Bankruptcy following a $700 million bailout

A beleaguered transport company that received a $700 million pandemic-era loan The federal government could be forced to file for bankruptcy protection this summer amid a union dispute, a development that could leave U.S. taxpayers stuck with a bankrupt company.

The financial woes at the Yellow company, formerly known as YRC Worldwide, have been going on for years. The company lost more than $100 million in 2019 and has more than $1.5 billion in outstanding debt, including the government loan. In 2022, YRC, which ships meal kits, protective equipment and other supplies to military bases, agreed pay $6.85 million to arrange one federal lawsuit who accused it of defrauding the Defense Department.

In 2020, the Trump administration, which had ties to the company and its executives, agreed to provide the company with a pandemic loan in exchange for the federal government acquiring a 30 percent equity interest in the company.

Three years later, Yellow is on the brink of bankruptcy.

Since receiving the loan, the company has changed its name, restructured its operations and seen its share price fall. At the end of March, Yellow’s outstanding debt was $1.5 billion, including about $730 million owed to the federal government. Yellow paid about $66 million in interest on the loan, but it just paid back $230 of principal due on the loanwhich comes next year.

On Tuesday, Yellow sued the International Brotherhood of Teamsters for blocking the company’s restructuring plan, accusing the union of causing more than $137 million in damages. The company said it was taking “immediate steps to try and save itself” and that the union was trying to “cause Yellow’s economic ruin”.

The company’s financial situation is the latest example of how some of the trillions of dollars rapidly pumped out during the pandemic have been misspent, mismanaged or fraudulently obtained. Federal watchdogs and government agencies have sounded the alarm about signs of fraud and loan defaults.

The Office of the Special Inspector General for Pandemic Recovery, an independent agency within the Treasury Department that scrutinizes some of the aid money, warned last month that it was seeing an “alarming number of defaults by borrowers who fail to pay even the interest payments.” . on the loans.” The firm warned that pandemic loan defaults could increase over the next two years as payments become due.

On Tuesday, the inspector general of the U.S. Small Business Administration, which has disbursed about $1.2 trillion in pandemic loans, said in a report that more than $200 billion, or 17 percent, of the money was paid out to “potentially fraudulent actors.”

Yellow’s loan enabled the company to stay afloat and embark on a restructuring plan. But economic headwinds and a battle with the Teamsters union over the terms of a new contract have left Yellow in a precarious financial position.

In May, the company reported a first quarter loss of $54.6 million And Moody’s downgraded its credit rating out of concern about the dispute with the union. Yellow’s share price is down more than 70 percent in the past year to $0.99 per share.

The company has warned union officials that the standoff threatens Yellow’s fate. Union officials claim the company is poorly managed and the concessions it is seeking are unfair.

“Yellow has been unable to manage itself effectively for a long time – now the company is saying it will run out of money in August,” said Sean O’Brien, general president of the International Brotherhood of Teamsters, in a video message broadcast on Facebook to yellow union members this month. “These executives have no idea what they’re doing. They’ve driven this company into the ground.”

In a statement on Tuesday, Mr. O’Brien said the allegations in Yellow’s lawsuit were “baseless and baseless” and said the company’s management was abandoning its workforce because it was unable to meet the terms of their contract.

The union’s current contract expires next year. The main points of contention center around whether hundreds of yellow truck drivers should start loading and unloading cargo at docks and a proposal that would give the company more power over where truck drivers should work. Yellow needs the union to agree to the next phase of its restructuring plan so it can seek additional financing and repay its debts.

The company said it still intended to repay the loan it received from the government and was negotiating in good faith, trying to save the jobs of its 30,000 employees.

“Yellow is in discussions with all stakeholders in Washington and remains committed to negotiating a contract with the IBT that works for employees, customers and shareholders,” Yellow CEO Darren Hawkins said, referring to the union. “Protecting 30,000 jobs is Yellow’s top priority.

In the lawsuit, Yellow said it enlisted the help of the Biden administration in striking a deal to save the company, but the White House’s efforts were rejected by the union. The lawsuit says Yellow contacted Sen. Bernie Sanders of Vermont for help, alleging that Mr. Sanders’ office said it was not interested in help because Yellow had received the loan from the Trump administration.

A White House spokesman was not immediately available for comment, and Mr. Sanders’ office did not respond to a request for comment. A Treasury Department spokeswoman said the agency continued to monitor loans made through pandemic recovery programs during the previous administration.

The Treasury Department also owns nearly 30 percent of Yellow’s common stock, and the loan is backed by the company’s assets. If Yellow goes bankrupt and has to liquidate, the US government would take over much of the company’s truck fleet and real estate.

Yellow’s loan, granted as part of the $2.2 trillion pandemic support legislation that Congress passed in 2020, had raised questions of favoritism from the start.

A report last year prepared by Democratic aides of the House Select Subcommittee on the Coronavirus Crisis found that the money had been distributed despite the objections of career officials at the Department of Defense and suggested that senior Trump administration officials had intervened to ensure that Yellow received special treatment despite concerns about entitlement to relief funds. In addition to deep ties to the Trump administration, the company, which had struggled with legal and financial problems for years, also had a strong lobby in Washington.

While it’s debatable whether Yellow is critical to national security, it is one of the largest freight carriers in the United States and its demise would impact the country’s supply chain.

UPS and ABF Freight have also been there engaged in negotiations with the Teamsters over their contracts, adding to industry-wide uncertainty.

Chris SpeerCEO of the American Trucking Associations, urged the union and Yellow to work with a federal mediator on a new contract to ensure the company does not go bankrupt.

“It’s going to have a serious impact on the economy and the supply chain,” said Mr. spear. “Capacity is already tight.”

Bruce Chan, a transportation analyst at the investment bank Stifel, said Yellow’s shuttering would lead to significant increases in shipping costs in the United States and force companies to seek other carriers for their “homeless” cargo. He noted that vulnerable transport companies struggled under the pressure of changing consumer demand, which has shifted towards services and away from goods.

While Yellow has historically found ways to survive financial hardship, Mr. Chan the current union dispute with “squeezing blood from a stone.”

“It looks pretty tough for them,” he said.