Date: Thursday, July 27th, 2023
Source: Wall Street Journal
Trucking company Yellow is preparing to file for bankruptcy, according to people familiar with the matter, heightening the threat that one of the nation’s largest freight carriers will shut down as customers abandon it amid a cash crunch and union negotiations.
A bankruptcy filing by Yellow would put it at high risk of a liquidation since its customers already have started to abandon the trucker in large numbers, some of the people said. The company could seek bankruptcy court protection as soon as this week, though no decision has been made and Yellow continues to explore other options, they said.
Yellow has been losing thousands of shipments to other operators because of the risk that a labor dispute will disrupt its operations, according to equity analysts and industry executives. The company averted a planned strike this week by the Teamsters union that represents most of its workforce, but the customer exodus has continued. Yellow has seen freight volumes fall 80% in recent days, according to a research report Tuesday by TD Cowen.
“The Teamsters introduced variability and uncertainty into a market that can’t stand variability and uncertainty,” said Mike Regan, chief of relationship management at TranzAct Technologies, which manages transportation services for retailers and manufacturers.
The company is continuing to negotiate with the Teamsters about a new contract that would give Yellow the ability to restructure its operations to make them more efficient, Yellow’s representative said.
A bankruptcy filing would again spotlight the $700 million Covid-19 rescue loan that Yellow received from U.S. taxpayers in 2020. A congressional probe later concluded that the Treasury Department erred in giving the loan on national-security grounds when Yellow didn’t meet the standards for that designation.
Nashville, Tenn.-based Yellow has $1.3 billion in debt maturities next year, according to securities filings. Earlier this month, the company negotiated an agreement with lenders including the Treasury Department and Apollo Global Management that gave it some breathing room by temporarily suspending required earnings targets.
Of the $1.3 billion in loans the company has coming due next year, $729 million are from the government, according to Yellow’s latest quarterly report. The company reported about $1.48 billion in total debt at the end of the first quarter against $806 million in assets.
Yellow’s liquidity problems have mounted this year as declining shipping demand has cut into freight volumes and sent rates falling. Its cash holdings fell to around $100 million at the end of June from $235 million at the end of December.
The carrier sought this spring to institute a widespread overhaul of operations to lower costs and make its businesses more efficient. That triggered a series of sharp exchanges between the Teamsters and Yellow, which last month sued the union for allegedly costing the company business.
The union said Sunday that it had withdrawn plans for a walkout after a pension fund agreed to continue to extend health benefits to unionized workers at Yellow and a sister company. The pension fund said it would give Yellow another 30 days to make some deferred payments.
If customers pull back further from Yellow, the company’s remaining shipments would go to a range of other carriers, including FedEx Freight, ArcBest subsidiary ABF Freight, XPO and Old Dominion Freight Line. That would likely drive up pricing in a sector that has seen freight rates and demand tumble this year, according to industry experts.
“Customers will be paying a higher price because Yellow had the cheapest rates,” said Satish Jindel, president of SJ Consulting.