Less-than-truckload carrier Yellow Corp. has filed for bankruptcy, putting an end to the 99-year-old trucking firm.
In its Chapter 11 filing in a Delaware court Sunday, the company estimated assets of $2.15 billion and liabilities of $2.59 billion. It expects to enter a debtor-in-possession (DIP) financing agreement to provide liquidity to sell its assets and to pay wages and vendors. Yellow listed $39 million in cash in the filing but said the company has lined up $142.5 million in DIP financing. Further, it said a recent appraisal of assets showed a value exceeding the amounts of the secured debt and the DIP facility.
Apollo Global Management (NYSE: APO), one of its current lenders, has been reported to be the likely lender of DIP financing. The private equity firm has first-lien position on $576 million of the company’s $1.5 billion of debt. It also has a better lien position than the government on a $300 million first tranche of a controversial $700 million COVID-relief loan.
“It is with profound disappointment that Yellow announces that it is closing after nearly 100 years in business,” said Yellow CEO Darren Hawkins in a statement Sunday. “Today, it is not common for someone to work at one company for 20, 30, or even 40 years, yet many at Yellow did. For generations, Yellow provided hundreds of thousands of Americans with solid, good-paying jobs and fulfilling careers.”
Yellow’s (NASDAQ: YELL) bankruptcy marks the largest filing in U.S. trucking history. The last major LTL closure was Consolidated Freightways, the third-largest carrier in 2002 when it filed. That carrier was generating roughly $2.3 billion in revenue with 20,000 employees (14,500 Teamsters).
Yellow had 30,000 employees, including 22,000 Teamsters.
Yellow has partnered with the American Trucking Associations to establish a job database specifically for former Yellow employees.
Downfall years in the making
Ultimately, Yellow was unable to push through a change of operations with the Teamsters union that would have provided it with more flexible work rules and further consolidated its terminals and operating cost structure. Yellow maintained if the changes were implemented its lenders would have been willing to restructure its debt, $1.3 billion of which matured next year.
The Teamsters contended the union had given enough in the past. Since 2009, the union estimates it consented to wages, benefits and changes to work rules equaling billions.
Last-minute scrambling to work a deal with the union, lenders, or to get the White House to intervene, would fall flat. In its public back-and-forth with the union, it came to light that the carrier could be out of funds as early as July. That sent shippers and third-party intermediaries searching for other capacity options.
A July 18 threat of a work stoppage over delinquent benefits contributions accelerated customer departures.
It was nearly two weeks ago when Yellow stopped making pickups. It laid off most of its nonunion employees on July 28. It closed its gates on July 30, saying it had ceased all operations. No public update was provided by the company. It was the Teamsters that made it known Yellow would be filing for bankruptcy.
While employees were terminated abruptly, the carrier’s ultimate demise was anything but.
Starting in the early 2000s Yellow leveraged up to make numerous large and small acquisitions, most of which it failed to integrate. It was saved from multiple brushes with financial ruin by the union, its lenders and the government.
In its last quarterly filing, it booked another net loss and logged an operating ratio (inverse of operating margin) above 100%. Its debt load was 4.6 times trailing 12 months’ adjusted earnings before interest, taxes, depreciation and amortization — more than twice a manageable level for a company that isn’t growing or making acquisitions.
What’s the stock worth?
In the end, the equity ended up being worth more when viewed through the lens of asset value.
Shares traded around $1.50 in May and June, plummeting to less than 60 cents in its final days of operation. However, when it became clear the company would file bankruptcy, effectively detaching valuation from forward earnings potential and to the value of its terminals, shares surged to more than $4.
Boston hedge fund MFN Partners amassed a 42.5% stake in the company from July 10 to the end of the month. Some speculated its involvement was a hedge on a $900 million investment it had in LTL peer XPO (NYSE: XPO), shares of which have more than doubled this year and would certainly fall if Yellow were to survive.
Others said the attraction to Yellow’s stock was the company’s 166 owned terminals (10,000 doors), which could garner a high price in liquidation. The company booked an $80 million gain from the sale of a Southern California property recently and a $28 million gain from a terminal sale in the fourth quarter.
However, that’s a risky play.
Many of its high-priced sites have likely already been shuttered or sold and leased back, a practice the company employed for years given its liquidity woes. Further, some of the portfolio may include smaller market, end-of-line sites where there likely isn’t a tenant replacement. It’s also tough to quantify how many legitimate unsecured claims from employees post termination, unpaid vendors, pension funds and the union will come forward, all of which will likely rank ahead of the equity holders.
The recent surge in shares was also likely influenced by the “meme stock” crowd, or retail investors hyping it up on social media. Trading volumes, often small trades, jumped exponentially (from 1.3 million shares per day in June to 220 million on last Tuesday) as the stock appeared to be passed back and forth by investors looking to make a big gain at the expense of short sellers that held their positions too long. The short interest on the stock was 19% on July 15, a high level that likely had some investors betting a short squeeze was probable. Once the stock started moving higher, short sellers began covering their positions by buying shares, sending the price even higher.
This is a developing story.
More FreightWaves articles by Todd Maiden
- Yellow’s demise: 2 decades in the making
- XPO to ramp up capacity to fill Yellow void
- Forward Air starting to see impact from Yellow’s exit
