Bankruptcy looms as Yellow burns money and tries to dump the 3PL

Struggling Yellow is slipping near the end of the road, with indications that bankruptcy could come as early as Monday.

Yellow is the third largest less-than-truckload (LTL) carrier in the United States, with 30,000 employees and last year’s operating revenue of $5.24 billion.

According to a report in charging wavesShe, Yellow’s executive vice president of sales, said on a video call Wednesday that her staff management will proceed with the bankruptcy filing on Monday.

However, the publication reported that this was retracted later that day in a statement that read: “In keeping with the company’s executives’ fiduciary responsibility, the company continues to prepare for a range of contingencies.”

Yellow said it has been exploring opportunities to sell its successful 3PL, Yellow Logistics, and is “actively” involved in negotiations with several interested parties.

Meanwhile, there have been other reports of employees at Yellow who said the company was “coming to the end of the road” and winding down operations.

Management also said on Wednesday that negotiations with the Teamsters union were continuing. The union threatened to strike after it was revealed that Yellow had failed to make contributions to pensions, welfare and health insurance for its employees in June and July.

This prompted Central States, the insurer, to issue a notice of delinquency and threaten to terminate the company’s participation in the pension plan.

The union called off the strike on Sunday, announcing that the insurer had agreed to continue providing Medicare benefits, and was giving the company 30 days to pay it back.

Lenders gave the troubled carrier a lifeline this month, when they agreed to waive several loan requirements in return for increased financial oversight. Yellow, which has struggled for years to pull together a collection of disjointed acquisitions into a cohesive unit, has $1.3 billion in debt, while revenue and financial reserves have dwindled.

The constant quarrel between management and the trade union over plans for restructuring, which led to the threat of a strike, accelerated the exodus of clients. According to a report by TD Cowen, from a slow start in early June, this was compounded exponentially after news of Yellow not paying employee benefits.

The rapid shrinkage of the revenue stream is rapidly eroding the company’s cash reserves. Under the agreement with the lenders in early June, Yellow is committed to preventing liquidity from slipping below $30 million. According to the company’s latest 8-K filing with the Securities and Exchange Commission, liquidity topped $100 million last month, but financial services firm Stevens estimates that the truck driver burned $4 million in cash each week in the second quarter, and that that has now ballooned to between $9 million and $10 million per day, based on a 70% drop in revenue.

Financial analysts see little or no hope for the carrier. Many customers have warned of its inevitable demise. According to Stifel, the only way for Yellow to get out of his predicament without going bankrupt is with a massive injection of capital.

Satish Jindel, President of SJ Consulting, does not share the doomsday scenario, although he admits that the situation is dire. He said, “There could be a white knight stepping in at the last minute.”

He suggested that TFI International, the parent company of TForce Freight, would be the most suitable candidate, adding: “They know LTL, work with Teamsters and (TFI President and CEO) Alain Bedard is a master at taking on a troubled company and making it right.”

At the current share price of 57 cents, the right student could buy the company for $30 million, strike a deal with the union and revive the carrier to a billion-dollar revenue-generating size, he believes.

But he notes that the rescue must come quickly, as Yellow is likely to run out of money, given the loss of business. “If their shipment is half the size of what it was, this could happen next week,” Mr. Gendel said.

His advice to shippers is to shift traffic with transit times of 3-5 days to other carriers. There must be clients who are willing to take short-term risks (with a one-day transit) for the sake of competitive pricing.

“The appeal of Yellow is that it’s much cheaper. That’s why people use it. Not for the service or the brand,” Mr. Gendel added.

What will happen if Yellow sinks into bankruptcy in the next few days? In light of its financial condition, this would likely spell the end for the company. Its trucks and stations will be snapped up by competitors – little by little.

“Nobody’s going to buy it all,” commented Mr. Gendel.