Yellow Gains Financial Targets Waiver
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Yellow Corp. will not have to meet certain financial targets under a deal with its lenders, winning valuable breathing space as the less-than-truckload carrier battles the Teamsters union and the threat of bankruptcy.
The company’s share price rose 5.83% July 10 to close at 91 cents as details emerged of the agreement. Yellow’s stock price started 2023 at $2.53 per share.
In return for the concessions, Yellow promised to abide by a series of stipulations and report to a third-party “operational adviser,” the company said in a filing with the U.S. Securities and Exchange Commission July 10.
Under the deal, Yellow’s debtors will allow the Overland Park, Kan.-based company a waiver of the minimum consolidated earnings before interest, taxation, depreciation and amortization targets. The waiver is for the three months ending June 30 with the Department of the Treasury and for six months through Sept. 30 with its term loan lenders.
This waiver, along with liquidity preservation efforts, such as a request to defer select health welfare and pension payments for July and August, should give Yellow additional runway to negotiate with the Teamsters, a company spokeswoman said in an email July 10.
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The price for the waivers is a weekly report on Yellow’s “liquidity,” which cannot fall below $35 million; weekly reports on the consolidated operating budget and a budget variance report; monthly reports on key performance indicators; an exit fee; oversight from the adviser, including taking budgetary advice; and lenders appointing a representative to the Yellow board and its committees.
Yellow’s cash reserves topped $100 million as of June 30, it said.
The bottom line is that the number of conditions shows the precarious position of Yellow, Deutsche Bank Transportation and Shipping Managing Director Amit Mehrotra said in a research note.
Lenders are clearly taking a much more active approach on the day-to-day operations than ever before, said Mehrotra, adding that this was more noteworthy than the limited waivers, given the potential for additional business to exit the company as customers divert volumes.
As part of efforts to pay off more than $1.3 billion in loans and right its balance sheet, Yellow also said it had sold a terminal in Compton, Calif., for $80 million.
The spokeswoman said that as part of its “One Yellow” reorganization, Yellow identified a number of redundant terminals. In the Los Angeles area, Yellow had six facilities, including Compton, she said. Yellow began switching freight handled in Compton to a facility 5 miles away in 2022.
One Yellow is essential to the company’s survival, it argues, saying that failure to implement the plan would lead to 30,000 job losses, including 22,000 unionized positions. Yellow also argues the changes would see the company institute standard industry practices.
As a result, Yellow filed suit June 27 against the Teamsters and certain affiliates in a Kansas court, alleging breach of contract, and accusing the union of causing more than $137 million in damages.
The U.S. District Court for the District of Kansas suit alleges breach of a binding contract, arguing the union caused the damages by “unjustifiably blocking” One Yellow for more than eight months. Yellow argues One Yellow “is necessary to compete against nonunion carriers that dominate the LTL business today.” The union did not respond to a request for comment on the waiver.
Yellow currently has a 9% market share of the $58 billion LTL market, according to Bank of America Securities Research Analyst Ken Hoexter.
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