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Don't count 'em out yet.
By Advance Business Capital
In this season of daily trucking company obituaries, it’s a pleasure not to write one. YRC Worldwide, the largest trucking company in America, has been rescued from its one-minute-to-midnight demise. The terms are not exactly cause for celebration, but at least relief. And, for those that choose to learn, there are lessons aplenty.
The Bigger They Are …
A little background. YRC has 59,000 employees. (Chances are good that at least a few of you have worked for it or a subsidiary.) It has 77,000 tractors and trailers. In 2008, it hauled 22 billion tons of freight across 100 million miles of road. It has revenues of $9 billion a year. In other words, this is one big mutha.
As a single entity, YRC is a relatively young company, formed by Yellow Transportation’s 2003 purchase of Roadway International for $1.07 billion and its 2005 acquisition of USF Corp for $1.37 billion. These probably looked like good deals at the time but according to some observers, were overpriced. Corporate integration was also a problem and when the downturn began in 2007, YRC was looking at considerable inefficiencies, mounting debts and freight volume that could be shipped in a shoebox.
Investors lost confidence. In March 2005, YRC’s stock sold for $62.50 a share. On December 1st, 2009, the same was worth $1.10. A $19 million loan repayment was due at the end of the year, which the company admitted it could not meet. Management tried various measures, each more desperate than the last. Finally, one appeared to have a thin chance of success. YRC would give up 90% of equity to its bondholders in exchange for debt forgiveness of $500 million.
Wanted: Dead or Dead
Enter the guys in black hats. It’s a curiosity of Wall Street’s jerry-rigged financial structure that some struggling businesses are worth more dead than alive. This fine-print clause is called a “credit default swap.” Explaining exactly how it works is a two semesters, grad-level course, but The Wall Street Journal says it acts like an insurance policy on debt, and that’s good enough for us. This is the same hat trick that nearly made insurance giant AIG disappear slightly over a year ago.
Now, for YRC’s End-of-Year Sale to work, a sizeable majority of its bondholders had to agree to the terms. Some of the bigger ones—who isn’t clear—figured out the insurance paid better than the bonds and said, in effect, “Drop dead.”
The deal appeared to be off. Wall Street columnists murmured last rites. YRC shares dropped to 67¢ a share.
And then… enter the guys in the white hats, the Teamsters Union.
When the Black Hats Are the White Hats
The Teamsters? Wait a minute, haven’t the Teamsters been the traditional pit bulls of the labor movement since the ‘fifties, back when President James Hoffa Jr.’s dad Jimmy was so deep in racketeering he was allegedly honored by the Mob in his own burial vault under Giants Stadium? Why would the Teamsters help out a trucking company?
Maybe because 30,000 union members are employed by YRC. Teamster financial sleuths deduced a New York hedge fund named Brigade Capital was among the biggest of the uncooperative bondholders. The Teamsters vowed to picket Brigade’s swank Park Avenue headquarters on December 30. They also secured the help of Pennsylvania State Treasurer Rob McCord, whose pension fund is a heavy Brigade investor.
The combination of unspecified legislative threats and public embarrassment seemed to have the desired effect. Although Brigade denied it held any YRC bonds, the mysterious bondholders mysteriously dropped their objections. Debt was exchanged for equity. YRC is now able to restructure and its trucks are still rollin’.
Fix Those Potholes
YRC still faces formidable challenges. Fleet Owner quotes analysts that say while freight rates have been slashed, large carriers like YRC have the predicament of fixed infrastructure costs, such as its 430 terminals. However, the consensus seems to be that, with the exception of another industry slowdown, YRC has the management talent to do a turnaround.
Much remains to be done on the political level too. Industry potholes like under-regulation and financial follies like debt-swaps need major overhauls. Says James Hoffa Jr., “There's still a divide between Wall Street and Main Street. We're out there fighting for our lives and Wall Street is doing very, very well."
For Once, the Good Guys Win
Maybe so, but Wall Street Journal columnist Dennis Berman summed up recent events very nicely when he wrote, “In the battle between the truckers and the hedge funds, the truckers won.”
This story was drawn from The Wall Street Journal, Bloomberg.com, Fleet Owner and Forbes.
www.advancebcap.com
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