YRC reviewing options after union rejection of contract
YRC Worldwide employees rejected Thursday the carrier’s proposal to extend their employment contract for five years by a vote of 61 percent to 39 percent, leaving YRC “reviewing its options.”
The carrier has said a contract extension with union employees represented by the International Brotherhood of Teamsters, which would move the deal’s expiration date from 2015 to 2019 and include some employee concessions, is essential if YRC hopes to meet its debt obligations, which total around $1 billion in the next two years. A Teamster vote on the contract transpired rather quickly because the company's first debt payment of $69.4 million comes due in February.
In late December, YRC reached an agreement that would allow it to
reduce its debt by $300 million that hinged on obtaining a new contract.
This development was announced soon after the company filed a notice
with the Securities and Exchange Commission that it would sell 3 million
of its shares to generate money for upcoming debt notes.
"While we are disappointed in the outcome of the vote, we believe that timing of events related to our refinancing did not work in our favor,” YRC’s chief executive officer, James Welch, said in a statement. “Many employees had already returned their ballots prior to Dec. 23, the date the company announced it had a refinancing agreement in place. We believe that was information employees needed to make a fully informed decision.”
The International Brotherhood of Teamsters came out in support of its members’ rejection of the new contract.
“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,” Teamsters General President Jim Hoffa said in a statement.
In a note sent to investors Friday morning, Cowen and Company implied the hard times are just beginning for YRC.
"LTL carriers may see a sudden surge of new freight as YRCW's liquidity
problems resurface, potentially leading to customer defections ahead of
a possible bankruptcy. In this report we attempt to quantify the
benefits for the carriers in our coverage."
The investment firm also noted that YRC has now had two major "liquidity debacles" in the past five years.
"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. Restructuring, however, will not likely work in the LTL industry," the firm said.
Whether or not this contract rejection ultimately topples the carrier, the YRC developments will help the industry by reducing
capacity and increasing pricing for the other major carriers, it said.
It recommended that the remaining large carriers look at their capacity
and implement plans to take on additional freight.
"While not all
carriers may win over significant YRCW business, most should benefit at
least indirectly from higher pricing," Cowen and Company said.
YRC officials vowed to keep talking with the Teamsters organization in order to iron out a deal. According to Teamsters for a Democratic Union, widespread opposition didn’t come as a surprise, so the group is expecting YRC and the Teamsters to announce a new plan soon. In fact, the day before the vote totals were finalized YRC stock dropped by up to 24 percent because shareholders thought an agreement might not be reach, according to several news organizations.
But as for what’s really next, none of YRC’s employees seem to know.
“The company has hinted that it could be bankruptcy, and we sincerely hope for the sake of 26,000 Teamsters, their families and their communities that they will not take that route,” Teamsters for a Democratic Union said.
The new contract is a move YRC said was necessary in order for it to refinance its debt and stay competitive as a carrier. YRC and Teamster officials began formally meeting in November to work toward a new contract. In the end, the deal contained no new wage cuts for employees, but pay increases were pushed from 2014 to 2015, and it effectively continued the 15-percent wage cut seen in the last contract by another four years. Other concessions included raising the overtime pay threshold from eight hours to 40 hours; a change in the outsourcing rules allowing for non-union maintenance and road work; and a change health and welfare rules so that made a partial work week no longer pay out a full week of benefits.
During the earliest negotiations between the Teamsters and YRC, Welch said, “Reaching an understanding would be a positive and important step in the future of this company. … It will substantially increase the likelihood of a holistic refinancing solution to address the debt maturities in 2014 and 2015.”