Yellow Corp. Pays Back $850M CARES Act Loan
Bankrupt Yellow Corp. has repaid a controversial pandemic-era government loan worth upward of $700 million six months after its Chapter 11 filing.
The defunct Overland Park, Kan.-based less-than-truckload shipper on Monday announced the repayment of the U.S. Treasury loan it received through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The principal loan of $700 million, plus over $151 million in interest, has been reimbursed, it said. The U.S. Treasury also received 29.6 percent of Yellow’s stock (15.9 million shares) for an equity stake currently worth about $72 million.
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“This repayment demonstrates Yellow’s absolute commitment to fulfilling its promise to the American taxpayers that its CARES Act loan would be repaid in full with interest,” Yellow’s chief restructuring officer, Matthew Doheny, said in a statement.
“At the time the loan was made, the U.S. supply chain was in danger of collapse and Yellow was proud to have secured its CARES Act loan, which helped Yellow preserve its 30,000 jobs, protect the U.S. economy during the height of the Covid crisis, and ensure that our brave men and women in uniform continued to receive the supplies they needed to defend our great nation,” he added.
Yellow applied for the CARES Act loan in April 2020 amid “crippling economic dislocations” caused by the Covid-19 pandemic. The loan was approved on July 7, 2020.
Doheny praised former President Donald Trump and former U.S. Treasury Secretary Steve Mnuchin for helping facilitate the loan, overriding objections from the Defense Department which determined that the group’s operations were not critical to national security.
A special report from the Congressional Oversight Commission released in June 2023 confirmed that Yellow’s CARES Act loan was both outside of the intended scope of the program and an imprudent use of funding. “Yellow had been rated non-investment grade for over a decade before the Covid-19 pandemic, struggled financially for years before the pandemic, and was at risk of bankruptcy before it obtained a loan from the Treasury,” the Commission wrote. It also observed that “Yellow’s precarious financial position at the time of the loan exposed taxpayers to a significant risk of loss.”
“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,” it added.
The International Brotherhood of Teamsters union, which represented about 22,000 members of Yellow’s workforce, reported that the company had ceased operations on July 30. Days later, the company filed for bankruptcy, saddled with about $1.5 billion in debt including the CARES Act loan.
For months prior to its bankruptcy filing, Yellow and the Teamsters duked it out; the trucking firm sued the union for $137.3 million, claiming that it prevented the business from implementing its One Yellow turnaround plan, which would have consolidated its four individual trucking firms, and the union threatened to strike after Yellow was unable to fulfill pension and benefits payments worth $50 million.
Though it had more than $100 million in cash remaining, Yellow’s protracted and highly publicized battle with the union drove major clients like Walmart and The Home Depot to ditch the trucking firm over anxieties about a potential strike, causing revenue to plummet.
Following the bankruptcy, Yellow’s property assets were divided and sold to competitors like XPO Inc., Estes Express Lines and Georgia’s Saia.
“Yellow’s CARES Act loan helped Yellow make significant progress executing its strategically vital fleet and network modernization efforts that would have enabled Yellow to compete against the non-union carriers that dominate the industry,” Yellow’s counsel, Marc E. Kasowitz of Kasowitz Benson Torres LLP said. “All of that progress, however, was destroyed when the International Brotherhood of Teamsters (IBT) leadership, under the direction of Sean O’Brien, took a militant zero-sum approach to dealing with Yellow that prevented Yellow from completing its network optimization.”
“The money Yellow boasts that it’s repaid the federal government is but a fraction of the $5 billion that hardworking Teamsters gave back to this mismanaged company in wage and pension concessions for more than a decade, money that the workers to this day have not seen,” a spokesperson for the Teamsters told Sourcing Journal. “Every time the company cried poor, our members did the right thing; unfortunately, Yellow continued to pay its executives, and kicked the can down the road, instead of fixing the company.”
The spokesperson pointed to other unionized firms in the logistics space, from ABF to TForce Freight, that “continue to thrive and grow” in spite of market pressures. Meanwhile, Yellow’s executives “repeatedly and greedily drove this company into the ground,” they said. “They spent no time trying to find new lenders while they continued to line their own pockets.”
“Working people should have been first in line for relief during Yellow’s bankruptcy proceedings. What did the company prioritize moments before it filed for bankruptcy and left workers high and dry? As a final insult, Yellow’s failed executives gifted themselves millions in bonuses as they walked away from the ashes of a once-great union company,” the spokesperson added. “Yellow may have kept its promise to the taxpayers, but it betrayed a loyal workforce. That fact will be its shameful legacy.”
