Three years after receiving a $700 million pandemic-era lifeline from the federal government, struggling freight truck company Yellow is filing for bankruptcy.
After months of negotiations between Yellow’s management and the Teamsters union broke down, the company shut down its operations last month, and said Sunday it was seeking bankruptcy protection so it could wind down its business in an “orderly” manner. way.
“It is with great 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 collapse of the 99-year-old company will lead to the loss of 30,000 jobs and could have a ripple effect on the country’s supply chains. It also highlights the risks associated with government bailouts awarded in moments of economic panic.
Yellow, formerly known as YRC Worldwide, received a $700 million loan in the summer of 2020 as the pandemic paralyzed the US economy. The loan was awarded as part of the $2.2 trillion pandemic-relief legislation passed by Congress that year, and Yellow received it on the grounds that its business is critical to national security because it sends supplies to military bases.
Since then, Yellow has changed its name and embarked on a restructuring plan to help revive its flagging business by consolidating 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 it owed to the federal government. Yellow paid about $66 million in interest on the loan, but it just paid off $230 of principal owed on the loanwhich is due next year.
The fate of the debt is not yet clear. The federal government assumed a 30 percent equity stake in Yellow in exchange for the loan. It may assume or try to sell most of the company’s fleet of trucks and terminals.
The White House did not respond to a request for comment before the bankruptcy filing, and the Treasury Department declined to comment.
Yellow is the third largest small-freight-trucking company in a segment of the industry known as “less than truckload” shipping. The industry has been under pressure over the past year from rising interest rates and higher fuel costs, which customers are unwilling to accept.
Those forces collided in an ugly labor battle this year between Yellow and the Teamsters union over wages and other benefits. Those talks collapsed last month and union officials warned workers the company was closing.
“I think Yellow found itself in a perfect storm, and they didn’t manage that perfect storm very well,” said David P. Leibowitz, a Chicago bankruptcy attorney who represents several trucking companies.
The bankruptcy could create temporary disruptions for companies that rely on Yellow and could spur further consolidation in the industry. It could also lead to temporarily higher prices as businesses find new carriers for their cargo.
“Those inflationary prices are definitely going to hurt the shippers and hurt the consumer to a certain extent,” said Tom Nightingale, chief executive of AFS Logistics, who suggested that prices are likely to normalize in within a few months.
Jack Atkins, a transportation analyst at financial services firm Stephens, said Yellow’s problems have 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. Those debt repayment demands made it difficult for Yellow to reinvest in the company, allowing rivals to become more profitable.
“Yellow is struggling to keep his head above water and survive,” Mr. Atkins said. “It’s harder and harder to be profitable enough to support the wage increases they need.”
The company’s financial problems have raised concerns about the Trump administration’s decision to bail out the company.
It lost more than $100 million in 2019 and was sued by the Justice Department over claims it defrauded the federal government over seven years. Last year it agreed to pay $6.85 million to settle the lawsuit.
Federal watchdogs and congressional oversight committees have scrutinized the company’s ties to the Trump administration. President Donald J. Trump tapped Darren Hawkins, Yellow’s chief executive, to serve on a coronavirus economic task force, and Yellow has financial backing from Apollo Global Management, a private equity firm with close ties to the Trump administration official.
Democrats on the House Select Subcommittee on the Coronavirus Crisis wrote in a report last year that top Trump administration officials awarded Yellow the money over the objections of career Defense Department officials. The report noted that Yellow was in close contact with Trump administration officials throughout the loan process and discussed how the company used Teamsters as its drivers.
In December 2020, Steven T. Mnuchin, then the Treasury secretary, defended the loan, arguing that if the company was shut down, thousands of jobs would be at risk and the military’s supply chain could be disrupted. He predicted that the federal government would return a profit from the deal.
“Yellow had long-standing financial problems before the pandemic, is not essential to national security and should not have received a $700 million taxpayer bailout from the Treasury Department,” said Representative French Hill, a Republican from Arkansas. and member of the Congressional Oversight Commission, in a statement on Monday. “Years of poor financial management at Yellow have resulted in hardworking people losing their jobs.”
