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Yellow, a trucking company that filed for bankruptcy protection on Sunday, told a judge this week that it would fully repay the $729 million it owes the federal government by selling warehouses, trucks and other assets. But with its industry in a downturn, Yellow could struggle to get top dollar for its assets.
Failure to pay back taxpayers in full would be an ugly conclusion to a three-year financial saga that began during the pandemic. The Trump administration handed a financial lifeline to Yellow, then called YRC Worldwide, in 2020, when the economy was in free fall and the company, which was struggling before the coronavirus, was in danger of collapsing.
Yellow’s most recent financial statements showed that its liabilities exceeded its assets by nearly $450 million at the end of June. But the company said this week that it expected to repay its debt to the government in full. The loan comes due in September 2024.
The uncertainty about whether Yellow’s assets will be worth enough to pay the Treasury Department and private creditors does not surprise lawmakers and legal experts who have long raised questions about the company’s business and the federal loan granted to it.
Representative French Hill, Republican of Arkansas and a member of the Congressional Oversight Commission, said in an interview that he was not sure how much taxpayers might get back. “As I said back in the summer of 2020, in my judgment, the loan was inadequately secured to the taxpayers,” he said.
Yellow, which employed about 30,000 people and is based in Nashville, operates in the less-than-truckload sector, in which truckers fill containers with goods from more than one shipper and move them in and out of terminals.
The company’s management has blamed the International Brotherhood of Teamsters, which represented 22,000 workers at Yellow, for its problems, contending that the union prevented the company from making needed changes to how it operates. But some analysts say Yellow’s executives probably deserve much of the blame for the company’s demise by, among other things, failing to properly integrate the businesses they acquired over the past two decades.
A Treasury official declined to comment on whether the department expected to be repaid in full. Yellow has paid about $67 million in interest on its $700 million loan and just $230 of the principal owed. Yellow owes more than $700 million because, under the terms of the loan, some of the interest is not paid annually but gets added to the principal.
The Treasury does not enter the bankruptcy fray in the strongest position.
Yellow used the first portion of its federal loan, about $300 million, to pay for operational expenses, including labor costs and to lease equipment. Bankruptcy experts said it would be very hard for the Treasury to find collateral that could be sold to repay this part of the loan.
The second portion of the federal loan, $400 million, was used to buy new tractors and trailers, which the Treasury has a direct claim on. Marc Kasowitz, a lawyer representing Yellow, said in a statement that the company would liquidate the trucks and equipment it bought to “pay back the U.S. Treasury and other of Yellow’s creditors.”
But legal specialists said selling that equipment might not bring in enough money. “They have wear and tear, and you are selling them in a depressed environment,” said Jonathan Pasternak, a bankruptcy lawyer at Davidoff Hutcher & Citron.
The Treasury could receive proceeds from the sale of Yellow’s warehouse terminals, thought to be its most valuable asset, but only after other creditors are paid off. Apollo Global, a large Wall Street investment firm, is the main lender on a roughly $500 million loan, which, according to Yellow’s financial statements, is backed by the terminals and other assets.
At the end of June, Yellow said it had $1.1 billion of property and equipment after depreciation. Since there are several big less-than-truckload companies seeking to expand, Yellow may be able to sell the terminals for a high price.
Yellow was awarded its federal loan in July 2020 through a program meant to aid companies “critical to maintaining national security.” That category of loan was included in a $2.2 trillion relief package Congress passed after the pandemic took hold. Yellow’s loan accounted for 95 percent of the loans for national security, which were given to just 11 companies.
The loan has come under intense scrutiny by federal watchdogs and lawmakers because the firm was already struggling and had close ties to the Trump administration. Many critics also said that the company’s survival was not critical to national security.
In 2020, the Congressional Oversight Commission said that it was “questionable” whether the loan was sufficiently secured. In a June 2023 report, the commission wrote that Yellow’s “precarious financial position at the time of the loan exposed taxpayers to a significant risk of loss.”
The company lost more than $100 million in 2019 and was being sued by the Justice Department over claims that it had defrauded the federal government. It agreed to pay $6.85 million to settle the lawsuit last year.
In a report last year, Democrats on the House Select Subcommittee on the Coronavirus Crisis claimed that top Trump administration officials awarded Yellow the loan over the objections of career officials at the Defense Department. The report also suggested that Steven Mnuchin, the former Treasury secretary, and Mark T. Esper, the former defense secretary, intervened to ensure that Yellow received special treatment, despite the concerns about its eligibility.
According to the report, Pentagon officials had recommended against certification because of the accusations that the company had overcharged the government, and they noted that Yellow’s work for the federal government, which included shipping meal kits, protective equipment and other supplies to military bases, could be done by other firms.
In late 2020, Mr. Mnuchin defended the loan and said it was necessary for maintaining jobs and trucking services to the Defense Department.
In an audit published in May, the office of the special inspector general for pandemic recovery found that “Treasury did not have specific, measurable objectives” or finalized approval policies and procedures in place before awarding Yellow’s loan.
Other companies that received similar loans, which were awarded to air carriers and businesses critical to national security, have also exhibited signs of distress. Eight out of 35 companies that received pandemic-era loans from the Treasury are in default, according to the department. The amounts due for those loans are significantly smaller than Yellow’s, ranging from $541,834 for Aero Hydraulics to $10 million for TIMCO Engine Center.
Brian Miller, the special inspector general for pandemic recovery, said some companies that received loans were already on shaky financial ground before the pandemic, and Treasury saw a “sea change” in its normal responsibilities when it had to evaluate, award and manage pandemic-era loans.
The Treasury also received stock in Yellow as part of its loan, giving the government a 31 percent stake in the company. Though shareholders typically receive nothing from bankruptcies — creditors get paid first — there has been something left over for them in a few recent cases. A hedge fund, MFN Partners, recently bought up 42 percent of Yellow’s stock in an apparent bet that the sale of the company’s assets would satisfy all of its debts.
MFN Partners didn’t respond to requests for comment.
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