Yellow Corp.’s recent Chapter 11 filing has brought attention to the $700 million federal loan that the company received during the Covid-19 pandemic.
Union Blames Yellow for Misusing Bailout Funds
Following the announcement of Yellow’s bankruptcy filing on Sunday, the Nashville, Tenn.-based trucking company has attributed its financial troubles to the actions of the Teamsters union. In response, the union posted a statement on its website accusing Yellow of squandering the $700 million bailout.
Government Stake in YRC Worldwide
As part of the bailout agreement, the U.S. Department of Treasury now holds nearly 30% stake in YRC Worldwide, previously known as Yellow. This makes the government the company’s second-largest shareholder.
Yellow’s Commitment to Repay Loan
Yellow has stated its commitment to fully repay the loan, which was granted in July 2020. Despite the challenges they face, Yellow’s CEO Darren Hawkins expressed gratitude towards the dedicated employees who worked tirelessly to fulfil their duties and bring closure to the company. Hawkins emphasized that Yellow intends to wind down its business in a professional manner, aiming to maximize recoveries for creditors and honor its obligation to repay the CARES Act loan.
The Treasury’s Perspective on YRC Worldwide
According to the Treasury’s summary of the loan transaction, YRC Worldwide is recognized as a prominent provider of Department of Defense supply transportation and various delivery services for the U.S. Government.
Scrutiny over the Bailout
The $700 million loan has faced scrutiny, with concerns raised by the Congressional Oversight Commission in a special report released in June. The report criticizes the Treasury and Defense Department for their evaluation of Yellow’s significance in maintaining national security and their execution of the loan to Yellow Corp.
Republican Rep Criticizes Yellow’s $700 Million Bailout
Republican Rep. French Hill of Arkansas has criticized Yellow for receiving a $700 million bailout from the Treasury department. In Hill’s view, Yellow had preexisting financial difficulties and did not play a crucial role in national security since it was not the sole provider of such services.
The bailout was divided into two tranches. Tranche A, worth $300 million, was allocated to fulfill YRC’s immediate contractual obligations and non-vehicle capital expenditures. Tranche B provided $400 million for capital investments, subject to Treasury’s approval. Both tranches will mature on September 30, 2024.
Tranche A carries an interest rate equal to Libor plus 3.5%, with a payment structure consisting of 1.5% in cash and 2.0% in kind. Tranche B has a cash interest rate equal to Libor plus 3.5%.
As part of the taxpayer compensation, the Treasury received shares amounting to 29.6% of YRC’s common stock on a fully diluted basis, which are held in a voting trust. The U.S. Treasury is now Yellow’s second-largest shareholder with its stake of 15.94 million shares.
Yellow’s stock experienced a decline of 25.8% during Monday’s afternoon trading session. It currently sits 7.7% lower than its closing price of $2.87 on July 7, 2020, when the loan agreement with the U.S. Treasury was established.
According to a report by the Office of the Special Inspector General for Pandemic Recovery in May, as of March 15, 2023, Yellow still had an outstanding loan balance of $729.2 million. The report also highlighted that Yellow had made $54.8 million in interest payments and repaid $230 in principal, with the principal payment made on June 13, 2021.