Trucking Firm That Got $700 Million U.S. Bailout Declares Bankruptcy

Three years after receiving a $700 million pandemic-era lifeline from the federal authorities, the struggling freight trucking firm Yellow is submitting for chapter.

After monthslong negotiations between Yellow’s administration and the Teamsters union broke down, the corporate shut its operations late final month, and mentioned on Sunday that it was searching for chapter safety so it may well wind down its enterprise in an “orderly” method.

“It is with profound disappointment that Yellow announces that it is closing after nearly 100 years in business,” the corporate’s chief govt, Darren Hawkins, mentioned in an announcement. Yellow filed a so-called Chapter 11 petition in federal chapter court docket in Delaware.

The downfall of the 99-year-old firm will result in the lack of 30,000 jobs and will have ripple results throughout the nation’s provide chains. It additionally underscores the dangers related to authorities bailouts which can be awarded throughout moments of financial panic.

Yellow, which previously glided by the identify YRC Worldwide, acquired the $700 million mortgage through the summer season of 2020 because the pandemic was paralyzing the U.S. financial system. The mortgage was awarded as a part of the $2.2 trillion pandemic-relief laws that Congress handed that yr, and Yellow acquired it on the grounds that its enterprise was vital to nationwide safety as a result of it shipped provides to navy bases.

Since then, Yellow modified its identify and launched into a restructuring plan to assist revive its flagging enterprise by consolidating its regional networks of trucking providers beneath one model. As of the top of March, Yellow’s excellent debt was $1.5 billion, together with about $730 million that it owes to the federal authorities. Yellow has paid roughly $66 million in curiosity on the mortgage, but it surely has repaid simply $230 of the principal owed on the mortgage, which comes due subsequent yr.

The destiny of the mortgage is just not but clear. The federal authorities assumed a 30 % fairness stake in Yellow in alternate for the mortgage. It might find yourself assuming or attempting to dump a lot of the corporate’s fleet of vans and terminals.

The White House didn’t reply to a request for remark forward of the chapter submitting, and the Treasury Department declined to remark.

Yellow is the third-largest small-freight-trucking firm in part of the trade often called “less than truckload” delivery. The trade has been beneath strain over the past yr from rising rates of interest and better gas prices, which clients have been unwilling to simply accept.

Those forces collided with an unpleasant labor combat this yr between Yellow and the Teamsters union over wages and different advantages. Those talks collapsed final month and union officers quickly after warned employees that the corporate was shutting down.

“I think that Yellow finds itself in a perfect storm, and they have not managed that perfect storm very well,” mentioned David P. Leibowitz, a Chicago chapter lawyer who represents a number of trucking firms.

The chapter might create short-term disruptions for firms that relied on Yellow and would possibly immediate extra consolidation within the trade. It might additionally result in quickly increased costs as companies discover new carriers for his or her freight.

“Those inflationary prices will certainly hurt the shippers and hurt the consumer to a certain extent,” mentioned Tom Nightingale, chief govt of AFS Logistics, who recommended that costs would doubtless normalize inside a number of months.

Jack Atkins, a transportation analyst on the monetary providers agency Stephens, mentioned that Yellow’s troubles had been mounting for years. In the wake of the monetary disaster, Yellow engaged in a spree of acquisitions that it didn’t efficiently combine, Mr. Atkins mentioned. The calls for of repaying that debt made it troublesome for Yellow to reinvest within the firm, permitting rivals to change into extra worthwhile.

“Yellow was struggling to keep its head above water and survive,” Mr. Atkins mentioned. “It was harder and harder to be profitable enough to support the wage increases they needed.”

The firm’s monetary issues fueled issues in regards to the Trump administration’s determination to rescue the agency.

It misplaced greater than $100 million in 2019 and was being sued by the Justice Department over claims that it defrauded the federal authorities throughout a seven-year interval. Last yr it agreed to pay $6.85 million to settle the lawsuit.

Federal watchdogs and congressional oversight committees have scrutinized the corporate’s relationships with the Trump administration. President Donald J. Trump tapped Darren Hawkins, Yellow’s chief govt, to serve on a coronavirus financial job drive, and Yellow had monetary backing from Apollo Global Management, a personal fairness agency with shut ties to Trump administration officers.

Democrats on the House Select Subcommittee on the Coronavirus Crisis wrote in a report final yr that prime Trump administration officers had awarded Yellow the cash over the objections of profession officers on the Defense Department. The report famous that Yellow had been in shut contact with Trump administration officers all through the mortgage course of and had mentioned how the corporate employed Teamsters as its drivers.

In December 2020, Steven T. Mnuchin, then the Treasury secretary, defended the mortgage, arguing that had the corporate been shuttered, 1000’s of jobs would have been in danger and the navy’s provide chain might have been disrupted. He predicted that the federal authorities would ultimately flip a revenue 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, mentioned in an announcement on Monday. “Years of poor financial management at Yellow has resulted in hard-working people losing their jobs.”