YRC Worldwide to receive $700m state rescue loan
US major LTL carrier has been significantly impacted by the COVID-19 pandemic, with the ‘vital funding’ said to come from a section of the Cares Act dedicated to companies essential to US national security
Major US less-than-truckload (LTL) road freight carrier YRC Worldwide (YRCW) is to receive a $700 million rescue term loan from the US Treasury Department within the framework of the CARES Act, a US programme designed to protect American people and businesses from the public health and economic impacts of COVID-19.
YRCW and its operating companies Holland, New Penn, Reddaway, and YRC Freight have been significantly impacted by the COVID-19 pandemic, with these companies collectively employing 30,000 trucking professionals, including 24,000 that are members of the Teamsters union. YRC said the CARES Act assistance will be used to pay for deferred employee healthcare and pension costs and other contractual obligations as well as to support essential capital investment.
The funding to YRC reportedly comes from a portion of the Cares Act dedicated to companies essential to US national security, with the Pentagon known to be a big YRC customer.
CEO Darren Hawkins said the “vital funding” recognized the essential role YRCW plays in the nation’s supply chain, noting: “Through our work with over 200,000 customers, including being a leading transportation provider for the Departments of Defense, Energy, Homeland Security, and Customs and Border Protection, YRCW’s freight professionals have developed a deep understanding of, and expertise in, the importance of a secure and reliable supply chain.
“Our 30,000 employees have continued to serve hundreds of quarantined communities across the country during the pandemic and this financial assistance will enable us to bridge this pandemic-related crisis and continue to provide essential shipping services for the nation’s supply chain. The funding will also enable us to continue successfully implementing our multi-year strategic plan to transform our five powerful brands to operate as one company, one network to better serve our customers and the nation’s supply chain as economic recovery takes hold.”
Under the terms of the transaction, YRCW entered into an agreement on 30 June under which the US Treasury Department (UST) will receive 29.6% fully diluted equity ownership in YRCW, in connection with the loan from UST to YRCW.
YRCW will receive a loan of $700 million in two tranches, each maturing on 30 September 2024, subject to completion of definitive documentation: Tranche A, of approximately $350 million, will be used to cover short-term contractual obligations and certain other obligations including pension and healthcare payments. The loan terms are LIBOR plus 3.5%, consisting of 1.5% cash and 2.0% payment in kind. Tranche B, of approximately $350 million, will be used for essential capital investment in trailers and tractors and is expected to carry an interest rate of LIBOR plus 3.5% in cash.
YRC’s existing credit facilities are expected to be amended to permit the new loan.
Commenting on the bailout, The Financial Times’ Lex column noted: “The heavily indebted company (YRCW) was running out of cash. The taxpayer gets 30% of the company to accompany the four-year loan. It helps stave off a potentially messy bankruptcy. The rescue appears to fit within the law, but other similarly situated companies must wonder what it takes to get their own sweetheart deal.”