"Some companies in our position have simply declared bankruptcy. We have all worked too hard and sacrificed too much to go that route."
-- YRC Worldwide CEO James Welch
YRC Worldwide (NASDAQ:YRCW) CEO James Welch painted a bleak picture when requesting concessions from his Teamsters Union last month, no doubt. As the CEO lamented, YRC currently struggles under a "crushing" debt load of $1.4 billion and is hard pressed to keep up with $150 million in annual interest payments on its debt.
Absent concessions from its workforce, YRC explains, "we cannot satisfy all of our debt obligations that come due in the next 17 months." And that's a problem, because we have a word we use to describe companies that cannot "satisfy their debt obligations," and default on their debt: We call them "bankrupt."
The "B" word
That's a scary word, bankruptcy. After Welch voiced it last week, YRC stock dove more than 17% in the final three days of trading. It probably didn't help matters that, in a presentation to its Teamster union employees last week, YRC replaced its usual visual depiction of the company ...
... with this one:
But how bad off is YRC Worldwide, really? And what are the chances that its shareholders will make a profit ... or even ever get their money back? A few facts and figures from last week's YRC presentation to International Brotherhood of Teamsters union members may provide context.
According to YRC:
- YRC currently carries a "crushing debt of $1.4 billion -- nearly as much as all of our publicly traded competitors combined."
- "This massive debt costs us $150 million in interest payments annually -- more than all our publicly traded competitors combined."
- The company lost $152 million in 2012, lost "an additional $54 million" so far this year, and analysts predict a $50 million loss by year-end.
So can YRC be saved?
How to drive YRC out of the ditch
Actually ... maybe ... yes. It's a bit of a Hail Mary, but I see at least one scenario in which the company could actually make it out of this financial highway pileup, and emerge intact on the other side.
Consider: According to YRC, the $150.9 million it currently pays in annual interest exceeds the $92.6 million in interest obligations paid by "all [of its] competitors combined." Con-Way (NYSE: CNW), for example, sports a debt load about half of YRC's, yet pays only about one-third as much in interest on that debt. Old Dominion Freight (NASDAQ:ODFL) has 12% the debt of YRC, but only 7% of the interest expense.
If YRC can renegotiate its debt reduce the overall size of the debt, and/or to obtain interest rates similar to what its competitors pay, it might save as much as $60 million in interest payments annually. That alone would suffice to turn the company's projected $50 million fiscal 2013 loss into a small profit.
Granted, we're still talking about a very small profit. Management's promises that winning concessions from its workers, and refinancing from its lenders, will permit it to "repay remaining debt" and "invest in our business" still look like long shots. The company needs a general improvement in the economy, resulting in higher revenues and higher transportation prices as well, to achieve a true recovery.
Foolish final thought
Of course, the question remains: Given serious doubts about the company's survival, will its bankers agree to forgive part of its debt, or charge YRC the lower interest rates given to its more financially prudent competitors?
I honestly don't know the answer to that one. But as YRC itself points out, it's paying "more than $150 million every year ... into the pockets of our lenders." Maybe that's enough incentive to make them give YRC the concessions it needs to keep on trucking.