Trucking firm granted $700 million U.S. bailout declares BANKRUPTCY

By zoeysky // 2023-08-17

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Yellow, the freight-trucking company formerly known as YRC Worldwide, is struggling and filing for bankruptcy three years after receiving a $700 million Wuhan coronavirus (COVID-19) pandemic-era bailout from the federal government. Despite negotiations that went on for months, disagreements between Yellow’s management and the International Brotherhood of Teamsters (Teamsters Union), a labor union in the U.S. and Canada, resulted in the former shutting down operations late in July. Yellow announced on Aug. 6, Sunday, that it was seeking bankruptcy protection so it could wind down its business in an "orderly" manner. Darren Hawkins, Yellow’s chief executive, issued a statement announcing that Yellow is closing after almost 100 years in the industry. The company filed a Chapter 11 petition in federal bankruptcy court in Delaware. The downfall of the 99-year-old company will result in the loss of at least 30,000 jobs and affect the U.S. supply chains. Yellow's closure also emphasizes the risks often linked to government bailouts that are awarded during moments of economic panic. In 2020, Yellow received a $700 million loan as the COVID-19 pandemic was steadily paralyzing the country's economy. The loan was awarded as part of the $2.2 trillion coronavirus pandemic relief legislation that Congress passed the same year, and Yellow received because the company was allegedly "critical to national security because it shipped supplies to military bases." After receiving the loan, Yellow changed its name and enforced a restructuring plan to help revive its struggling business by consolidating its regional networks of trucking services under one brand. By the end of March, Yellow’s outstanding debt had reached $1.5 billion, including the estimated $730 million that it owes to the federal government. Yellow has paid roughly $66 million in interest on the loan, but the company has repaid only $230 million of the principal owed on the loan, which comes due by 2024. However, the fate of the loan is still unclear. The federal government assumed a 30 percent equity stake in Yellow in return for the loan, so it could end up assuming or trying to sell off the majority of the company’s fleet of trucks and terminals. The White House did not respond to a request for comment ahead of the bankruptcy filing and the Treasury Department also declined to comment. (Related: Corporate America experiencing BANKRUPTCY BOOM as recession looms.)

Breakdown in negotiations with labor union resulted in business failure for Yellow

Yellow is the third-largest small-freight-trucking company in a part of the industry known as "less than truckload" shipping. The industry has been under pressure since 2022 from rising interest rates and higher fuel costs, which customers aren't on board with. Those forces snowballed with a tense labor fight this year between Yellow and the Teamsters Union concerning wages and other benefits. Those talks collapsed in July and union officials then warned workers that the company was shutting down. Tom Nightingale, chief executive of AFS Logistics, said the inflationary prices will hurt the shippers and the consumer to a certain extent. He also suggested that prices would eventually normalize within the following months. Jack Atkins, a transportation analyst at the financial services firm Stephens, cautioned that Yellow’s troubles had been evident for several years. Atkins explained that following the financial crisis, Yellow engaged in several acquisitions that it failed to successfully integrate. In turn, the demands of repaying that debt made it difficult for Yellow to reinvest in the company, which allowed rivals to become more profitable. Yellow's financial problems also prompted concerns about the Trump administration’s decision to give the firm a bailout. Yellow lost more than $100 million in 2019 and was being sued by the Justice Department over claims that it had defrauded the federal government over seven years. In 2022, Yellow agreed to pay $6.85 million to settle the lawsuit. Federal watchdogs and congressional oversight committees have reviewed the company’s relationships with the Trump administration. President Donald J. Trump approached Darren Hawkins, Yellow’s chief executive, to serve on a COVID-19 economic task force, and Yellow had financial backing from Apollo Global Management, a private equity firm with close ties to Trump administration officials. Democrats on the House Select Subcommittee on the Coronavirus Crisis wrote in a 2022 report that high-ranking Trump administration officials had given Yellow the money over the objections of career officials at the Defense Department. The report also suggested that Yellow had been communicating with Trump administration officials throughout the loan process and had discussed how the company employed Teamsters as its drivers. In December 2020, Steven T. Mnuchin, the Treasury secretary at the time, defended the loan. Mnuchin claimed that had Yellow been closed permanently, thousands of jobs would have been at risk and the military’s supply chain could have been disrupted. Mnuchin also predicted that the federal government would eventually make a profit from the deal. Visit DebtBomb.news to read about other struggling companies failing in the U.S. Watch the video below to learn about U.S. corporations facing financial turmoil. This video is from The Talking Hedge channel on Brighteon.com.

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Breakdown in negotiations with labor union resulted in business failure for Yellow

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