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The New Face of Capitalism? When Unions Become Owners
With its stock hitting a new 52-week low, YRC Worldwide, a combination of Yellow Freight and Roadway is one the last of of the major freight haulers under the Teamsters’ National Master Freight Agreement and, as such, YRC may be hurtling toward the cliff of bankruptcy and new ownership. After failing to raid the U.S. treasury for a bailout, the Teamster-plagued company may end up like so many of its unionized predecessors—in the salvage yard. Its problem? The Teamsters. More precisely, the Teamsters’ underfunded pension plans.
For the last few years, YRC has struggled to make ends meet as it grappled with a poor economy, lower freight prices, cash flow problems and a Teamster pension obligation that is in the hundreds of millions. Following the 2007 withdrawal of UPS as a pension contributor, YRC Worldwide is one of the “last men standing” and, as such, has pension obligations that are overwhelming.
While the Teamsters’ Central States Pension Plan is billions underfunded and has previously warned of insolvency, beginning in 2009, the Teamsters had cooperated with concessions of 15% wage cuts and a moratorium on pension payments. However, on top of a $750 million ABF lawsuit due to the Teamsters giving YRC a special deal, and with the company eventually owing as much as $30 million a month (or more) to the Teamster pensions, that cooperation may soon come to a screeching halt:
The possibility that YRC Worldwide Inc. might seek bankruptcy court protection loomed larger this week, according to a statement in its annual report.
“The required lenders have not indicated that they intend to declare an event of default under the credit agreement, and we are continuing to work with the parties,” the report said. “We cannot provide any assurance that the required lenders will not declare an event of default under the credit agreement. If the required lenders declare an event of default under the credit agreement, we anticipate that we would seek protection under the U.S. Bankruptcy Code.”
In a memo to YRC employees, chief restructuring officer John Lamar said the multi-employer pension plans — representing the majority of the deferred pension payments and interests — were given until March 10 to submit their non-binding agreement in principle — “which they did, except they indicated they will be seeking a higher interest rate on their deferred pension obligations.”
If (or, rather, when) YRC files for bankruptcy, it is likely that it will restructure its debt to convert lenders into owners. As the Teamsters are one of the larger stakeholders in the process, it is very likely the union will end up owning a significant amount of YRC.
If the restructuring progresses as planned — converting debt into ownership by the lenders and the Teamsters — the expectation was for YRC to have a cash infusion in July. But if the lenders declare the company to be in default, YRC would be expected to repay millions of dollars in debt.
In that sense, the union that James P. Hoffa’s father, Jimmy Hoffa, built will have come a long way—from negotiating for the working class to becoming an owner and faced with negotiating against itself. It wouldn’t be the first time, though. And, if the Teamsters need some managerial advice, they can always call the UAW.
“I bring reason to your ears, and, in language as plain as ABC, hold up truth to your eyes.” Thomas Paine, December 23, 1776
For more YRC-related posts go here.