http://globaleconomicanalysis.blogspot.com/This was going to be a "quick" post on the pending bankruptcy of YRC, the nation's largest trucking company.
Instead, I have been digging around for several hours as the story morphed into a spiderweb of pension obligations culminating in a Ponzi scheme sponsored by representative Pomeroy to bailout private pension plans at taxpayer expense.
Let's kick this off with the headline that first grabbed my attention.
Bloomberg reports YRC Has Until Yearend to Corral Bondholders, Avert Bankruptcy.
YRC Worldwide Inc. has less than two weeks to persuade bondholders to accept a debt exchange and prevent a bankruptcy filing that its employees’ union says may force the biggest U.S. trucking company to liquidate.
YRC, which has pushed back the deadline for the swap three times this month, must complete the tender by Dec. 31 to avoid a $19 million payment of interest and fees that would leave the trucker in an “unsustainable” position, the Overland Park, Kansas-based company said yesterday in a regulatory filing.
“Bondholders are in the driver’s seat,” said David Ross, a Baltimore-based analyst at Stifel Nicolaus & Co. who has a “sell” rating on the stock. “They could force the company to file if they don’t tender enough notes, and then there is a high chance the business is liquidated.”
YRC took on debt when Yellow Corp. acquired Roadway Corp. in 2003 for $1.07 billion and then bought USF Corp. in 2005 for $1.37 billion. The company has $1.6 billion of loans and bonds, according to data compiled by Bloomberg.
Concern is growing that the company wouldn’t survive a bankruptcy filing because customers would defect, said Iain Gold, a director in the strategic research department of the International Brotherhood of Teamsters, which represented about 40,000 YRC employees as of January.
YRC’s $150 million of 8.5 percent notes due in April fell 1.25 cents on the dollar to 59.75 cents yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The shares declined 7 cents, or 6.8 percent, to 94 cents, after earlier rising as much as 15 percent, on the Nasdaq Stock Market.
The trucker must complete the exchange as part of agreements with its banks, the Teamsters and multi-employer pension funds, according to a Nov. 24 regulatory filing.
Goldman Sachs Group Inc. was creating derivatives trades that would profit from a bankruptcy, Teamsters President James Hoffa wrote in a Dec. 16 letter to Lloyd Blankfein, chief executive officer of the New York-based bank.
Goldman Sachs spokesman Michael DuVally confirmed the bank received the letter and said in an interview “Goldman does not have a position in the company, nor are we making markets in the company’s bonds or credit-default swaps.”
YRC Seeks $1 Billion Pension Bailout From TARP
Flashback May 15, 2009: Troubled trucker YRC to seek $1 billion pension bailout.
Struggling No. 1 U.S. trucking company YRC Worldwide Inc plans to seek $1 billion in bailout money from the Troubled Asset Relief Program to help it cover pension obligations, a move analysts say is unlikely to succeed as the company has no financial charter.
YRC, which has been shedding jobs and closing facilities to cut costs in the face of the U.S. recession, faces an estimated $2 billion in pension obligations over the next four years.
YRC will submit an application to the Treasury as early as Friday, a move that was first reported by the Wall Street Journal.
Pension Fund Problems
Company Chief Executive Bill Zollars complained in the WSJ article that the Central States multi-employer pension fund that it pays into is unfair because YRC ends up paying for truckers who never worked for the company.
Multi-employer pension funds were set up decades ago prior to the deregulation of the trucking industry to ensure that workers' pensions were protected even if they changed companies. Over the past 20 years, thousands of trucking companies have collapsed, leaving their pension obligations to be funded by those left in the fund.
The Central States fund has been in trouble for years as a result of this problem. The world's largest package delivery company United Parcel Service Inc (UPS), which had more than 40,000 employees in Central States, paid a $6.1 billion fee to withdraw from the fund in 2007 and have those employees covered by a single-employer fund jointly managed by UPS and the Teamsters union.
UPS' move was widely regarded by analysts as a smart one, given the poor condition of the Central States fund.
YRC Terminates Pension Contributions
Flashback Jul 21, 2009: Central States Pension Fund Drops YRC Worldwide
Trustees 'terminate' carrier's participation; Move won't affect accrued benefits
The largest Teamsters pension fund dropped YRC Worldwide, the largest unionized trucking company, as its Teamster employees prepare to vote on whether to accept a 15 percent wage cut and a suspension of company pension contributions.
The Central States Southeast and Southwest Areas Pension Fund notified the principal officers of Teamster union locals last week that its trustees had decided to “terminate the participation” of YRC and USF Holland in the fund, effective July 9.
The move won’t affect employee pension benefits accrued before July 9, but there will be no additional accruals “unless and until YRCW resumes participation,” Central States Executive Director Thomas C. Nyhan said in a letter attached to the notice.
Central States is one of the nation’s largest multiemployer pension plans, providing monthly benefits to over 210,000 retirees and their surviving spouses. Since 1955 it has provided more than $40 billion in retirement benefits to Teamsters and their families.
Lethal Mix
•Poor Management Decisions
•High Corporate Debt
•Untenable Pension Obligations
Given the above set of problems it was only a matter of time before YRC went under. The exact same mix sunk GM.
There is plenty of blame to go around including a very poor management decision to acquire Roadway and USF, saddling YRC with too much debt.
However, pension issues alone would have eventually sunk YRC.
Central States Pension Fund - A Guaranteed Train Wreck
Inquiring minds are digging deeper into the YRC story by investigating in more detail the Central States Fund. The big issue is a shrinking number of employees supporting a growing number of retirees, the same critical issue that sunk GM.
Please consider Central States Fund Assets at $17.5 Billion.
As of June 30, CSPF assets stood at $17.5 billion, almost exactly the same as the $17.4 billion in assets at the start of 2009. The fund made 15.0 percent on its investments in the second quarter, thanks to the big run-up in the stock market. Central States now holds 69 percent of its assets in stocks and 28 percent in bonds.
The number of active participants (full-time equivalents) is down to 80,000, while the number of retirees holds steady at 212,000.
The new problem for the fund is Yellow Roadway Corp. YRC was allowed to defer six months of past-due payments, amounting to about $125 million that it owes the fund. The fund, along with some other Teamster funds, now holds a lien on 150 terminal properties of YRC as collateral. YRC is required to start paying back the deferred amount in January 2010, over a three year payment period. Even worse, YRC is now terminated from the fund for 18 months, and thus not liable to make pension contributions until January 2011.
Graphical Plight Of Central States Fund
click on chart for sharper image
Beware The Taxpayer Bailout
The deeper inquiring minds dig, the messier and messier this gets.
Please consider H.R.3936 - Preserve Benefits and Jobs Act of 2009
Official Summary
10/27/2009––Introduced.Preserve Benefits and Jobs Act of 2009 - Amends the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code to:
(1) allow a sponsor of a single-employer defined benefit pension plan to elect in 2009 or 2010 extended amortization periods (9 or 15 years) for investment losses incurred in prior years;
(2) allow an increase in the valuation range of plan assets;
(3) use the funded status of a plan in 2008 to determine benefit restrictions in 2009 and 2010 and prohibit the use of credit balances by pension plans that are under 80% funded in the prior year;
(4) exclude plan-related administrative expenses (including investment expenses) from normal cost targets;
(5) delay until 2012 the application of certain benefit restrictions to collectively bargained plans; and
(6) require a 120% funding target for plans adopting ad hoc amendments that allow lump sum benefits payments and increased plan liabilities. Revises rules relating to information reporting and reportable events. Calculates the amount of any pension plan guarantee by the Pension Benefit Guaranty Corporation (PBGC) using the date of plan termination rather than the date of a plan bankruptcy filing. Amends ERISA provisions relating to multiemployer pension plans to:
(1) allow such plans to elect alternative amortization plans and valuation methods in 2009 and 2010 for investment losses;
(2) extend by five years the funding improvement period for plans in endangered or critical status;
(3) permit multiemployer plans to merge or form alliances with other plans; and
(4) increase PBGC guarantees for insolvent plans to increase participant benefits.
Replenishing Pension Funds From Taxpayer Pockets
It should be no surprise that the Teamsters (or any union) would want taxpayer handouts, or that Congress would buy votes giving away handouts.
Please consider Pomeroy's Lucre For Labor.
Rep. Earl Pomeroy, North Dakota Democrat, is drafting legislation that would amount to a massive, employer-crippling bailout for struggling union pensions. The congressman is trying to spin this as a cheap, proactive way to shore up said pensions. He claims that his bill is a response to an "urgent plea [from employers] for manageable and predictable pension funding rules as the nation works [its] way back to recovery."
In reality, the bill as currently drafted would be a costly sop to unions, which have done so much to get Mr. Pomeroy elected. (Twelve out of his top 21 donors are unions, according to opensecrets.org.) It would allow the unions, which have badly mismanaged pension funds in the past, to make new companies liable for the pension obligations of workers at other companies, in other industries. It also would create an explicit taxpayer guarantee if it all comes crashing down.
The devil is in the details of the draft, the text of which can be found on the congressman's Web site. The changes it introduces are chilling.
The draft would allow union-controlled multiemployer pension plans to form alliances with one another. It also would create something known as a fifth fund that the Pension Benefit Guarantee Corp., with taxpayer help, would use to prop up failing union pension plans.
Multiemployer union pension alliances might sound innocent enough, but consider what that actually means. Moody's Investors Service recently warned of a vast underfunding problem with multiemployer pensions. Many employers fear being shackled into them. Even though the funds are controlled by unions, employers are liable not just for their own employees, but for every worker in the plan regardless of how the plan is managed or mismanaged.
The so-called last-man-standing rule holds that if every other company in a multiemployer pension plan goes bankrupt, closes or pulls out of the plan, the one survivor is responsible for every single employee covered by the plan, even those who never worked for him. UPS paid $6.1 billion in withdrawal fees just to escape the Teamsters Central States pension fund.
Earlier this year the Teamsters were required to send out a letter to participants of the Central States pension alerting them that the plan was in "critical status" - funded at 65 percent or less.
Not wanting to wait for a PBGC bailout, Mr. Pomeroy proposes putting the taxpayer on the hook now. In a stark departure from the traditional role of PBGC, the draft bill states that "obligations of the corporation that are financed by the [fifth fund] shall be obligations of the United States." For the first time, PBGC liabilities will be borne by taxpayers. The fifth fund could make available billions of dollars to prop up union pensions. The bill does not include a statutory limit for how much taxpayer money could be shoveled into failing funds.
Taxpayers: The Last Man Standing
Pomeroy's Ponzi scheme, should it pass, would ultimately result in taxpayers being the last-man-standing in yet another massive, unwarranted bailout.
Stop the bailouts. Enough is enough!
Please call your representative and oppose H.R.3936, especially the PBGC provisions that mandate taxpayer bailouts of private pensions.
