August 6, 2023 – Yellow Corporation and 23 affiliated Debtors (Nasdaq: YELL; “Yellow” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 23-11069 (Judge TBD). The Debtors, "a leading trucking and logistics company, boasting one of the largest less-than-truckload ('LTL') networks in North America," are represented by Laura Davis Jones of Pachulski Stang Ziehl & Jones LLP. Further board-authorized engagements include (i) Kirkland & Ellis LLP as general bankruptcy counsel, (ii) Alvarez & Marsal North America, LLC as restructuring advisors, (iii) Ducera Partners LLC as investment banker and (iv) Epiq Bankruptcy Solutions LLC as claims agent.
The Debtors’ lead petition notes more than 100,000 creditors; estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn ($1.2bn of funded debt; NB: the Debtors latest 10-Q lists assets of $2.152bn and liabilities of $2.588bn as of March 31, 2023). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) BNSF Railway ($6.3mn trade claim), (ii) EXL ($3.1mn trade claim) and (iii) Amazon.com ($2.1mn contingent "Customer Overpayment and Customer Incentive" claim).
Petition Date Highlights
- Iconic LTL Trucking Company Files for Chapter 11 with $1.2bn of Funded Debt
- Debtors, Insistent that They had Survived COVID Thanks to $700.0mn CARES Act Loan (with U.S Government Then Taking 30.6% Stake in Debtors) and Promising "One Yellow" Program, Cite "Ruinous Campaign" to Destroy Company Led by International Brotherhood of Teamsters and IBT President Sean O’Brien
- 2019 Strategic Initiative One Yellow Was Effort to Create "Super-Regional Service—Just Like FedEx or Old Dominion Freight Line"
- Other Factors Contributing to "Perfect Storm" Include Soft Manufacturing Sector Leading to Lower LTL Demand
- Apollo to Provide $644.0mn DIP Financing Package Includes $142.5mn of New Money and $501.5mn Roll-Up (and Up To $32.0mn Closing Fee)
- Debtors to Pursue "Comprehensive Marketing Process for All of Their Assets" and Wind-Down
In a press release announcing the filing (significantly entitled, "International Brotherhood of Teamsters Drives Nearly 100-Year-Old Company Out of Business; 30,000 American Jobs Lost"), the Debtors advised that the Chapter 11 filings had been made after a "ruthless," value destructive campaign by the IBT and now "with profound disappointment" in furtherance of a "planned operational wind-down."
The press release continues as to the union fight: "Several years ago, Yellow recognized that it needed to modernize operations to compete with non-union carriers that increasingly dominated the industry. Yellow developed the common-sense 'One Yellow' business plan to make Yellow more competitive while strengthening jobs and improving customer service. One Yellow called for raising employees’ pay and creating more jobs, while providing stability for all stakeholders. One Yellow aimed to put Yellow on the right path, fixing legacy issues created long ago, making Yellow the industry-dominant company it once was.
The operational changes necessary to implement One Yellow required approval from IBT leadership. In August 2022, IBT leadership approved the first phase of One Yellow in the western U.S. and the plan was a success: redundancies were reduced, freight departed terminals earlier and customer service improved. Unfortunately, despite Phase One’s approval and success, IBT leadership implemented a nine-month blockade, halting the remainder of Yellow’s business plan. This caused Yellow irreparable harm.
In the spring, while their blockade of One Yellow was ongoing, IBT leaders demanded that Yellow open its contract nearly one year early, and Yellow agreed, yet its goodwill was met with hostility. Instead of negotiating a contract, Yellow faced months of public insult from IBT, including a social media post depicting a tombstone with Yellow’s name on it along with the dates 1924-2023. This ruthless campaign included repeated public taunts calling for Yellow’s demise and was intended to put Yellow out of business.
The Debtors’ Chief Executive Officer, Darren Hawkins, commented: “It is with profound disappointment that Yellow announces that it is closing after nearly 100 years in business…“All workers and employers should take note of our experience with the International Brotherhood of Teamsters ('IBT') and worry….We faced nine months of union intransigence, bullying and deliberately destructive tactics. A company has the right to manage its own operations, but as we have experienced, IBT leadership was able to halt our business plan, literally driving our company out of business, despite every effort to work with them."
“While IBT leaders may believe they won a battle against Yellow, it’s our employees and their families who have lost” continues Hawkins. “We tried everything to work with IBT leadership and did all we could to save employees’ jobs. We are crushed by today’s announcement, yet we are grateful to our tens of thousands of employees who took care of our customers until the end. 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. 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.”
Goals of the Chapter 11 Filings
The Dohenny Declaration (defined below), provides: "Facing a dire liquidity shortfall and no prospects for the significant additional financing required to complete a turnaround of the business, immediately prior to the Petition Date, the Debtors’ management team and advisors determined that it was appropriate to clear the
Debtors’ freight network, close their facilities and commence layoffs of their workforce. The Debtors intend to pursue an orderly wind-down of their estates in these chapter 11 cases….Ducera has been engaged by Yellow to assist it in conducting a comprehensive marketing process for all of their assets."
DIP Financing
The Debtors have secured commitments for up to $142.5mn of new money, debtor-in-possession ("DIP") financing "over four draws as follows: (a) an initial $60 million draw made immediately available to the Debtors upon the Court’s entry of the Interim Order; (b) $37.5 million upon the entry of a final, non-appealable order approving the Bidding Procedures; (c) $20 million upon the Debtors’ receipt, pursuant to the Bidding Procedures Order, of unique, non-duplicative binding bids for the DIP Priority Collateral that would, in the aggregate, generate net cash proceeds equal to at least $250 million; and (d) $25 million upon the Debtors’ receipt, pursuant to the Bidding Procedures Order, of unique, non-duplicative binding bids for the DIP Priority Collateral that would, in the aggregate, generate net cash proceeds equal to at least $450 million."
The DIP financing is being provided by Apollo (with Alter Domus Products Corp. as administrative agent and collateral agent) and includes a roll-up of $501.5mn (with the interim order) of all amounts outstanding under a $485.3mn B-2 Term Loan provided by Apollo Global Management, LLC ("Apollo") PLUS fees*/interest (see Indebtedness table below).
* The Closing Fee could tally as much as $32.0mn (or 22.6% of the new money) depending on the eventualy calculation of the variable element of the fee calculation. The Debtors' DIP motion provides as to the calculation of a fee: "the Company hereby agrees to pay…a closing fee (the 'DIP Closing Fee') in an aggregate amount equal to: (a) $7,125,000 (the 'Fixed Amount'); and (b) an amount (the 'Variable Amount') equal to: (i) the product of (A) the DIP Facility Amount multiplied by (B) a percentage representing the sum of (x) if any Obligations under the Credit Agreement are outstanding on September 8, 2023, 2.50%, plus (y) if any Obligations under the Credit Agreement are outstanding on September 29, 2023, 2.50%, plus (z) if any Obligations under the Credit Agreement are outstanding on the second day after the scheduled Maturity Date pursuant to clause (i) of the definition of the term 'Maturity Date' under the Credit Agreement, 2.50%; minus (ii) the Fixed Amount." A declartion in support of the DIP financing filed by Ducera adds as to the Variable Amount: "the Variable Amount (representing $25 million of the $32 million total potential Fee) will not be payable until such time as the Prepetition UST Secured Parties are paid in full…"
The Debtors add as to negotiations over the roll-up and fees: "Specifically, the Debtors pursued a reduced Roll-Up Amount and reduced Fees, including an overhaul of the Prepetition B-2 Lenders’ originally proposed fee structure (which would have tied the Fees to the 'asset monetization' of the Debtors’ sale process)….the Debtors succeeded in reducing the Fees (among other concessions) but were unable to negotiate (despite their best efforts) a reduced Roll-Up Amount."
The Declaration provides: "Upon approval by the Bankruptcy Court and the satisfaction of the conditions set forth in the agreement, the DIP Facility will provide the Company with needed liquidity which will be used to support the businesses throughout the marketing and sale process, including payment of certain prepetition wages."
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Doheny Declaration”), Matthew A. Doheny, the Debtors’ Chief Restructuring Officer, detailed the events leading to the Debtors' Chapter 11 filings. The Dohenny Declaration provides: "In recent months, however, Yellow has faced a severe liquidity crisis orchestrated by the International Brotherhood of Teamsters (the 'IBT' or the “Union”) General-President Sean O’Brien and carried out by Union leadership who acted at all times at his behest and direction. For more than nine months leading up to today, Mr. O’Brien and other senior Union leadership caused the Union to engage in a series of egregious breaches of Yellow’s collective bargaining agreement designed to block Yellow from completing One Yellow, which was a vital strategic initiative that Mr. O’Brien and other Union senior leadership knew and understood was absolutely critical to Yellow’s survival and future success.
Looking beyond the fight with IBT, Doheny provides background as to the need for the Debtors' "One Yellow**" restructuring initiative, begun in 2019 and ultimately stalled after completion of its stage one due to the dispute with the IBT.
**Doheny provides: "The One Yellow restructuring initiative was developed by Yellow in 2019 and was intended to modernize Yellow’s business and upgrade the efficiency of its operations so that it could compete successfully against non-unionized LTL carriers. One Yellow involved, in carefully planned phases, the merger of four operating subsidiaries into a freight carrier that would have eliminated inefficiencies and created a super-regional carrier."
"During 2019, the freight industry experienced a recession. This recession appeared to have stabilized in the first quarter of 2020. However, beginning the last two weeks of March, the freight industry and the economy at large experienced a precipitous and significant decline in economic activity due to the impact of the COVID-19. The COVID-19 pandemic and related economic repercussions created significant uncertainty and resulted in a material decrease in the volume that was expected during 2020 by both Yellow and the industry as a whole. This market downcycle forced Yellow into a liquidity crunch. In order to maintain adequate liquidity to fund operations, Yellow took preservation actions in late March and early April 2020, including layoffs, furloughs, further eliminations of short-term incentive compensation and reductions in capital expenditures, and deferment of payments to various parties.
In addition, Yellow benefited from the support afforded to it under the CARES Act, which provided temporary relief related to the payment of employer payroll taxes and non-union pension payments. Specifically, the UST Credit Agreements, which provided Yellow $700 million, were entered into pursuant to the CARES Act. The CARES Act loan saved Yellow and allowed it to move forward on solid economic footing."
Continuing as to One Yellow and what the Debtors argue was a highly successfull initiative until Sean O'Brien injected himself into the process, Doheny states: "In 2019, Yellow announced the multi-year One Yellow initiative to transform Yellow’s legacy businesses into a unified national platform that operates as 'one company, one network, under one Yellow brand.’….One Yellow was a critical strategic initiative designed to, among other things, enable the Company to operate efficiently, enhance customer service, increase productivity, strengthen financial results, and importantly, operate without internal competition among its affiliated subsidiary companies. Ultimately, the implementation of One Yellow would ensure that Yellow could compete successfully with the non-union LTL carriers that dominate the market, and allow Yellow to provide a competitive, viable, ‘ready to go to the market’ product, i.e. super-regional service—just like FedEx or Old Dominion Freight Line.
The One Yellow process contained three phases, with full implementation expected to be completed by early 2023. The three phases of the One Yellow initiative can be summarized as follows:
- Phase 1 (20% of network): to consolidate YRC Freight’s operations with Reddaway’s operations in the West;
- Phase 2 (70% of network): to consolidate YRC Freight’s operations with Holland’s and New Penn’s operations in the Northeast, Midwest, and Southeast; and
- Phase 3 (10% of network): to consolidate YRC Freight’s operations with Holland’s remaining operations in the Central and Southern regions.
In September 2022, Phase 1 was launched, with Union support and Union approval of the change of operations Yellow needed to implement Phase 1. As a result, the linehaul networks of YRC Freight and Reddaway in the Western region were integrated to support both regional and long-haul services. This was one of the first major steps Yellow took to improve operational performance, and the preliminary results of Phase 1 were very positive.
By late December 2022/early January 2023, it was evident that Mr. O’Brien had usurped Mr. Murphy’s role in leading the negotiations with Yellow over Phase 2. After that, Phase 2 was met with heavy resistance by the Union, and each proposal Yellow made for its implementation was ultimately rejected.
… it continued to be abundantly clear: Mr. O’Brien had no intention of allowing Yellow to take the steps necessary to save itself. Mr. O’Brien told Yellow’s 22,000 Union workers that they will find other jobs, gloated about putting Yellow in the grave, and goaded: '[T]here comes a point where you have to cut your losses. Yellow has shown that it doesn’t deserve and cannot be expected to continue under its current structure.'
The Union’s obstruction of Phase 2 cost Yellow at least $137 million in adjusted EBITDA, and created a liquidity crisis, as a direct result of which Yellow was forced to take cash- conservation measures, including deferring the Contributions, as described above.
On June 27, 2023, Yellow filed a lawsuit against the IBT, TNFINC, and several local unions for their breaches of the NMFA. In that lawsuit, Yellow seeks to hold the IBT accountable for its deliberate destruction of Yellow’s enterprise value.
Combining the union and non-union factors precipitating the Debtors "perfect storm' and Chapter 11 filings, Doheny continues: "Furthermore, the overall LTL industry has been experiencing challenging business conditions. Last year, as the manufacturing sector’s strength began to waver, demand for LTL capacity decreased. Into this year, the first quarter of 2023 was characterized by soft demand, and Yellow did not experience the typical seasonal uplift in demand during the second half of the first quarter.
This combination of economic headwinds and a liquidity crisis brought on by the Union’s obstruction of Phase 2 created a perfect storm. Each day Mr. O’Brien caused the Union to block the successful completion of One Yellow, Yellow continued to get closer to running out of cash.
With liquidity deteriorating, Yellow was forced to take cash-conservation measures—Yellow had to stop paying some of its bills in the ordinary course in an effort to save itself and ultimately save 30,000 American jobs, including 22,000 union jobs. Had the Union not blocked the implementation of One Yellow, thus depriving Yellow of over $137 million in EBITDA, Yellow almost certainly would have had sufficient funds available to pay the Contributions when they became due without putting the business at risk.
Indeed, and as discussed in greater detail above, as of June 30, 2023, Yellow has a $485 million Term Loan that matures in June 2024 and a $737.0 million US Treasury Loan that matures in September 2024. Yellow must refinance its $1.2 billion in debt before it matures. The financial markets and credit rating agencies took notice of the Union’s obstruction of One Yellow.
As a result of the steady drum beat of Mr. O’Brien’s persistent negative public comments about Yellow, its leadership and its uncertain future, Yellow’s stock price has sharply declined over the course of the last ten months. At the same time, the credit-rating agencies have steadily downgraded Yellow. On February 27, 2023, S&P downgraded Yellow’s issuer credit rating from B- to CCC+ and its issue-level rating on Yellow’s Term Loan from B- to CCC+ because of uncertainty regarding Yellow’s ability to refinance the Term Loan and US Treasury Loan. Further, S&P indicated it could lower Yellow’s ratings again if it did not believe Yellow’s refinancing plans would address its upcoming maturities before they became current."
Prepetition Indebtedness
The Debtors have approximately $1.2bn in total funded debt obligations. This consists of a $485.4mn senior secured term loan, and approximately $737.7mn in US
Treasury term loans, and $0.9mn in borrowings under the ABL Facility.
Significant Shareholders
- MFN Partners Management, LP: 42.5%
- U.S. Department of the Treasury: 30.6% (received in exchange for $700.0mn CARES Act Loan)
Prepetition Background [Taken from our earlier coverage]
As previously reported on July 27, 2023, Yellow Corporation was preparing to file for bankruptcy, according to unconfirmed reports, as clients were ditching the Company amid a cash crunch and union negotiations.
A bankruptcy filing by the Company would reportedly put it at high risk of a liquidation since its customers already have started to abandon in large numbers.
Yellow faces significant maturities over the next 12-14 months, with its $567 million senior secured term loan due in June 2024 and $729 million U.S. treasury loans due in September 2024.
Yellow subsequently informed its employees that it “is shutting down its regular operations on July 28, 2023, closing and/or laying off employees at all of its locations,” with the Company hammered by a liquidity crisis. The dismissals included members of the Company’s sales force, business operations and technology department.
Yellow had been locked in a battle with the International Brotherhood of Teamsters over missed pension and benefits payments and new contract terms.
The Teamsters advised in a July 31, 2023 press release: "The Teamsters Union was served legal notice today that Yellow Corp. is ceasing operations and filing for bankruptcy."
Teamsters General President Sean M. O’Brien commented: “Today’s news is unfortunate but not surprising. Yellow has historically proven that it could not manage itself despite billions of dollars in worker concessions and hundreds of millions in bailout funding from the federal government. This is a sad day for workers and the American freight industry.”
An August 2nd article reported: "Creditors led by Apollo Global Management Inc (APO.N) are nearing a deal to provide Yellow Corp (YELL.O) with fresh cash during a coming bankruptcy, Bloomberg News reported, citing people familiar with the matter.
Shares of Yellow were up 78% at $3.14 in afternoon trade.
The U.S. asset manager, which owns most of one of Yellow's term loans, is well-positioned to provide backing and is finalizing a deal to lead a debtor-in-possession financing for the cash-trapped trucking company, the report said."
According to Bloomberg, "Apollo is no stranger to Yellow: the investment firm was the lead lender on the company’s $600 million term loan in 2019, when it was known as YRC Worldwide Inc."
Recent Financials
In a May 3, 2023 press release announcing its first-quarter results (10-Q here), Yellow noted that its available liquidity under its ABL facility, was $167.5 million as of March 31, 2023, compared to $276.9 million a year ago. The Company’s outstanding debt was $1.509 billion as of March 31, 2023, compared to $1.607 billion as of March 31, 2022.
The Company's net loss for first quarter 2023 was $54.6 million, or $1.06 per share, compared to net loss of $27.5 million, or $0.54 per share in the first quarter 2022.
Chief executive officer Darren Hawkins commented: “Our results for the quarter were impacted by some remaining costs associated with the execution of Phase One, and planning and preparation for Phase Two of the network optimization and transition to a super-regional carrier. Phase One consisted of approximately 20% of the network and was successfully implemented in the western United States in 2022… Phase Two will consist of legacy YRC Freight, Holland and New Penn terminals in the Midwest, Northeast and Southeast, and covers approximately 70% of the network. We plan to provide an update on Phase Two once an implementation date has been determined. It is imperative that we complete our One Yellow strategy, which will strengthen the Company, protect 22,000 union jobs and ensure that our customers are well cared for and receive the range of services that today’s market demands. Phase One is a success and we continue to work with the International Brotherhood of Teamsters to determine the best path forward to implement Phase Two, and then turn our focus on refinancing the capital structure."
About the Debtors
According to the Debtors: “Yellow operates one of the largest, most comprehensive logistics and less-than-truckload (LTL) networks in North America, providing customers with regional, national, and international shipping services throughout. Backed by a team of nearly 30,000 transportation professionals, Yellow’s flexible supply chain solutions and best-in-class expertise ensure the safe, timely delivery of industrial, commercial, and retail goods for customers of all sizes. Yellow’s principal office is in Nashville, Tenn., and is the holding company for a portfolio of LTL brands including Holland, New Penn, Reddaway and YRC Freight, as well as the logistics company Yellow Logistics."
The Doheny Declaration adds: "Yellow has been a leading trucking and logistics company, boasting one of the largest less-than-truckload (“LTL”) networks
in North America that enabled Yellow to provide customers with regional, national, and international shipping services of transportation logistics and LTL services. Entering 2023, Yellow was the largest unionized LTL carrier in the United States, in addition to being the third largest LTL freight carrier and the fifth largest transportation company in North America.
Yellow operated service terminals in 300 communities, with employees in all fifty states. In 2022, Yellow transported approximately 14.2 million shipments, for approximately 250,000 customers, including the U.S. Government, generating more than $5.2 billion in operating revenue. On an average workday, Yellow’s approximately 30,000 employees handled approximately 50,000 freight shipments. Yellow’s fleet is comprised of approximately 12,700 tractors, including approximately 11,700 owned tractors and approximately 1,000 leased tractors, and approximately 42,000 trailers, including approximately 34,800 owned trailers and 7,200 leased trailers. Yellow’s network includes 308 strategically located service facilities, including 169 owned facilities with approximately 10,000 doors and 140 leased facilities with approximately 9,100 doors, in addition to six warehouses managed by Yellow’s logistics solution provider, Yellow Logistics."
Corporate Structure Chart
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