[ad_1]
Three years after receiving a $700 million pandemic-era lifeline from the federal government, the struggling freight trucking company Yellow is filing for bankruptcy.
After monthslong negotiations between Yellow’s management and the Teamsters union broke down, the company shut its operations late last month, and said on Sunday that it was seeking bankruptcy protection so it can wind down its business in an “orderly” way.
“It is with profound disappointment that Yellow announces that it is closing after nearly 100 years in business,” the company’s chief executive, Darren Hawkins, said in a statement. Yellow filed a so-called Chapter 11 petition in federal bankruptcy court in Delaware.
The downfall of the 99-year-old company will lead to the loss of 30,000 jobs and could have ripple effects across the nation’s supply chains. It also underscores the risks associated with government bailouts that are awarded during moments of economic panic.
Yellow, which formerly went by the name YRC Worldwide, received the $700 million loan during the summer of 2020 as the pandemic was paralyzing the U.S. economy. The loan was awarded as part of the $2.2 trillion pandemic-relief legislation that Congress passed that year, and Yellow received it on the grounds that its business was critical to national security because it shipped supplies to military bases.
Since then, Yellow changed its name and embarked on a restructuring plan to help revive its flagging business by consolidating its regional networks of trucking services under one brand. As of the end of March, Yellow’s outstanding debt was $1.5 billion, including about $730 million that it owes to the federal government. Yellow has paid approximately $66 million in interest on the loan, but it has repaid just $230 of the principal owed on the loan, which comes due next year.
The fate of the loan is not yet clear. The federal government assumed a 30 percent equity stake in Yellow in exchange for the loan. It could end up assuming or trying to sell off much of the company’s fleet of trucks and terminals.
The White House did not respond to a request for comment ahead of the bankruptcy filing, and the Treasury Department declined to comment.
Yellow is the third-largest small-freight-trucking company in a part of the industry known as “less than truckload” shipping. The industry has been under pressure over the last year from rising interest rates and higher fuel costs, which customers have been unwilling to accept.
Those forces collided with an ugly labor fight this year between Yellow and the Teamsters union over wages and other benefits. Those talks collapsed last month and union officials soon after warned workers that the company was shutting down.
“I think that Yellow finds itself in a perfect storm, and they have not managed that perfect storm very well,” said David P. Leibowitz, a Chicago bankruptcy lawyer who represents several trucking companies.
The bankruptcy could create temporary disruptions for companies that relied on Yellow and might prompt more consolidation in the industry. It could also lead to temporarily higher prices as businesses find new carriers for their freight.
“Those inflationary prices will certainly hurt the shippers and hurt the consumer to a certain extent,” said Tom Nightingale, chief executive of AFS Logistics, who suggested that prices would likely normalize within a few months.
Jack Atkins, a transportation analyst at the financial services firm Stephens, said that Yellow’s troubles had been mounting for years. In the wake of the financial crisis, Yellow engaged in a spree of acquisitions that it failed to successfully integrate, Mr. Atkins said. The demands of repaying that debt made it difficult for Yellow to reinvest in the company, allowing rivals to become more profitable.
“Yellow was struggling to keep its head above water and survive,” Mr. Atkins said. “It was harder and harder to be profitable enough to support the wage increases they needed.”
The company’s financial problems fueled concerns about the Trump administration’s decision to rescue the firm.
It lost more than $100 million in 2019 and was being sued by the Justice Department over claims that it defrauded the federal government during a seven-year period. Last year it agreed to pay $6.85 million to settle the lawsuit.
Federal watchdogs and congressional oversight committees have scrutinized the company’s relationships with the Trump administration. President Donald J. Trump tapped Darren Hawkins, Yellow’s chief executive, to serve on a coronavirus economic task force, and Yellow had 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 top Trump administration officials had awarded Yellow the money over the objections of career officials at the Defense Department. The report noted that Yellow had been in close touch with Trump administration officials throughout the loan process and had discussed how the company employed Teamsters as its drivers.
In December 2020, Steven T. Mnuchin, then the Treasury secretary, defended the loan, arguing that had the company been shuttered, thousands of jobs would have been at risk and the military’s supply chain could have been disrupted. He predicted that the federal government would eventually turn a profit from the deal.
“Yellow had longstanding financial problems before the pandemic, was not essential to national security and should never have received a $700 million taxpayer bailout from the Treasury Department,” Representative French Hill, a Republican from Arkansas and member of the Congressional Oversight Commission, said in a statement on Monday. “Years of poor financial management at Yellow has resulted in hard-working people losing their jobs.”
[ad_2]
