The nation's largest publicly traded trucking company will ask for $1 billion in aid from the federal bailout fund, as creditors come knocking and business continues to sink, media reports said Friday.
If approved, YRC would become the first trucking company to get help from the bailout fund, officially known as the Troubled Asset Relief Program, or TARP. But analysts say the chance of YRC getting any bailout money is slim.
The company also announced Friday that is has reached an agreement with its banking group that will allow it to keep it within the terms of its debt. Creditors have once before given a lifeline to YRC, allowing it to pay back debt slowly through asset sales and other means.
YRC, which runs trucks under the names including Yellow Transportation and Roadway, wants to sell more of its real estate and use some of the proceeds for debt collateral.
YRC Worldwide YRCW has laid off thousands of workers, asked remaining workers to take sizable pay cuts and made other tough decisions to remain competitive as the trucking industry suffers from the worst demand in decades.
A spokesman for the Treasury Department declined to comment on whether an official application for aid had been filed as of midday Friday. The request was reported by The Wall Street Journal.
The $700 billion TARP bailout fund, approved by Congress last year, was originally intended to help banks navigate through the credit crisis, but it has also been used to make loans to auto companies and insurer American International Group.
Treasury Secretary Timothy Geithner told a congressional oversight panel recently that the TARP fund Congress approved last October now has $110 billion that has not been committed. But several companies are trying to repay TARP funds, which would boost the pot for additional Treasury financial assistance.
Overland Park, Kansas-based YRC said in a filing with the Securities and Exchange Commission late Monday there was "substantial risk" that its cost cuts and shipment increases would not have been made in time to meet its minimum requirement for credit facilities in the second quarter, which could have led to a possible default. But the agreement reached Friday will give the company a bit of much needed financial leeway.
The company also has substantial pension obligations — estimated at about $2 billion — from a multi-employer plan. In the Journal report, YRC CEO Bill Zollars said the pension obligations are unfair because YRC must now pay for employees who never worked for the company.
Multi-employer pension plans pool benefit money into a lump sum and dole it out to workers when they are eligible for retirement. But this can leave large companies paying benefits for other companies that have gone out of business.
Two years ago, UPS Inc. paid $6.1 billion dollars to withdraw from the Central States Pension Fund, another multi-employer plan.
In an interview with the Associated Press Friday, Stifel Nicolaus analyst David Ross said the chance YRC will get federal bailout money is "very slim."
"TARP was made for financial institutions, not to bailout a trucking company," Ross said. "If YRC (got the money) that would just open up the floodgates for other struggling companies to ask for money too."
He added, "The company has been saying for some time that it is looking for a way out of its pension obligations. I don't think seeking TARP money is the way to go about it."
In a recent interview with The Associated Press, Chief Executive Bill Zollars said the company had other cost-cutting measures "teed up" if they were needed, including closing 20 more terminals across the country in cities where the company has more than one.
A lot is still to be determined when it comes to the company's future health and survival, Ross said.
"It just boils down to how much rope the banks want to give (YRC)," he said.
Ross said a recent note to clients that the company is continuing to lose business to its competitors, which is making it difficult to improve its margins.
And even as other competitors cited a seasonal uptick in freight volumes from March to April, Ross noted, YRC's national unit volumes were "flat to slightly up from the prior month, implying that volumes in April were down 35% to 40%" compared with last year.
He also doubts the company will be profitable anytime soon.
"It is still too early in the second quarter to precisely project our earnings results," CEO Zollars said in a statement Friday. "Although volumes that were temporarily diverted have begun to return, it has not been at the level and speed that we initially expected."
The company posted a first-quarter loss of $257.4 million compared with a year-ago loss of $46.4 million. YRC Worldwide booked $164 million in charges in the period related to the integration of its Yellow and Roadway divisions and the subsequent layoff of more than 3,000 workers. The company acknowledged that it lost market share in the quarter as customers defected to other carriers in the midst of the transition.
Shares of YRC lost 30 cents, or 9.2%, to close at $2.97. The company's shares have plummeted from as high as $22.52 to as low as $1.20 in the past year.