February 22, 2024

Bidder wants to save bankrupt freight company Yellow

When Yellow abruptly shut down operations over the summer and filed for bankruptcy protection, few thought a buyer would emerge to try to revive the long-troubled trucking giant.

But a prominent trucking executive has drawn up a last-minute plan to buy Yellow out of bankruptcy — a proposal that aims not only to rehire many of the company’s employees, but also to work with their union, the International Brotherhood of Teamsters, to create a healthy business. .

However, the plan relies on the Treasury Department authorizing Yellow to delay repayment of a $700 million rescue loan it provided to the company in 2020. But the Treasury Department may not accept the plan because there are legal hurdles to extending the loan. And it will likely be repaid sooner under the plan Yellow has already filed in Delaware bankruptcy court, which would involve selling the company’s terminals and other assets to raise hundreds of millions of dollars in cash. Some trucking analysts say it will be difficult to revive Yellow because many of its customers will have moved on to other trucking companies that are much better run than the old Yellow.

But Sarah Riggs Amico, the truck manager who led the deal, said her plan alone could bring back thousands of jobs, adding that she had the experience to build a leaner company and put together a management team working with the Teamsters that can win back customers.

“Restructuring Yellow offers the opportunity to bring back tens of thousands of fair-wage truck driving jobs while strengthening America’s supply chain,” said Ms. Riggs Amico, the executive chairman of Jack Cooper, a private auto shipping company. “Who wouldn’t think that’s a worthy effort?”

Under the proposal, Ms. Riggs Amico’s group would extend the government loan so that it would be repaid in 2026 instead of next year, according to a person familiar with the offer. The group would also borrow $1.1 billion to pay off other secured creditors and bankruptcy lenders, and provide the new company with cash to operate. And it would issue $1.5 billion in preferred stock to unsecured creditors — the largest of which is the Central States Pension Fund — that don’t get all their claims paid in bankruptcy. The Central States Fund would get about $500 million in preferred stock under the plan, far less than the $4.8 billion Yellow owes it.

Ms. Riggs Amico’s bid will go before bankruptcy court on Tuesday, when an auction will take place to sell Yellow’s assets.

Ms. Riggs Amico and other female executives would own 51 percent of the new company, which would be separate from Jack Cooper. The new Yellow plans to hire about 15,000 people, according to the person familiar with the plan, up from 30,000 earlier this year.

“The Teamsters have a framework agreement to lay the foundation for good union jobs, fair wages and strong benefits once a new company is in place,” Kara Deniz, a Teamsters spokeswoman, said in a statement.

Government labor market data shows that about 10,000 yellow workers have found jobs elsewhere, said Avery Vise, vice president of trucking at FTR, a forecasting firm that focuses on the freight sector.

This implies that around 20,000 Geel employees are still looking for work. “I have a lot of friends who still don’t have jobs,” said Mark Roper, a former Yellow driver from McDonough, Georgia, who found a job with another trucking company. “I have a lot of friends who are about to lose their homes.”

While restoring lost trucking jobs and reviving a unionized business may seem attractive goals for the labor-friendly Biden administration, the Treasury Department may not believe it has the legal authority to make the loan extend – this is provided under the CARES Act, passed to provide relief. early in the pandemic – and it may struggle to further support a business that has been struggling for years.

“There is no clear authority for the Treasury Department to compromise the claim in a way that does not maximize revenue for the U.S. government,” said Adam Levitin, a law professor at Georgetown University who specializes in bankruptcy.

In a statement, a Treasury spokesperson said: “The Treasury Department is one of many creditors participating in the bankruptcy process. We will continue to work to ensure that taxpayers, affected workers and their families are treated fairly.”

Thomas Nyhan, executive director of the Central States Pension Fund, said Sunday that the fund was trying to determine the financial benefit of each plan as the terms of the bailout offer changed. And he said there may be a legal hurdle: The Employee Retirement Income Security Act generally prevents a pension fund from owning securities issued by companies that contribute to the fund — the preferred stock under the Yellow Rescue Plan — although there may be exceptions. “This is a very complicated problem,” Mr Nyhan said. “We have not yet reached a conclusion, especially as the deal continues to develop.”

Members of Congress from both parties have written to the Treasury Department urging the department to extend the loan, including Senators Josh Hawley, Republican of Missouri, and Elizabeth Warren, Democrat of Massachusetts. Mr. Hawley wrote this month that assisting in the sale of Yellow to an acquirer was “a common sense move to keep Yellow’s trucks on the road and its workforce paid.”

The Treasury loan came from a pot of money to help companies critical to national security. It received a lot of attention because of Yellow’s ties to the Trump administration, and because the Justice Department sued the company, accusing it of overcharging the Department of Defense for freight services. Yellow agreed last year to pay a $7 million fine to resolve the case.

Yellow was a major player – another is Old Dominion – in the less-than-truckload industry, in which a truck carries goods for more than one customer. Companies in the industry often have a network of terminals and warehouses to store goods between shipments and typically travel shorter distances than trucking companies, whose vehicles transport goods for a single customer over longer distances.

Analysts say Yellow underperformed because it failed to effectively integrate major acquisitions and because it had higher costs, which some attribute in part to the unionization of its workforce.

Ms. Riggs Amico, a Democratic primary candidate in Georgia for the U.S. Senate in 2020, has experience restructuring Teamster truck companies. She oversaw Jack Cooper’s acquisition of two motor carrier companies with Teamster workers, and her plan for Yellow calls for hiring executives who specialize in the less-than-truckload industry. (Jack Cooper, whose employees belong to the Teamsters, filed for bankruptcy himself in 2019.)

Some of Yellow’s rivals are interested in taking over the terminals under the current Delaware bankruptcy court plan. Estes Express has issued a stalking horse bid — one intended to set a floor price for assets — of $1.53 billion for Yellow’s shipping centers. That amount would provide enough cash to pay off the Treasury, as well as a secured loan of about $500 million now held by Citadel, a Wall Street firm. Ms. Riggs Amico’s plan would pay off Citadel but ask the Treasury Department to extend the loan. Some experts say this would mean taxpayers would take a backseat to Wall Street.

“It helps private parties make money investing in distressed debt, and there’s no real reason for the Treasury Department to do that,” said Mr. Levitin, the Georgetown professor.

Citadel declined to comment.

In Congress, those open to Ms. Riggs Amico’s offer acknowledge that other creditors would jump ahead of the Treasury, but view the compromise as a necessary evil to save jobs.

But it is not clear whether there is much room left for a resurrected Yellow. Trucking experts say the market is gradually coming to terms with the loss of the business, which once accounted for about 12 percent of the industry’s less-than-truckload drivers. Mr Vise, the trucking analyst, said Yellow’s departure had pushed truck rates higher as customers looked for other carriers. But he expects the sector to heal quickly.

“Yellow’s closure has not significantly disrupted the less-than-truckload market,” he said.

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