YRC ready to use ‘once in a lifetime’ loan to replenish its fleet

More than once in its second quarter financial appeal, the management team of LTL carrier YRC Worldwide (NASDAQ: YRCW) used the words “once in a lifetime” to describe the opportunity. offered to them through a controversial $ 700 million treasury. loan that the company received in early July.

The excitement was largely focused on tranche B of the agreement granted under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act): a loan of $ 400 million allowing it to renew its rolling stock. Management plans to start by replacing older tractors and trailers across all of its separate companies. They provided a rough estimate of savings of $ 10,000 per tractor per year. The costs of maintaining some of the older equipment the company operates can range from $ 11,000 to $ 12,000 per year, a far cry from the $ 1,000 to $ 2,000 spent to run first-year tractors.

Management estimates the headwinds associated with leasing equipment against ownership to be around 300 basis points. Other factors include improving fuel consumption and vehicle run time. Additionally, a good chunk of the company’s assets lack the latest technology and lack sophisticated collision avoidance features, which management believes will reduce insurance spending over time.

After the market closed on Monday, the Overland Park, Kansas-based company reported a second-quarter loss of $ 37.1 million, or $ 1.09 per share, compared to consensus estimates ranging from a loss of $ 1.38 to loss of $ 1.66 per share.

YRC plans to phase in new equipment as quickly as possible, but noted that it would take four to six quarters to spend the entire loan, as they will need to coordinate with the original equipment manufacturers’ build schedules. (OEM). YRC has yet to use any B tranche, which raised questions on the call as to whether or not the government could withdraw the deal.

A July 20 report from the Congressional Oversight Commission of the CARES Act questioned many aspects of the loan to YRC, including the validity of the company’s national security designation; the fact that the carrier was struggling for years before the pandemic; a “significantly higher” level of risk taken on the loan compared to the debt issued recently; and an interest rate 4 percentage points lower than that which the carrier was able to negotiate when it was last financed.

Management responded that the panel was fulfilling its duty to oversee the Treasury. “We see no reason why we wouldn’t get this funding in full by the time we have to exhaust the $ 400 million,” CFO Jamie Pierson said on the call.

YRC used $ 245 million of the $ 300 million allocated in Tranche A of the deal. This money is intended for the reimbursement of deferred health, welfare and retirement payments.

CEO Darren Hawkins thanked Congress and the administration for passing the CARES Act. “It’s been a while since this company has had so much of a trail ahead of us, and we intend to capitalize on each day,” said Hawkins.

YRC amended its credit agreement, which waived the clause on adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) until the end of 2021. At that point, the carrier will have to generate an adjusted EBITDA of 12 last month (LTM) of $ 100 million. The commitment will increase in stages to the pre-requisite of $ 200 million by the end of June 2022.

YRC reported LTM’s Adjusted EBITDA of $ 183.1 million at the end of the second quarter.

In addition to the waiver of the commitment, the carrier has more than three years before any major debt maturity. However, YRC will need to maintain liquidity of $ 125 million until $ 200 million of Adjusted EBITDA is reached. The company reported $ 302.6 million in cash at the end of the second quarter, not including the new loan agreement.

YRC reported debt of $ 909.8 million and cash flow from operations of $ 213.6 million at the end of the quarter. In view of the new liquidity situation of the company, the designation “going concern” has been removed from the financial documents.

Second Quarter Results

YRC reported a 20.2% year-over-year drop in revenue to $ 1.015 billion, as LTL tonnage fell 14.8%, with revenue per cwt, or yield, excluding fuel surcharges down 2.6%. Management noted continued improvement in tonnage declines as the quarter progressed. Tonnage decreased 22.6% year-on-year in April, 14.5% in May and 8.6% in June. July tonnage was only 4% lower than July 2019. The company recalled employees on leave and called the pricing environment stable.

YRC said a consolidated operating ratio of 100.5%, 160 basis points worse year over year.

Referring to the $ 700 million lifeline, “we’ve started over,” Pierson said. “Now it’s time to run. “

YRCW shares rose more than 35% in after-hours trading.

YRC Key Performance Indicators

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