YRCW Gets Concession from Teamsters - Analyst Blog

Trucking company YRC Worldwide Inc. (YRCW) moved a step ahead with its recovery plan, with a majority of Teamster voters agreeing to vote ‘yes' to extend a labor agreement.

For a long time now, YRC Worldwide has been trying to reach a settlement with Teamsters. In September, it reached a tentative agreement with International Brotherhood of Teamsters that will provide 15 percent wage reduction, benefit and work rule changes.

Under this agreement, the temporary cessation of the payment of pension contributions to the multi-employer pension funds would continue until June 1, 2011, and during that time, YRC Worldwide will contribute 25% of the contribution rate in effect on July 1, 2009.

This agreement also gives certain power to Teamsters, such as Teamsters will have the right to approve certain changes of control at YRC Worldwide and in the event of bankruptcy, Teamsters can void the wage, benefit and work rule concessions.

This agreement would help YRC Worldwide to save $350 million a year through March 2015 and improve its competitive position. The latest concession package is the third passed by YRC's Teamsters workers.

By getting approval for the agreement, YRC Worldwide avoids some of the uncertainty that plagued the company last fall when it sought to reduce two-thirds of its debt through an equity swap.

As an incentive to support the agreement, Teamsters will receive additional equity in the company, at least a second position on the company's board of directors and a control over the company's rest of the restructuring process.

The company is facing major challenges, including sustaining liquidity, dilution of preferred stock, loss of customers and a weak LTL market. The company is making unrelenting efforts to deter total financial collapse. Despite prudent moves to manage liquidity, we believe YRC Worldwide must continue to consume cash for operations.

We maintain our long-term Neutral recommendation for YRC Worldwide. Currently, it is a short-term Zacks #3 Rank (Hold) stock.