Yellow, a trucking company that recently filed for bankruptcy protection, has stated that it plans to fully repay the $729 million it owes the federal government by selling off its warehouses, trucks, and other assets. However, given the current downturn in the trucking industry, Yellow may struggle to get the best value for its assets. If the company fails to repay taxpayers in full, it would be an unsatisfactory outcome to a three-year financial ordeal that began during the pandemic.
Yellow’s most recent financial statements show that its liabilities exceeded its assets by nearly $450 million at the end of June. Nevertheless, the company is confident that it will be able to repay its debt to the government in full. The loan is due in September 2024. Lawmakers and legal experts have long raised concerns about the company’s business practices and the federal loan it received, so the uncertainty about the value of Yellow’s assets is not surprising.
Representative French Hill, a member of the Congressional Oversight Commission, expressed doubts about how much taxpayers could expect to receive. He believed that the loan was not adequately secured to protect taxpayers. Yellow, based in Nashville and employing around 30,000 people, operates in the less-than-truckload sector, where truckers transport goods from multiple shippers in containers.
Yellow’s management has blamed the International Brotherhood of Teamsters, the union representing its workers, for many of its problems. They argue that the union prevented the company from making necessary operational changes. However, some analysts argue that Yellow’s executives bear significant responsibility for the company’s failure, citing their failure to integrate acquisitions made over the past two decades as a major factor.
The Treasury Department declined to comment on whether it expects full repayment. Yellow has paid approximately $67 million in interest on its loan but has only repaid $230 of the principal owed. According to the loan terms, some of the interest is added to the principal, meaning that Yellow actually owes more than $700 million.
Yellow used the first portion of its loan, around $300 million, to cover operational expenses and lease equipment. Experts believe that it will be challenging for the Treasury to identify collateral to sell in order to recoup this portion of the loan. The second portion, $400 million, was used to purchase new vehicles and equipment, which the Treasury has a direct claim on. Yellow intends to liquidate these assets to repay the government and other creditors, but it remains uncertain whether the sale of this equipment will generate enough funds.
The Treasury could receive proceeds from the sale of Yellow’s warehouse terminals, which are considered its most valuable assets, but only after other creditors have been paid. Apollo Global, a Wall Street investment firm, is the primary lender on a $500 million loan backed by the terminals and other assets. With several major less-than-truckload companies seeking to expand, Yellow may be able to sell the terminals at a high price.
Yellow received its federal loan in July 2020 through a program designed to assist companies critical to national security. Yellow’s loan constituted 95 percent of the loans given to 11 such companies. The loan has faced scrutiny due to Yellow’s struggling financial situation and its close ties to the Trump administration. Critics have questioned whether the company’s survival was truly crucial to national security.
The Congressional Oversight Commission and the office of the special inspector general for pandemic recovery have both raised concerns about the loan’s lack of security. Yellow lost over $100 million in 2019 and faced a lawsuit from the Justice Department over allegations of defrauding the government, for which it settled for $6.85 million.
The loan’s award has also attracted criticism due to claims that it was granted despite objections from career officials at the Defense Department. The report from Democrats on the House Select Subcommittee on the Coronavirus Crisis suggested that former Treasury Secretary Steven Mnuchin and former Defense Secretary Mark T. Esper intervened to ensure that Yellow received special treatment, disregarding concerns about its eligibility.
Other companies that received similar loans have also encountered financial difficulties. Eight out of the 35 companies that received Treasury loans are in default, albeit with significantly smaller amounts due compared to Yellow. The Treasury holds a 31 percent stake in Yellow as part of its loan, but shareholders typically receive nothing in bankruptcies, with creditors being paid first. Hedge fund MFN Partners recently acquired 42 percent of Yellow’s stock, potentially betting on the sale of the company’s assets to cover all debts.