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Inside the Meltdown of an American Trucking Giant
What led to Yellow's collapse? And what comes next?
Trucking giant Yellow, which shipped freight for major retailers like Walmart and Home Depot, has declared bankruptcy and will shut down. Virtually all of its 30,000 workers, most of whom are unionized Teamsters, have been permanently laid off.
Yellow’s CEO blames the union for "literally driving our company out of business." But few agree with him. Independent analysts and Yellow’s own former executives say the company was catastrophically mismanaged.
So what really happened? And what will the fallout be? Our business reporter Eric Gardner breaks it down.
As Yellow Trucking Goes Bankrupt, Government Loan and Worker Benefits Hang in the Balance
By Eric Gardner, Business Reporter, More Perfect Union
Yellow, one of the largest small-freight truckers in the U.S., filed for bankruptcy on Monday, putting the repayment of a $700 million government loan and the earned retirement benefits of 22,000 union members in question.
The company has struggled with debt since the mid-2000s, even after it received a controversial COVID-era bailout from the U.S. government. Despite the infusion of cash, Yellow management missed a required $50 million pension contribution in July. This led to a strike threat from the Teamsters, whose leadership said its members had already agreed to $1.4 billion in pension reductions since 2009.
Fearing a strike, Yellow’s customers, such as Walmart and Home Depot, brought their business elsewhere, ultimately dooming the company. "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," Teamsters General President Sean O'Brien said.
This week the company formally filed for Chapter 11 bankruptcy, setting in motion the plan to sell off the company’s trucks and terminals with the money going to pay back creditors. Virtually all of Yellow’s 30,000 workers have been permanently laid off.
Chapter 11 is a process where assets are sold and the proceeds are paid to creditors based on priority. Under the current rules, Apollo Global Management, a private equity firm that previously loaned the company over $500 million, will be paid before the 22,000 Teamsters who are owed severance and retirement benefits. Existing pension contributions are safe, but if the bankruptcy sale doesn’t generate enough money, the workers may be out of luck for additional contributions they’re owed.
Apollo loaned Yellow an additional $142.5 million to facilitate the bankruptcy process on a fast timeline. While there is no guarantee, the loan is structured to incentivize paying back the government’s $700 million loan in full. Late Wednesday, Yellow management announced it was looking to potentially explore other ways to pay for the bankruptcy. One of the reasons cited was Apollo’s aggressive timeline for the asset sales, which could result in the company selling off rigs and facilities at firesale prices.
In the bankruptcy filing, Yellow management attempted to shift blame on the Teamsters, arguing that the union’s refusal to negotiate ultimately doomed the company. The reasoning has found little support outside of a lone Wall Street Journal editorial. “The failure of the company cannot be put at the feet of the Teamsters,” an investment analyst told industry publication Freight Waves.
The culprit behind Yellow’s failure wasn’t labor costs but mismanagement. “We were just taking on too much debt and overpaid,” a former CEO of the company said after the bankruptcy announcement.
In the early 2000s, management became addicted to acquiring companies. They spent $1.1 billion on Roadway and two years later bought freight company USF for $1.5 billion. “The deal's price and the new company's structure,” the New York Times wrote after the Roadway acquisition, “had analysts scratching their heads.”
The deals hamstrung the company for two decades, leading to more years with losses than profitable ones.
The year Yellow acquired Roadway, the company owed about $124 million. In 2009, just six years later, Yellow’s debt increased nine times that, to $1.1 billion. Then the Great Recession came and evaporated 40% of the company’s revenues almost overnight, but the debt was still there.
Yellow survived, the Wall Street Journal wrote, “but only after the last-minute intervention of the Teamsters union.” They agreed to cuts in compensation, pensions and led a public pressure campaign for lenders to restructure the company’s debt. The Teamsters say they agreed to compensation cuts that amounted to over $3.8 billion.
Management continued to tread water until 2020, when the COVID pandemic pushed the company to bankruptcy, only to be rescued again. This time, it was a $700 million COVID-era loan from the Trump administration in exchange for 30% of the company. Four hundred million dollars of the loan was spent on new equipment, equipment that is now being sold off.
A Senate watchdog later reported that the loan should not have been made.
Yellow now faces a barrage of questions about how the bankruptcy will play out. Congress wants to know if the company will repay the government loan. Observers are wondering if this is just a ploy to get rid of the union.
The confusion can be partially attributed to Yellow’s primary lender, Apollo Global Management, which is currently managing the terms of the bankruptcy (although that could change). Founded by Leon Black, Apollo has a notorious reputation for, well, ripping people off (allegedly).
In the late 1980s, Black put together a series of junk bonds that brought down Executive Life, then the largest life insurance company in California. Junk bonds are issued by struggling companies (hence the name) and, because of their risk, pay out higher rates to entice investors.
Insurance companies historically avoided the investments until a group of financiers figured out how to package and sell the bonds “safely.” People could get big returns with the safety of a AAA company.
It turns out the “safe” part was actually all fraud and insider trading. Junk bonds blew up, and Executive Life was one of the biggest casualties.
“Black’s takeover of Executive Life’s assets,” Gretchen Morgenson and Joshua Rosner wrote in These Are the Plunderers, a book released earlier this year on the history of private equity, “is a Rosetta stone for how a small group of aggressive moneymen have extracted the wealth and treasure of the American middle class, working poor and retirees since the late 1980s.”
After the bonds blew up, Executive Life was at risk of not having enough money to pay out policies, so it was forced to dissolve its investment portfolio. However, it still had some valuable assets hidden among the wreckage. And since Black sold the junk bonds to begin with, he knew where to look. An artificial deadline was put on the sale, forcing a quick decision. Through a series of shell companies and secret transactions, he purchased the assets for pennies on the dollar, netting him and his partners billions.
In 2001, an auditing firm found the transactions cost policyholders, people who had paid for and were entitled to things like monthly disability payments, $3.9 billion.
Bankruptcy law features a number of provisions that protect unions throughout Chapter 11, including the fact that potential buyers must typically honor any existing collective bargaining agreements (CBA).
But there’s a chance that buyers could place bids on assets with the stipulation that Yellow reject the Teamsters’ CBA, potentially allowing the buyer to wiggle its way out of the union contract.
There’s precedent for this. After Hostess Brands declared Chapter 11 bankruptcy in 2013, a group of investors purchased the heavily unionized baked goods manufacturer for $410 million.
Once everything was said and done, the company reopened — without the union.
The lead investor? Apollo.