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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 Teamsters union. On Monday, in a statement posted on the Teamsters website, the union accused Yellow of squandering the $700 million bailout.
As part of the bailout deal, the government took an almost 30% stake in YRC Worldwide, as Yellow was formerly know, making the U.S. Department of Treasury the company’s second-largest shareholder.
Yellow
YELL,
says 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,” said Yellow CEO Darren Hawkins, 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.”
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The Treasury’s summary of the loan transaction describes 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.
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.
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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 2.0% payment in kind. Tranche B has an interest rate equal to Libor plus 3.5% in cash.
As taxpayer compensation, Treasury 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 15.94 million-share stake, the U.S. Treasury is Yellow’s second-largest shareholder, according to FactSet data.
Shares of the less-than-truckload company fell 25.8% in afternoon trading Monday. The stock was trading 7.7% 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 repaid $230 in principal. The $230 principal payment was made on June 13, 2021, the report said.
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MarketWatch has reached out to Yellow with a request for comment.
Tomi Kilgore contributed.
