Trucking company Yellow, formerly known as YRC Worldwide, has filed for bankruptcy protection and plans to repay its $729 million debt to the federal government by selling off assets such as warehouses and trucks. However, the company is facing challenges due to the downturn in the industry, which could affect its ability to fetch top dollar for its assets. Failure to repay the debt in full would be a disappointing conclusion to Yellow’s three-year financial saga that began during the pandemic.
Yellow’s most recent financial statements revealed that its liabilities surpassed its assets by nearly $450 million as of the end of June. Despite this, the company claims it expects to fully repay its debt to the government. The loan is due in September 2024. Lawmakers and legal experts who have been skeptical of Yellow’s business practices and the federal loan granted to the company are not surprised by the uncertainty surrounding the value of its assets.
Representative French Hill, a member of the Congressional Oversight Commission, expressed doubts about how much taxpayers can expect to receive back. He had previously criticized the loan for being inadequately secured. Yellow, which operates in the less-than-truckload sector, has blamed the International Brotherhood of Teamsters for its struggles, alleging that the union hindered necessary operational changes. However, analysts argue that Yellow’s management is also at fault for its demise, citing failures to integrate acquired businesses and other operational missteps over the past two decades.
The Treasury Department declined to comment on whether it expects to be repaid in full. Yellow has paid approximately $67 million in interest on the loan but only $230 of the principal amount. The Treasury faces challenges in finding collateral to cover the operational expenses portion of the loan, while it has a direct claim on the tractors and trailers Yellow purchased. However, selling this equipment during a depressed market may not generate sufficient funds. The Treasury could potentially recoup some money from the sale of Yellow’s warehouse terminals, which are considered its most valuable assets, but only after other creditors are paid off.
Yellow received the federal loan in July 2020 as part of a program to help companies critical to national security during the pandemic. Critics have questioned the loan’s validity, citing Yellow’s existing financial struggles and its ties to the Trump administration. The Congressional Oversight Commission previously stated that the loan’s security was questionable. The company lost over $100 million in 2019 and faced a lawsuit by the Justice Department for alleged fraud against the federal government. Democrats on the House Select Subcommittee on the Coronavirus Crisis alleged that top Trump administration officials, including former Treasury Secretary Steven Mnuchin and former Defense Secretary Mark T. Esper, intervened to ensure Yellow received special treatment despite concerns about its eligibility.
Companies that received similar pandemic-era loans have also experienced financial difficulties, with eight out of 35 companies in default. The Treasury received a 31 percent stake in Yellow as part of the loan agreement. Hedge fund MFN Partners, which owns 42 percent of Yellow’s stock, hopes that the sale of the company’s assets will satisfy its debts. The Treasury’s role in the bankruptcy proceedings remains uncertain, as its recovery of funds will depend on the sale of Yellow’s assets and repayment priorities.