Yellow, a struggling freight trucking company that received a $700 million lifeline from the federal government during the pandemic, is now filing for bankruptcy three years after the bailout. The company’s operations were shut down last month after unsuccessful negotiations between management and the Teamsters union. Yellow’s CEO, Darren Hawkins, expressed deep disappointment in the closure of the business, which has been operating for nearly a century. The company filed for Chapter 11 bankruptcy protection in federal court.
This bankruptcy is expected to result in the loss of 30,000 jobs and could have implications for the nation’s supply chains. It also highlights the risks associated with government bailouts during times of economic crisis.
Yellow, previously known as YRC Worldwide, received the $700 million loan in 2020 as part of the pandemic-relief legislation. The loan was granted due to the company’s role in shipping supplies to military bases, which was deemed critical to national security. Since then, Yellow has restructured its business and consolidated its regional networks of trucking services under one brand. However, as of March, the company’s outstanding debt was $1.5 billion, including $730 million owed to the federal government. Yellow has only repaid $66 million in interest on the loan and still owes $230 million in principal, which is due next year.
The fate of the loan remains uncertain, but the federal government currently holds a 30 percent equity stake in Yellow. It may end up assuming control of or selling off a significant portion of the company’s fleet and terminals.
Yellow’s bankruptcy comes as the industry of small-freight-trucking faces challenges such as rising interest rates and fuel costs. Customers have been unwilling to accept these additional costs, putting pressure on companies like Yellow.
Labor disputes further added to Yellow’s troubles this year. Talks between the company and the Teamsters union regarding wages and benefits collapsed, leading to the shutdown of operations. Bankruptcy lawyer David P. Leibowitz believes that Yellow was unable to manage the challenges it faced, leading to this outcome.
The bankruptcy of Yellow could cause temporary disruptions for businesses that relied on the company for freight services. It may also result in higher prices as these businesses seek alternative carriers. However, it is anticipated that prices will stabilize within a few months.
Transportation analyst Jack Atkins suggests that Yellow’s problems have been mounting for years due to failed integration of acquisitions made after the financial crisis. The company’s debt obligations made it difficult to reinvest in the business, allowing competitors to become more profitable.
The financial troubles of Yellow have raised concerns about the government’s decision to rescue the company. In 2019, Yellow lost over $100 million and faced a lawsuit from the Justice Department regarding alleged fraud against the federal government. The company settled the lawsuit by paying $6.85 million. Federal watchdogs and congressional oversight committees have examined Yellow’s relationships with the Trump administration, including its ties to Apollo Global Management, a private equity firm close to administration officials.
In December 2020, former Treasury Secretary Steven T. Mnuchin defended the loan to Yellow, stating that without it, jobs would have been at risk, and the military’s supply chain could have been disrupted. He believed that the government would eventually make a profit from the deal. However, Representative French Hill criticized the bailout, stating that Yellow had longstanding financial issues and was not essential to national security.
Overall, Yellow’s bankruptcy represents a significant setback for the company, its employees, and the industry as a whole. It serves as a cautionary tale about the potential challenges and consequences of government bailouts.
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