As Yellow files for chapter 11, $700 million pandemic bailout is in the spotlight

By James Rogers

The U.S. government is the second-largest shareholder of trucking company Yellow Corp., which has filed for bankruptcy

Yellow Corp.'s chapter 11 filing has thrust a $700 million federal loan the company received during the COVID-19 pandemic into the spotlight.

On Sunday, the beleaguered Nashville, Tenn.,-based trucking company announced its bankruptcy filing, which it blamed on the International Brotherhood of Teamsters union. On Monday, in a statement posted on the Teamsters website, the union responded by accusing Yellow of squandering a $700 million bailout.

Attorney Marc Kasowitz, who is representing Yellow, slammed the Teamsters Tuesday. "The IBT's baseless claim that Yellow 'blew through' its $700 million CARES Act loan is just a feeble attempt by IBT leadership to deflect blame away from their own inescapable complicity over the course of the past nine months in causing Yellow's bankruptcy and the loss of 30,000 jobs, including 22,000 Teamsters jobs," he said in a statement. "As the IBT well knows, every cent of Yellow's CARES Act loan was earmarked in advance by the U.S. Treasury to be spent for specific purposes and was meticulously accounted for thereafter."

"The IBT further knows that the first $300 million of Yellow's CARES Act loan proceeds went to IBT members to cover the cost of their health, welfare and pension benefits," Kasowitz added. "As for the remainder of Yellow's CARES Act loan proceeds, the IBT further knows that the lion's share of the balance, almost $400 million, was spent on new trucks and equipment and that those same trucks and equipment will now be liquidated to pay back the U.S. Treasury and other of Yellow's creditors."

Related: Yellow blames bankruptcy filing on 'bullying' by Teamsters

As part of the bailout deal, the government took an almost 30% stake in YRC Worldwide, as Yellow was formerly known, making the U.S. Department of Treasury the company's second-largest shareholder.

Yellow (YELL) said that the loan, which was made in July 2020, will be paid back in full. "Our employees are professionals who, despite heavy hearts, worked diligently to clear the docks, deliver remaining freight, and close our terminal doors one last time," Yellow CEO Darren Hawkins said in the company's statement Sunday. "It is with this same professionalism that we intend to wind down our business, maximize recoveries for creditors and pay back the CARES Act loan in full."

The Treasury's summary of the loan transaction described YRC Worldwide as "a leading provider of Department of Defense supply transportation and other delivery services for the U.S. Government."

Nonetheless, the bailout has come under scrutiny. In a special report released in June, the Congressional Oversight Commission voiced its concerns about the $700 million loan. "Overall, the Commission continues to believe that the Treasury and the Defense Department made missteps in deeming Yellow as critical to maintaining national security and in executing the loan to Yellow," the report said.

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In a statement, Republican Rep. French Hill of Arkansas, the report's sole author, said that Yellow should never have received the $700 million bailout from the Treasury Department. "The company had long-standing financial troubles before the pandemic and was not critical to maintaining national security given it was not the sole provider of such services," he said.

The loan was broken up into two tranches, with the $300 million tranche A dedicated to YRC's "near-term contractual obligations and non-vehicle capital expenditures." Tranche B provided "$400 million for capital investments made pursuant to capital plans subject to approval by Treasury," the summary said, noting that both tranches mature on Sept. 30, 2024.

The tranche A interest rate is equal to Libor plus 3.5%, consisting of 1.5% cash and 2% payment in kind. Tranche B has an interest rate equal to Libor plus 3.5% in cash.

As taxpayer compensation, the Treasury Department also received shares, equal to 29.6% of YRC's common stock on a fully diluted basis, to be held in a voting trust. With its stake of 15.94 million shares, the U.S. Treasury is Yellow's second-largest shareholder, according to FactSet data.

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Shares of the less-than-truckload company fell 6.9% Tuesday. The stock is trading 19.5% below where it closed on July 7, 2020, at $2.87, when it entered into the loan agreement with the U.S. Treasury.

In a report in May, the Office of the Special Inspector General for Pandemic Recovery reported that, as of March 15, 2023, Yellow had an outstanding loan balance of $729.2 million, had made $54.8 million in interest payments and had repaid $230 in principal. The $230 principal payment was made on June 13, 2021, the report said.

Tomi Kilgore contributed.

-James Rogers

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08-08-23 1220ET

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