Yellow ‘on verge of closing,’ but wins concessions from lenders

Less-than-truckload carrier Yellow Corp., after decades of losses in excess of $1 billion and debt of $1.3 billion, received a little late financial breathing room as the venerable 99-year-old trucking company tries to survive.

Yellow is trying to execute a nifty trucking two-step—winning concessions with lenders on one hand while negotiating with what it calls an “ongoing, intractable labor dispute” with the International Brotherhood of Teamsters (IBT) union over a new contract that expires next March 31.

“We aren’t giving up,” a Yellow spokeswoman said. “Our employees, who have an average of 14 years’ tenure, want us to be here. Our customers want us to be here, even with all the noise around the company our shipment counts have held up and that’s crucial for us to work through this period while we get to negotiations.”

In a July 7 filing with the Securities and Exchange Commission (SEC), Yellow said it has won some easing of financial requirements from lenders as it tries to lower its debt while simultaneously obtaining Teamsters’ permission in a change of operations to its “One Yellow” super-regional trucking operation.

Among other easements on its $1.3 billion debt, Yellow won a waiver of the minimum Consolidated Earnings Before Interest, Debt and Amortization (EBITDA) financial covenant set forth in the credit agreement for the covenant testing periods ending on June 30, 2023 and Sept. 30, 2023.

This year Yellow hired investment bank Ducera Partners to help refinance its debt. But those efforts stalled last spring when the Teamsters blocked the company’s operations overhaul, which requires union approval.

Yellow already has converted its Western operations to the One Yellow format. Yellow President and CEO Darren Hawkins has called that change a success from the formerly Reddaway regional less-than-truckload (LTL) operation to One Yellow.

But to fully gain operational efficiencies, the former LTL regional operations of New Penn (Eastern) and Holland (Central States) must be converted to One Yellow. The Teamsters have balked at those change of operations, which require change of domiciles for some veteran drivers.

It’s gotten nasty, even by trucking Teamsters standards. Yellow has filed a $137 million breach of contract lawsuit against the Teamsters. It also has sent a strongly worded letter to President Joe Biden, saying it is “on the verge” of closing.

Yellow is asking the White House, Department of Labor and the Federal Mediation and Conciliation Service to resolve this matter, save jobs and “prevent an already fragile supply chain from breaking.”

The Teamsters, already preoccupied with labor negotiations with its largest employer, UPS, has more or less shrugged off Yellow in its talks.

Specifically, the union is objecting to greater use of rail for long-haul moves under One Yellow. As part of One Yellow, the company has proposed diverting 29% of all road miles across its entire operation to purchased transportation or rail carriers. The Teamsters have balked at that.

“As a result of union intransigence, Yellow’s business plan has been frozen,” the company says. “The company has lost market share and has been unable to secure additional lending for day-to-day business operations.”

The Teamsters deny what it calls “baseless allegations” made by Yellow in its “frivolous” lawsuit. “Yellow Corp.’s claims of breach of contract by the Teamsters are unfounded and without merit,” Teamsters General President Sean M. O’Brien said in a statement.

Amended financial agreements with lenders allow “the company to focus completely on getting to the table with the International Brotherhood of Teamsters and having alignment on modernization of the company and increasing wages for union employees,” according to a statement from Darren Hawkins, Yellow CEO.

Specifically, the new agreements with the SEC allow a change in liquidity. Yellow now is required to stay above $35 million.

In addition, beginning July 12, 2023, the new SEC agreement “requires weekly delivery” of a 13-week consolidated operating budget and a budget variance report comparing the actual results against the forecasted results under the related budget on a line-by-line basis and aggregate basis. Commencing July 26, 2023, that change requires a monthly supplement to such budget, according to the SEC filing.

The SEC change also “requires appointment of an Operational Advisor by July 12, 2023, who will, among other things, provide financial planning and analysis services and assistance creating the aforementioned budgets.” It was not immediately known who that advisor is.

Yellow received a $700 million government loan as part of a 2020 Covid-19 relief package in exchange for a 30% stake in the company. That loan was given at the tail end of the Trump administration. That loan is supposed to be repaid by September 2024. But the Biden administration waived certain financial requirements during the just-concluded second quarter.

Other lenders, including Apollo Global Management, waived the financial requirements through Sept. 30, according to the filing. Apollo is owed $567 million, supposedly to be repaid by June 2024.

“After decades of gross mismanagement, Yellow blew through a $700 million bailout from the federal government, and now it wants workers to foot the bill. For a company that loves to cry poor, Yellow’s executives seem to have no problem paying a team of high-priced lawyers to wage a public relations battle—all in a failed attempt to mask their incompetence,” the Teamsters say.

The impact goes beyond Yellow. Yellow says it contributes $34 billion in additional economic activity per year based on its annual revenue of $5.2 billion and creates an additional 57,390 American jobs. It also has $1.5 billion in outstanding debt, including the government loan. Yellow has paid approximately $66 million in interest on the loan, but it has repaid just $230 of the principal owed on the loan, which comes due next year, according to the New York Times.

Yellow holds roughly an 8.8% market share in its sector of the less-than-truckload (LTL) business. Yellow says “there is no industry precedent for a failure this large.”