CHICAGO (Reuters) - Struggling No. 1 U.S. trucking company YRC Worldwide Inc YRCW.O 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’s chances (of a TARP bailout) are probably zero,” Joshua Rosner, managing director of independent research firm Graham, Fisher & Co. said on Friday “Without a financial charter in their holding company it will be impossible for YRC to obtain TARP funds.”
The U.S. Treasury Department’s $700 billion TARP has thus far been devoted mainly to capital investments in financial firms, support for housing rescue program, backing for Federal Reserve lending companies and aid for the auto industry.
The $35.6 billion allocated largely to prop up General Motors Corp GM.N and Chrysler LLC includes a $5 billion financing program for suppliers that is administered through the two automakers.
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.
The Treasury Department did not immediately respond to a request for comment.
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.N, 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.
In April, YRC received approval from its creditors to use real estate as collateral for the $30 million to $35 million a month the company says it needs to pay to meet its pension obligations.
The Central States fund is reviewing that proposal.
“I don’t believe that the people at YRC really think they will get any TARP money,” said Jason Seidl, an analyst at investment Dahlman Rose. “I think this more about drawing government attention to the problem they face with the pension fund because they really need permission to use their real estate as collateral.”
Art Hatfield, an analyst at Morgan Keegan, said that YRC’s plan to appeal for federal aid emphasized the scale of the Overland Park, Kansas-based trucker’s problems.
“YRC is desperate for cash, they’re on the verge of bankruptcy every day,” he said. “Business is terrible and it’s not getting any better.”
In trade on Nasdaq YRC shares were down more than 7 percent at $3.05.
Additional reporting by Ajay Kamalakaran in Bangalore, Scott Malone in Boston and David Lawder in Washington; Editing by Derek Caney, Leslie Gevirtz
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