YRC Worldwide Inc., one of the nation's largest trucking companies, will seek $1 billion in federal bailout money to help relieve pension obligations, the chief executive said Thursday.
The move comes as the trucking giant struggles to shore up its finances. The company's ability to weather the recession will have significant implications for the trucking industry and large customers across the country.
Chief Executive William Zollars said the company will seek the money to help cover the cost of its estimated $2 billion pension obligation over the next four years. Under a complicated system that Mr. Zollars labeled unfair, roughly half of YRC's contributions to a multi-employer union pension fund cover the costs of retirees who never worked for the Overland Park, Kan., company.
By applying to the U.S. Treasury for money under the Troubled Asset Relief Program, Mr. Zollars said he hopes to "get the conversation started" with federal authorities about reducing the company's pension obligations. He said YRC will submit an application to the Treasury Department as early as Friday.
Experts say the company's odds of actually getting TARP money appear to be slim. A Treasury spokesman didn't return a call seeking comment.
"My experience dealing with Treasury is that with TARP funds they are relatively narrow in how they view things," said Frank Bonaventure Jr., a lawyer who has represented banking clients seeking these funds. "They have not been very expansive in terms of how it is applied and what industries could get it."
The move comes at a time when YRC is taking steps to cut costs and raise cash. With $1.5 billion in revenue for its most recent quarter, YRC owns at least 20% of the national market share in the less-than-truckload industry, in which trucking companies combine multiple customers' loads into a single truck.
Last month, YRC reported a $415 million first-quarter loss, with a 30% drop in freight tonnage. Some customers fled amid fears about the company's financial health and its ability to smoothly merge its separate Yellow and Roadway brands. YRC has been working on the integration for several months.
The company recently negotiated a 10% wage cut for its 35,000 Teamster employees and requested to put up some of its property as collateral in order to defer three months' worth of payments to its pension plan. It also notified investors that it might violate the terms of its bank covenant, although Mr. Zollars said Thursday that YRC "continues to work closely with our bank group and would expect no issues around the second-quarter covenant."
One potential outcome that the company could seek is for the Pension Benefit Guaranty Corp. to take over financial responsibility for pension payments to retirees who worked not for YRC but for other companies that have since gone out of business and are no longer contributing to the multi-employer plan, according to a person familiar with the situation.
Mr. Zollars declined to comment on YRC's specific strategy in seeking the funds, other than to say the company shouldn't be forced to pay the pension benefits of employees who never worked for YRC.
"We're making really good progress on our financial-recovery plan and we think this is an extra burden we shouldn't have to be carrying," he said, adding that applying for the TARP funds is a "way to get the dialogue started about the pension issue."
