cost-of-living adjustments.
The National Association of Letter Carriers, based in Washington, is the second-largest postal union based on the number of current employees.
Other Postal Service unions include the National Rural Letter Carriers’ Association and the National Postal Mail Handlers Union, which works in mail-processing plants and post offices. The National Association of Postal Supervisors, which represents management, doesn’t have collective bargaining.
To contact the reporters on this story: Jeffrey McCracken in New York at firstname.lastname@example.org; Jonathan Keehner in New York at email@example.com; Angela Greiling Keane in Washington at firstname.lastname@example.org