Yellow Corporation:
The Government's Stake

 

August 20, 2023

 

On August 6, 2023, Yellow Corporation, a Nashville-based less-than-truckload carrier with 30,000 employees, filed for chapter 11 in the District of Delaware.  The company is pursuing an orderly wind-down of its business to maximize the value of its assets and minimize the impact of the company’s shutdown on all stakeholders.  Yellow’s chapter 11 filing is notable due to the government’s substantial stake in the company, stemming from a federal loan which was extended in 2020 to help the company avert collapse during the pandemic-induced economic downturn.

 

Yellow Corporation's Demise

 

Yellow Corporation's downfall was catalyzed by a shifting market landscape and a series of operational challenges.  Recently, a reversal of increased shipping demand during the pandemic, particularly due to declining demand from big box retailers, placed substantial pressure on Yellow’s operations.   That reversal, coupled with higher fuel prices, widened the company’s net loss to $54.6 million in the second quarter of 2023.  Certain analysts also view Yellow’s inability to effectively integrate acquired entities over the past two decades as a trend that significantly contributed to Yellow's underperformance.

 

Tensions with the International Brotherhood of Teamsters, the union representing a significant portion of Yellow’s workforce, contributed to the company’s operational challenges.  This year, liquidity issues forced Yellow to request to defer pension and benefits payments, igniting severe discord with the union.  Tensions further escalated when the union threatened a strike, which, according to Yellow, led to a sharp decline in daily shipments from an average of 49,000 in 2022 to between 10,000 and 15,000 by late July 2023.

 

In early August, facing a severe liquidity shortfall and lacking access to additional financing required to turn the business around, the Yellow’s management team and advisors determined it was necessary to clear Yellow’s freight network, close the company’s facilities, and commence layoffs.

 

Below is Yellow Corporation’s funded indebtedness as of the petition date:

 

 

The initial motions filed in Yellow Corporation's chapter 11 cases can be found here.

 

The Government’s Unique Interest in Yellow’s Chapter 11 Process

 

A key issue in Yellow’s chapter 11 filing arises from a $700 million federal loan extended to Yellow in July 2020 with the goal of averting the company’s collapse during the pandemic-induced downturn.  Yellow aims to pay back the federal loan through the liquidation of the company’s significant assets, including warehouses, trucks, and other equipment.  However, legal experts and lawmakers have expressed concern regarding the sufficiency of Yellow's assets to fully pay the government debt while also satisfying obligations to private creditors.

 

The $700 million loan, extended under the $2.2 trillion relief package that Congress passed after the pandemic took hold, was divided into two tranches.  Tranche A provided $300 million to meet Yellow’s near-term contractual obligations and non-vehicle capital expenditures.  Tranche B provided $400 million for capital investments subject to the U.S. Department of the Treasury’s approval of capital plans developed by Yellow.  Under the terms of the financing, the Treasury received first liens on newly purchased assets pledged as collateral, third liens on existing company assets, and an equity interest of 29.6 percent of Yellow’s common stock.

 

An audit by the Office of the Special Inspector General for Pandemic Recovery published in May 2023 described internal control weaknesses in Treasury’s approach towards reviewing, approving, and disbursing the $700 million loan.  Treasury found that it lacked specific, measurable objectives and finalized loan approval policies and procedures prior to the approval and disbursement of Yellow’s loan.  Additionally, the report noted that the definition of “businesses critical to maintaining national security” that it used to determine Yellow’s eligibility for the loan had a broader scope than the definition later added as an amendment to 15 U.S.C. 9041 by the Consolidated Appropriations Act, 2021.

 

Navigating Complex Bankruptcy Cases: The Role of Technology

 

The government’s unique interest in Yellow’s chapter 11 process raises important issues that arise when federal loans are extended to the private sector during economic crises.  The case also underscores the need for efficient and effective legal representation and the importance of technology-driven solutions specifically designed to improve outcomes in complex chapter 11 cases.

 

ElevenFlo's platform empowers distressed companies and restructuring professionals by providing robust tools to effectively navigate chapter 11.  Our software helps bankruptcy professionals maintain focus on higher-value tasks so that they can maximize the value of debtors’ assets and shorten the time debtors spend in chapter 11.

 

By adopting technology-driven solutions, restructuring attorneys can streamline essential chapter 11 workstreams to improve the outcomes of all stakeholders in the chapter 11 process, including employees and taxpayers.  We invite restructuring practitioners to explore the cutting-edge tools offered by ElevenFlo, aligning with the broader goal of maximizing value through the bankruptcy process.