Yellow Sees ‘Freight Diversions’ Amid Cash Crunch: Cowen
Trucking giant Yellow Corp. might have gotten a second wind ahead of possible bankruptcy concerns, but shippers might be taking their business elsewhere.
In a July 7 filing with the Securities and Exchange Commission (SEC), the less-than-truckload (LTL) company said its lenders, which include the U.S. Treasury Department, among others, have eased some of the financial hurdles required to shed some of its $1.3 billion in debt due next year.
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Yellow’s debtors will allow the trucking firm to waive its minimum EBITDA compliance targets. The U.S. Treasury will waive this target for one financial quarter and term lenders will waive it for two. The trucking firm can also defer some of its health welfare and pension payments for July and August.
Under the new agreement, the carrier can’t allow its liquidity—which dropped to $167.5 million as of March 31, from $276.9 million the year prior—to fall below $35 million.
The company faces a precarious balancing act. Yellow has to both pay off this debt while negotiating an ongoing labor dispute with the International Brotherhood of Teamsters over a new contract that expires next March 31, 2024.
Over the next three years, Yellow has to repay $1.5 billion in outstanding debt. As part of the waiver process, the transportation provider must give a weekly progress report of the prior 13-weeks’ operating budget to the SEC, as well as monthly reports on key performance indicators. Under the agreement, Yellow also must designate a representative who would be a “non-voting observer” of any meetings of the company’s board of directors or committees of the directors.
Yellow filed a $137.3 million lawsuit against the Teamsters last month claiming that the union is blocking the trucking firm from advancing phase two of its “One Yellow” restructuring plan.
A TD Cowen report indicated that the spat is scaring shippers way from the trucking giant and toward competitors including ArcBest, TFI International and XPO. The investment bank also expects “strong private carriers” to compete for business.
“Uncertainty on the future of operations is unnerving shippers, which we believe is leading to freight diversions in the LTL space and could become a very slippery slope for the Kansas City-based carrier,” said the research note.
The note did not specify the severity of the diversions and how they may have impacted Yellow so far.
Approximately half of the 14.2 million shipments it made in 2022 were to retail customers, with Yellow CEO Darren Hawkins saying in a February earnings call that these clients “tend to be very large shippers.”
The relationship with the Teamsters has been so contentious that Yellow wrote to President Joe Biden asking for federal intervention in the stalled negotiations.
Some 30,000 jobs, including 22,000 Teamster-represented employees, are at risk, Yellow wrote in the letter to the president, saying the company’s $5.2 billion in annual revenue supports another 57,000 adjacent jobs.
Yellow’s struggles illustrate the trucking industry in general. The industry has weathered a freight recession amid collapsing freight rates and consumer demand, and now has too much capacity. According to DAT Freight & Analytics data, dry van spot trucking rates are down 22.6 percent from June 2022 totals to $2.10 per mile.
This dynamic has forced many smaller and mid-tier trucking companies to close due to mounting losses, and put significant pressure on bigger players such as U.S. Xpress, who conducted three rounds of layoffs since last year before it was acquired by Knight-Swift Transportation.
The TD Cowen report indicated that while recent history has produced several LTL bankruptcies, most lacked the size and scale to materially impact the market.
However, Yellow going bankrupt would be a big deal because of the role it plays in the North American supply chain. The company commands about 10 percent of LTL market share, according to the report.
The company’s transportation network covers a wide swath of North America with 308 service facilities, and includes a fleet of 12,700 trucks and 42,000 trailers.
Yellow got a $700 million federal loan in 2020 as part of the Paycheck Protection Program (PPP) in exchange for the Treasury Department taking a 30.1 percent stake in the company.
The Biden administration expects the loan to be repaid by September 2024, but it waived some requirements that would have needed to be achieved by the end of last month.
As part of the SEC agreement, the company sold its Reddaway terminal in Compton, Calif. to ULH Properties. Yellow put the $79.5 million proceeds toward its outstanding loan balance, the filing said.
