Less-than-truckload carrier Yellow Corp. is reported to be nearing a deal with lenders that will provide it funds as it approaches a liquidation of assets in bankruptcy.
Apollo Global Management (NYSE: APO), one of Yellow’s current lenders, is reported to be leading a group that will provide Yellow with new capital in the form of debtor-in-possession financing, according to Bloomberg and Reuters. The investment could be a way for Apollo to secure a position atop the pecking order in a bankruptcy scenario.
The investment group has first-lien position on a portion of the company’s outstanding debt currently. The U.S. Treasury holds first-lien position on a $400 million tranche of a COVID-relief loan that Yellow (NASDAQ: YELL) used to replace tractors and trailers.
On Sunday, the Teamsters said the carrier notified union leadership it would file for bankruptcy. That announcement came a few hours after Yellow closed the gates at its terminals and posted signs saying it had ceased all operations.
Many of its nonunion employees were laid off on Friday.
Unable to reach terms with its union workforce over proposed operational changes, the company saw freight flee its network as many of its customers sought other transportation options fearing Yellow would soon be out of money and forced to close.
Yellow is also facing a debt load of $1.5 billion, $1.3 billion of which matures next year. It has maintained in recent months that its lending group required the change of operations to be approved by Teamsters before helping it restructure the debt.
Shares of YELL have increased more than fourfold since Friday’s closing price of 71 cents. Boston hedge fund MFN Partners has amassed a 42.5% (22 million shares) stake in the company since July 10.
Some in the industry have speculated that MFN’s relatively cheap investment in Yellow is a hedge to protect a nearly $900 million investment it has in LTL competitor XPO (NYSE: XPO). Shares of XPO have more than doubled since the beginning of the year, in part due to Yellow’s troubles. The ownership in Yellow would allow the firm to partially offset a potentially much larger loss in its position in XPO were Yellow to survive.
The firm may also be making a play that the value of Yellow’s equity is higher in liquidation as it would be valued on its assets and not its earnings potential.
Yellow owns 166 terminals (10,000 doors), which could fetch a large sum in an auction process. The company recently booked a $79.5 million gain from the sale of a shuttered Southern California property. In the fourth quarter, it recorded a $28.2 million gain from the sale of a terminal.
However, the equity play in a liquidation process would be risky as unforeseen unsecured claims likely pop up in the bankruptcy process, pushing shareholders further down the ladder of those being paid out. Also, unwinding the real estate portfolio can take time, as buyers would want to line up potential tenants and the end-of-line terminals in smaller, remote markets garner less interest.
More FreightWaves articles by Todd Maiden
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