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Company earningsLess than TruckloadNewsTrucking

All is quiet as YRC health benefits near expiration

The eight-week healthcare coverage extension is set to expire in less than two weeks

As the end of an eight-week extension of healthcare benefits for workers of YRC Worldwide (NASDAQ: YRCW) nears, questions mount on when the company will fund missed benefits payments and what will happen to its workers’ health coverage.

In mid-April, the International Brotherhood of Teamsters informed members that the Overland Park, Kansas-based less-than-truckload (LTL) carrier had been granted a grace period on health and welfare and pension fund contributions due to a “sharp decline” in volumes amid the pandemic. The letter penned by Teamsters National Freight Division Director, Ernie Soehl, said the payment extension was granted for March contributions with the warning the carrier may seek similar remedy for “a few additional months.”

On May 8, the Central States Health Fund, known as TeamCare, informed YRC members the LTL carrier was delinquent in making healthcare contributions on their behalf in March and that payments for April and May were not going to be paid. The memo informed members their plan was in “suspension of benefits status,” but that the health fund’s trustees had enacted “layoff coverage” and would cover their medical claims for a maximum period of eight weeks.

The memo said the extension would apply to actively working and laid-off employees, providing a full eight weeks of medical coverage even if employees were recently laid off and had already used a portion of their layoff coverage. The extended coverage period began for claims incurred after May 10.

The TeamCare memo also informed members that even though “extensive discussions” were held “an acceptable repayment proposal to the Fund” hadn’t been received. The fund estimated the three-month period would result in a nearly $75 million delinquency, in addition to the more than $48 million already owed by YRC to the pension fund from a prior debt restructuring.

The following day Soehl notified Teamsters local unions with YRC members the use of layoff coverage could deplete funds needed for future use, but that the group was hopeful improving freight demand would allow YRC to cure the delinquency.

In late May, YRC acknowledged the late payments in a statement to FreightWaves, but said the company was continuing to work with the funds and the Teamsters to ensure “uninterrupted access to healthcare benefits.”

As the expiration of extended health benefits coverage draws closer, no update has been provided by the parties involved. YRC and the Teamsters were contacted for comment regarding the upcoming expiration. YRC referred FreightWaves back to the prior statement provided in May. The Teamsters had not responded prior to publication of this article.

YRC has estimated its pension liability to be $8 billion if it were to fully withdraw from the plans or they were to terminate. Many multi-employer pension funds, including Central States, are in critical or declining status as they carry more pensioners receiving benefits than employers making contributions. Many of these plans make payments to “orphaned workers” or retirees from now-defunct entities, whose companies no longer contribute to the plan.

Mid-quarter update, cost actions and potential relief

In its surprise first quarter earnings beat, the company said it was continuing to adjust its cost structure and preserve liquidity. However, the hope for improved freight demand has diminished somewhat as the carrier’s mid-quarter report showed revenue trends weaker than that of its competitors. While sequential improvement in trends was seen in May, revenue was still down in the low-20% range year-over-year.

YRC has implemented cost reduction and cash flow preservation measures in addition to the deferral of union health and welfare payments. Other actions include layoffs, furloughs, cuts to short-term incentive compensation, reduced capital expenditures and the deferral of lease payments and contributions to both non-union and union pension plans. 

The company’s 10-Q filing, which followed its first quarter financial release, stated, “The funding to various pension funds is dependent on the economic environment, and as such, we are unable to determine the amount of contributions that will be made during 2020 at this time.”

In the filing, YRC stated it had benefited from support provided by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which afforded the company employer payroll tax and non-union pension payments relief. YRC contributed $2.1 million to the company-sponsored pension plans in 2020 through the end of the first quarter, but noted that additional contributions would not be made in 2020. YRC will owe $29.3 million in deferred payments to company-sponsored plans at the beginning of 2021.

Some analysts have speculated that a potential source of funding could come from the federal government. YRC CEO Darren Hawkins was named to the President’s Great American Economic Revival task force in April. A May 29 memo from the Teamsters indicated that YRC has sought further assistance under the CARES Act. The memo noted that the company’s financial issues had been specifically referenced by Kansas Senator Jerry Moran and Treasury Secretary Steve Mnuchin in a recent U.S. Senate banking hearing.

First quarter and share price

YRC’s first quarter result – net income of $0.12 per share compared to the consensus estimate of a $0.57 per-share loss – benefitted from $39.3 million in net gains on property sales versus a $1.6 million loss on property disposals in the prior-year period. Further, YRC warned it was unlikely to meet its $200 million adjusted last 12 months’ (LTM) earnings before interest, taxes, depreciation and amortization (EBITDA) financial covenant, for which it had already received a waiver through 2020 year end, during the first quarter of 2021 and would likely need to seek another waiver.

YRC reported LTM adjusted EBITDA of nearly $215 million for the period ended March 31, which would have satisfied the covenant during the first quarter.

The carrier ended the first quarter with nearly $104 million in cash and equivalents and $880 million in debt. Available liquidity increased $38 million from the end of 2019 to $118 million given some of the aforementioned cash retention moves, which led to less than $16 million of cash used in operations versus $42 million in the prior-year period.

The mixed bag first quarter, which initially sent YRC’s shares 40% higher in after-hours trading following the report’s release, left some analysts again questioning the carrier’s survival upon further scrutiny. Outsized gains on sale, management’s decision to not take questions on the earnings call and a warning of the potential for another covenant waiver request knocked some of the luster off of the headline number. The stock finished the next day’s trading session nearly 15% higher.

Shares of YRCW are still up 6% since the first quarter report, but off nearly 26% since the unfavorable mid-quarter update on June 9.

YRC ended 2019 with nearly 30,000 employees, 79% of whom are represented by collective bargaining agreements at the operating companies of YRC Freight, Holland, Reddaway and New Penn. In total, YRC made contributions to 33 different multi-employer pension plans for its union employees during 2019.

Click for more FreightWaves articles by Todd Maiden.

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Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.
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