Executive officers, directors, and Teamsters benefited from the bailout. So get it over with, finally.
By Wolf Richter for WOLF STREET.
Yellow Corporation – formerly YRC Worldwide, the recipient of a $700-million taxpayer bailout in July 2020 that has been condemned in maddening detail by the Congressional Oversight Commission – told laid-off non-union employees on Friday in a memo that the company, including its subsidiaries, is “shutting down regular operations on July 28” and that it is “closing and/or laying off employees at all of its locations, including yours,” and that their employment “will permanently terminate” on July 28, 2023, or within 14 days after the separation date.
US taxpayers, in addition to being owed $700 million, also hold 29.6% of the shares of Yellow [YELL], which on Friday closed at 71 cents. The shares will be wiped out in a bankruptcy filing, though they may continue to trade over the counter and maybe get the meme-stock crowd excited for a while.
On Friday, sources told The Wall Street Journal that Yellow could file for bankruptcy as soon as this week – it would be the biggest trucking company collapse in the US – and that customers were leaving the carrier. Earlier in the week, it was reported that Yellow had stopped picking up freight.
But with freight shipments and freight rates down from the pandemic boom, other trucking companies are already scrambling to pick up the business, and Yellow’s customers are scrambling to ship with other carriers. That transition is already well underway.
Yellow, which moved freight for all kinds of businesses, including the biggest retailers Walmart and Amazon, is or was the third-largest less-than-truckload carrier with over 12,000 trucks, and nearly 30,000 employees, including about 22,000 Teamsters members.
The Teamsters told union locals in a memo on Friday, cited by the WSJ, to take their tools and personal belongings home to make sure they don’t end up behind locked doors when the company files for bankruptcy, and that the “likelihood that Yellow will survive is increasingly bleak.”
The company has long been in trouble. It tried to expand with a series of huge mergers and acquisitions – in 2003, it bought Roadway for about $1 billion; in 2005 it bought USF for $1.4 billion – that left it burdened with debt. As of Q1, it had $1.47 billion in long-term debt.
Of this debt, $1.27 billion has to be repaid in 2024: $700 million, owed the US government, is due in September 2024; $567 million, owed a group led by PE firm Apollo Global Management, is due in June 2024.
By the end of June, according to a filing with the SEC, it had $100 million in cash, down from $154 million at the end of March and $235 million at the end of December.
Both lenders gave the company some breathing room. The Biden administration waived the requirement that the company maintain certain financial targets through the quarter ended June 30; Apollo gave it through September 30.
To get the support of potential new lenders, it sought to implement structural and operational changes in the spring to make it more competitive, and tried to get the cooperation from the Teamsters union for those changes. But the union blocked those changes.
Yellow filed suit on June 27, accusing the union of blocking those changes. It said that the standoff had cost it $137 million in lost EBITDA (earnings before interest, taxes depreciation, and amortization), and that inaction could push the company into liquidation by this summer.
Also in June, the Yellow sought to defer two pension-fund payments of over $50 million. The union threatened to strike. The threat of a strike spooked Yellow’s customers even more, and they switched business to other carriers. On July 23, the company said that it had worked out a deal that would give it 30 days to make the pension payments, which averted a strike.
It’s nothing new that a trucking company files for bankruptcy and gets liquidated. It happens a lot. The biggie came in December 2019, when Celadon filed for bankruptcy, sunk by accounting fraud and the freight recession at the time. This was the largest truckload carrier ever to file for bankruptcy.
What’s new with a Yellow bankruptcy filing and likely liquidation:
- It would be the biggest trucker bankruptcy ever (with over four times as many trucks as Celadon)
- It would come three years after the company received a $700-million government bailout
- The government holds 29.6% of the shares; it got them in lieu of higher market-based interest rates on the bailout loan.
- The bailout was condemned in maddening detail by the Congressional Oversight Commission.
Back in July 2020, when I lambasted the reeking bailout by Trump’s Treasury Department, I said that the company should have filed for Chapter 11 bankruptcy, instead of being bailed out. I said:
So in the case of YRC, shareholders, creditors, and other stakeholders were bailed out by taxpayers, temporarily. YRC now has $700 million in additional liquidity it can burn through, but then what? It will have an additional $700 million in debt, on top of the debts it already has been struggling with, and it still hasn’t restructured its business and may eventually buckle under all this debt anyway, and head for a restructuring, and then taxpayers can kiss their investment goodbye.
It took only three years.
The bailout was a scandal.
A Special Report by the Congressional Oversight Commission, released on June 27, 2023, shed further light on, among other factors:
- Yellow’s lobbying efforts to get the bailout;
- On how executives, directors, and the Teamsters benefitted from the loan;
- And the fact that the loan never met the terms and conditions of the “national security loan,” under which it was issued.
Below are some excerpts from the June 27 report by the Congressional Oversight Commission. This type of government bailout stuff stinks to high heaven.
The shenanigans to get the bailout:
“Yellow spent $570,000 on lobbying efforts in 2020 compared to zero in 2019, $80,000 in 2018 and $75,000 in 2017.”
“The Commission noted the correlation between lobbying the government and Yellow’s ability to secure a $700 million loan.”
“The Treasury confirmed that several Senators and members of Congress sent letters to Treasury urging them to provide Yellow a loan.”
“Yellow or its lobbyists made contact with multiple Defense Department officials involved in Defense Department’s process for certifying Yellow as a “businesses critical to maintaining national security.” In their communications with the executive branch, lobbyists for Yellow suggested they had been in close touch with White House officials throughout the national security loan process and had discussed how the company employs 24,000 drivers who are part of the International Brotherhood of Teamsters (“Teamsters”) union.”
“In their communications, lobbyists for Yellow also suggested that Teamsters President Jimmy Hoffa had reached out to the Trump administration and that Mr. Hoffa was seeking a meeting with the Secretary of Defense to advocate for Yellow’s national security loan application.”
“The documents obtained by the Commission also show that the Treasury had more involvement in the process for designating companies as critical for national security than previously indicated.”
“Defense Department officials were initially prepared to recommend “yes” to certifying Yellow as critical to maintaining national security, despite a Defense Department analysis that indicated that other trucking companies could replace Yellow’s work with the federal government. Defense Department officials notified the Treasury of its likely “yes” recommendation. However, Defense Department officials then changed their recommendation to “no” (and notified the Treasury of this change) due to concerns about a Justice Department lawsuit alleging Yellow had overbilled its services to the Defense Department for years.”
“One day after Defense Department officials notified the Treasury that the Defense Department would likely not certify Yellow as critical to maintaining national security, the Treasury requested an urgent call with Secretary Esper, which took place on June 26, 2020. Secretary Esper certified Yellow as critical to maintaining national security the same day as the call, June 26, 2020, and the Treasury finalized the loan to Yellow on July 7, 2020.”
How executives and Teamsters benefited directly from the bailout.
The report shows how Yellow’s executive officers, directors, and the Teamsters benefited “from Yellow’s status as a going concern due to Treasury’s national security loan.” The report notes that executives and directors owned shares, bought shares, and received additional stock grants just before and after the bailout. As a result of the bailout, they made huge gains: From May 2020 through December 2021, the share price multiplied by 10, from $1.40 to $14.50.
“Yellow’s reporting officers and directors had Yellow stock holdings—in some cases substantial holdings—which they stood to lose in the event of a Yellow bankruptcy. They benefitted from Yellow avoiding bankruptcy and also from the rise in Yellow’s stock price that occurred in the months after Treasury’s loan to Yellow.”
From February 1, 2020 through July 22, 2022, “20 officers and directors were awarded 3.06 million shares of common stock with an unrealized value of $12.34 million.”
“The Teamsters also benefitted from the Treasury’s national security loan to Yellow. The loan enabled Yellow to pay off certain pension and healthcare obligations to the Teamsters and likely prevented Yellow from going bankrupt.”
“Before Yellow obtained this loan, it deferred millions of dollars of pension and healthcare payments for its largely unionized workforce for March, April, and May 2020. In April 2020, Yellow ‘told a large multiemployer health-care fund that the missed contributions would be paid once Yellow received’ a loan from the Treasury. On July 1, 2020, Yellow’s CEO, Darren Hawkins, stated that the funds from the Treasury would allow the company to pay off three months of missed pension and healthcare payments, which were “roughly $40 million a month.” On or around July 2, 2020, after Treasury announced its intent to provide a loan to Yellow, the company began to repay some of these missed payments.”
“In addition, the Teamsters hold a direct interest in Yellow as a result of the Teamsters’ ownership of Series A Preferred Stock. Yellow issued one share of Yellow’s Series A Preferred stock on July 22, 2011 to the Teamsters ‘to confer certain board representation rights.’ This share is valuable to the Teamsters because as the holder of this share the Teamsters are permitted to appoint two directors to Yellow’s board of directors.”
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