Three years after receiving a $700 million pandemic-era lifeline from the federal government, struggling freight trucking company Yellow has filed for bankruptcy.
After months-long negotiations between Yellow’s management and the Teamsters union collapsed, the company suspended operations late last month, and said Sunday it was seeking bankruptcy protection so it could wind down its business in an “orderly” manner.
“It is with great disappointment that Yellow announces that it will be closing its doors after nearly 100 years in business,” Darren Hawkins, the company’s CEO, said in a statement. Yellow filed a so-called Chapter 11 petition in the U.S. Bankruptcy Court in Delaware.
The collapse of the 99-year-old company would result in the loss of about 30,000 jobs and could have ripple effects across the country’s supply chains. It also highlights the risks associated with government bailouts granted during moments of economic panic.
Yellow, formerly known as YRC Worldwide, took out a $700 million loan during the summer of 2020 as the pandemic was crippling the U.S. economy. The loan was granted as part of the $2.2 trillion pandemic relief legislation passed by Congress that year, and Yellow received the loan on the grounds that its business was critical to national security because it shipped supplies to military bases. Government regulators scrutinized the loan because of the company’s financial troubles and close ties to the Trump administration, which granted the loan.
Since then, Yellow has changed its name and embarked on a restructuring plan to help revive its faltering business by consolidating its regional trucking service networks under one brand. As of the end of March, Yellow’s outstanding debt was $1.5 billion, including about $730 million owed to the federal government. Yellow paid nearly $66 million in interest on the loan, but has repaid only $230 of the outstanding principal, which is due next year.
The fate of the loan is not yet clear. The federal government received a 30 percent stake in Yellow in exchange for the loan. It may end up assuming or attempting to sell a significant portion of the company’s fleet of trucks and terminals. Yellow aims to sell “all or a substantial portion” of its assets, according to court documents. Mr Hawkins said the company intends to repay the government loan “in full”.
The White House declined to comment.
Yellow estimated it had more than 100,000 creditors and more than $1 billion in liabilities, according to court documents. Its largest unsecured creditors include Amazon, which is demanding more than $2 million, and Home Depot, which is owed about $1.7 million.
Yellow is the third-largest small trucking company in the part of the industry known as “less-than-truckload” shipping. The industry has been under pressure over the past year due to rising interest rates and rising fuel costs, while customers have been reluctant to accept higher prices.
Those forces collided in an ugly labor battle this year between Yellow and the Teamsters union over wages and other benefits. Those talks broke down last month, and soon after union officials warned workers that the company would close its doors.
After declaring bankruptcy, company officials placed much of the blame on the union, saying its members had caused “irreparable harm” by halting the restructuring plan. Yellow employed about 23,000 unionized employees.
“We have faced nine months of union intransigence, bullying and deliberately destructive tactics,” Mr Hawkins said. He added that the Truck Drivers Union “managed to stop our business plan, which literally led to the bankruptcy of our company, despite all the efforts made to work with them.”
In late June, the company filed a lawsuit against the union, asserting that it caused damages of more than $137 million by obstructing the restructuring plan.
The truck drivers union said Yellow executives unfairly blamed the union for the demise of the company, which had been “in financial trouble for nearly two decades,” officials said in a statement.
“Families of team members have sacrificed billions of dollars in wages, benefits and retirement security to save Yellow,” said Sean O’Brien, general president of the union. “The company blew a $700 million government bailout.” He described Yellow’s senior executives as “dysfunctional” and “greedy” and blamed them for failing to “take responsibility for wasting all that money.”
Bankruptcy could lead to temporary disruptions for companies that relied on Yellow and could lead to further consolidation in the industry. It can also lead to temporarily higher prices as companies find new carriers for their shipments.
“These inflationary prices are certainly going to hurt shippers and hurt the consumer to some extent,” said Tom Nightingale, CEO of AFS Logistics, who noted that prices might return to normal within a few months.
In late July, Yellow began permanent layoffs and halted most of its operations in the United States and Canada, according to court documents. Yellow maintained a “core group” of about 1,650 employees to maintain limited operations and provide administrative work as the end of the business approached. Yellow said it expects to pay about $3.4 million weekly in wages to employees for working during the bankruptcy, which “may decrease over time.” The company said none of the remaining employees are union members.
The company also requested authority to pay an estimated $22 million in compensation and benefit costs to current and former employees, including approximately $8.7 million in unpaid wages as of the date of the application.
Yellow had readily accessible funds of about $39 million when it filed for bankruptcy, which it said would not be enough to cover its liquidation efforts, and it expected to obtain private financing to help support the sale and pay wages.
Yellow’s problems have been mounting for years, said Jack Atkins, a transportation analyst at Stevens Financial Services. In the wake of the financial crisis, Yellow engaged in a series of acquisitions that it failed to integrate successfully, Atkins said. The requirement to repay this debt made it difficult for Yellow to reinvest in the company, allowing competitors to achieve greater profitability.
“Yellow was struggling to keep his head above water and stay alive,” Mr Atkins said. “It’s been more and more difficult to be profitable enough to support the pay increases they need.”
Yellow found itself in a “perfect storm, and they couldn’t manage that perfect storm very well,” said David B. Liebowitz, a Chicago bankruptcy attorney who represents several trucking companies.
The company’s financial problems raised concerns. It lost more than $100 million in 2019 and was sued by the Department of Justice over allegations that it defrauded the federal government over a seven-year period. Last year, it agreed to pay $6.85 million to settle the lawsuit.
Congressional oversight committees have examined the company’s ties to the Trump administration. President Donald J. Trump appointed Mr. Hawkins to serve on his coronavirus economic task force, and Yellow received financial backing from Apollo Global Management, a private equity firm with close ties to Trump administration officials.
Democrats on the House Select Subcommittee on the Coronavirus Crisis wrote in a report last year that senior Trump administration officials gave Yellow the money over the objections of career officials at the Defense Department. The report noted that Yellow was in close contact with Trump administration officials throughout the loan process and discussed how the company would hire Teamsters as its drivers.
In December 2020, Steven T. Mnuchin, then Treasury Secretary, defended the loan, arguing that had the company closed, thousands of jobs would have been at risk and the military supply chain could have been disrupted. He expected the federal government to eventually make profits from the deal.
Rep. French Hill, R-Arkansas and a member of the Congressional Oversight Committee, said: “Yellow had long-standing financial problems before the pandemic, was not essential to national security, and therefore should never have received a $700 million bailout from taxpayers.” Ministry of the Treasury. In the current situation. “Years of poor financial management at Yellow have caused hard-working people to lose their jobs.”
