YRCW is going to work on figuring out how it will rebuild itself using the $700 million it is getting from the U.S. Department of the Treasury. Its first accomplishment: getting rid of any debt payments for four years.
In a filing with the Securities & Exchange Commission on Wednesday, the LTL carrier said the $700 million it was receiving from the federal government taking a roughly 30% stake in the company would be cut into two loan tranches, one totaling $300 million and the other totaling $400 million. The maturity date on both is Sept. 30, 2024, to be settled with a balloon payment.
The first loan, dubbed the Tranche A loan, will be used to meet YRCW’s obligations in several areas, most notably its obligations to the Teamsters Central Pension Fund. YRCW was in arrears to the fund, and its employees who are members of the Teamsters were getting benefits paid for by the fund even though YRCW had stopped paying in to the fund earlier this year.
Money from that tranche will also be used to make interest payments on YRCW’s debt, which at the end of the first quarter stood at approximately $880 million (against a current market capitalization of about $108 million). Real estate and equipment leases can also be paid out of the proceeds in Tranche A.
Tranche B will be used to buy new tractors and trailers. The company’s plan to use much of the proceeds from the government investment had been reported on the day the $700 million financial support package was announced.
The loans come with requirements that the company maintain liquidity of $125 million until it can hit quarterly earnings before interest, taxes, depreciation and amortization (EBITDA) targets between $100 million and $200 million. YRCW’s first-quarter EBITDA was $34.1 million.
There also is a requirement that comes from the fact that the money for the federal government investment comes out of the pandemic-created CARES Act. That requirement is that YRCW keep its March 24, 2020, employment levels steady “to the extent practicable” and that if any reduction were required, it would be no more than 10% of that number. YRCW has about 30,000 employees.
There are requirements on executive compensation as well. Dividends or other capital distributions are not permitted until 12 months after the loans are repaid.
In an interview with The Wall Street Journal, YRC CFO Jamie Pierson said the maturity date on the debt pushed out to 2024 will give the company “three and a half years to focus on the business, with no maturities at all. It’s a new day. We’ve just got to not blow up.”
In a filing Tuesday with the SEC, YRCW spelled out some of the details of the federal government’s investment. The actual stake in the company that the Department of the Treasury will be taking is 29.6%.
YRCW’s stock has risen from a recent low of $1.46 on June 25, just before the announcement of the Treasury investment, to close Wednesday at $2.55. It has traded as high as $3.55.