YRCW cites progress on the restructuring front

Less-than-truckload transportation services provider YRC Worldwide Inc. (YRCW) recently announced it is making “significant progress” in steps it is taking to meet the agreements required in its effort to achieve its financial restructuring objectives by the end of July.

“We have been working closely with JP Morgan, agent for the senior secured lender group, the steering committee, the company’s pension funds and the Teamsters National Freight Industry Negotiating Committee and we are very pleased with the progress that has been made and the support we have received,” said John Lamar, YRC Worldwide Chief Restructuring Officer, in a statement. “All stakeholders are continuing to finalize definitive agreements to complete the company’s financial restructuring.”

This update follows the company’s 10-k annual report filed with the Securities and Exchange Commission in mid-March in which YRCW said a “milestone failure” had occurred, because its Pension Fund Condition in its most recent credit agreement was not reached by its March 10 deadline. This deadline required a nonbinding agreement among YRCW and its key stakeholders on the terms and conditions of the company’s Pension Fund Contribution.

The credit agreement—the company’s 20th—was announced on February 28 and was made in the form of a non-binding term sheet and approved by the parties necessary to satisfy the agreement in principle condition in the company’s credit agreement. These parties include the Teamsters National Freight Industry Negotiating Committee and a more than two-thirds majority of the lenders under the company’s credit agreement.

A report in the Kansas City Business Journal stated that YRCW has deferred more than $139 million in pension payments and has negotiated three rounds of concessions with the Teamsters, which represents about 25,000 YRCW employees, going back to mid-2009. During this time, YRCW Teamsters have accepted reductions in pay and waived monthly contributions to employee pensions.

In its fourth quarter earnings call earlier this year, YRCW reported net income of $23.1 million—of $0.49 per share. This falls short of the fourth quarter of 2009, when YRCW reported net income of $119.5 million, which included a $177 million after-tax gain on debt redemption. Despite the quarterly gain in net income, YRCW reported a net loss of $322 million and $8.13 per share for all of 2010.

The fourth quarter marked the fifth consecutive quarter of year-over-year earnings improvement, according to YRCW. And its consolidated results included positive EBITDA for the third straight quarter and positive operating cash flow for the second half of 2010.

During this same period, YRCW has also reported that it has seen volume gains for several of its respective subsidiaries on both an annual and sequential basis.

Even through there are some positive signals coming out of the YRCW camp, the company’s long-term prospects appear to still be cloudy at this point.

This was exemplified in comments made by Satish Jindel, principal of SJ Consulting in Pittsburgh during a recent conference call hosted by investment firm Stifel Nicolaus earlier this year.

On that call, Jindel said that the company’s survivability to-date has hinged on the support of at least three of four pillars: shippers, employees, debt holders, and stockholders.

Jindel added that banks have been uncharacteristically cooperative and forgiving, but their continued support is where YRC may falter. Shareholders, he said, have been continually marginalized. Through 1Q11, YRC’s volumes have posted a sequential increase, in line with the rest of the industry, and Jindel said that positive industry pricing trends are helping YRC, as they have one of the biggest holes to climb out of, following the pricing battle led by Con-way and FedEx.

Another source of uncertainty for YRCW, according to Jindel, is a lack of insight as to who will replace President, CEO, and Chairman Bill Zollars when he steps down once the restructuring is complete, as well as turnover in other C-level positions like CFO.

RBC Capital Markets analyst John Barnes said at last week’s NASSTRAC Logistics Conference and Expo that that the struggle with YRCW—and the LTL industry in general—is that going through this downturn carriers were getting “extremely aggressive” on price, because they saw YRCW struggling in the marketplace.

“[YRCW] is a case study on how to survive a downturn,” said Barnes. “There is no way this company should still be in operation. I think we can all look at the results and agree on that.

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