Bidding war erupts in Yellow bankruptcy

Yellow, a trucking and logistics concern, entered 2023 with the largest unionised less-than-truckload network in North America, and as the third-largest LTL freight carrier. It has now, as of 6 August, entered Chapter 11 protection, a proceeding that may be complicated by the fact that one of the creditors of Yellow is the US Treasury.

The parent company was known as YRC Worldwide when it borrowed the money under a covid-era stimulus program, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). Over the years, the family of entities has been known by various names.

At a hearing 9 August, the company indicated that it is not moving forward with a $142.5 million DiP financing agreement with Apollo Global Management that was negotiated pre-filing.

The bankruptcy filing indicates that the debtor filed for bankruptcy with approximately $39 million of cash in hand, and a total of $2.59 billion in obligations.

Yellow is now considering deals with a Boston based hedge fund, MFN Partners, and with another freight firm, Estes Express Lanes, creating what appears to be a bidding war.

Yellow came very close to filing for bankruptcy in 2009, but as that year ended, the company devised an out-of-court restructuring instead, giving equity to its bondholders and in essence wiping out its earlier shareholders, according to an account in the trade publication FreightWaves.

The restructuring gave Yellow some breathing room, but the firm remained under great pressure from rising fuel costs and other operating expenses, and its relationship with the Teamsters badly deteriorated. In 2014, it entered into an ABL credit agreement with BNY Mellon as administrative agent.

In 2019, Yellow entered into a deal with Apollo that included a $600 million term loan agreement called the B-2 term loan. The terms of this loan put Apollo at the top of the debt totem pole, secured by a first-priority interest in the company’s terminals, tractors and trailers.

On 2 April 2020, given the pandemic and related difficulties, Yellow entered into an amendment to the B-2 loan that allowed the company to defer quarterly interest payments for the first and second quarters of the year, with almost all the interest paid in kind.

Yellow medicine

The CARES deal, in June 2020, provided for two tranches: a $300 million tranche to meet Yellow’s near-term debt obligations, and a second of $400 million. Both tranches entailed an interest rate of LIBOR plus 3.5 percent. Both have a maturity date of 30 September 2024. The first tranche also allowed for payment in kind.

The Treasury explained the loan on national-security grounds. It “provides 68 percent of less-than-truckload services to the Defense Department”. That claim has since come under fire.

What is also controversial is the degree to which the first tranche, as a congressional oversight committee has detailed, is secured by a third lien, junior both to the ABL revolver and to the secured loan. The ABL revolver matures in January 2024, the term loan in June of that year and the Treasury’s loan that September.

Aside from the US and Apollo, Yellow’s creditors include the Teamsters and pension and health-and-welfare plans affiliated with the Teamsters.

Central States, an insurance/pension plan for members of the Teamsters who live in the central part of the US, will likely play an important role going forward.

Formally, there are two distinct creditors: Central States Health & Welfare Fund and Central States Pension Fund. The pension fund recently emerged from a crisis of its own. It was not fully funded and, indeed, insolvency loomed until it received rescue funds in January from the Pension Benefit Guaranty Corporation.

As a consequence, the PBGC has filed as a party to the Yellow bankruptcy.