Three years after receiving a $700 million pandemic-era lifeline from the federal government, the struggling freight trucking company Yellow is filing for bankruptcy.
After monthslong negotiations between Yellow’s management and the Teamsters union broke down, the company shut its operations late last month, and said on Sunday that it was seeking bankruptcy protection so it could wind down its business in an “orderly” way.
“It is with profound disappointment that Yellow announces that it is closing after nearly 100 years in business,” the company’s chief executive, Darren Hawkins, said in a statement. Yellow filed a so-called Chapter 11 petition in U.S. Bankruptcy Court in Delaware.
The downfall of the 99-year-old company will lead to the loss of about 30,000 jobs and could have ripple effects across the nation’s supply chains. It also underscores the risks associated with government bailouts that are awarded during moments of economic panic.
Yellow, which formerly went by the name YRC Worldwide, received the $700 million loan during the summer of 2020 as the pandemic was paralyzing the U.S. economy. The loan was awarded as part of the $2.2 trillion pandemic-relief legislation that Congress passed that year, and Yellow received it on the grounds that its business was critical to national security because it shipped supplies to military bases. Government watchdogs have scrutinized the loan because of the company’s financial turmoil and close ties to the Trump administration, which awarded the loan.
Since then, Yellow changed its name and embarked on a restructuring plan to help revive its flagging business by consolidating its regional networks of trucking services under one brand. As of the end of March, Yellow’s outstanding debt was $1.5 billion, including about $730 million that it owed to the federal government. Yellow has paid approximately $66 million in interest on the loan, but it has repaid just $230 of the principal owed on the loan, which comes due next year.
The fate of the loan is not yet clear. The federal government assumed a 30% equity stake in Yellow in exchange for the loan. It could end up assuming or trying to sell off much of the company’s fleet of trucks and terminals. Yellow aims to sell “all or substantially all” of its assets, according to court documents. Mr. Hawkins said the company intended to pay back the government loan “in full.”
The White House declined to comment.
Yellow estimated that it has more than 100,000 creditors and more than $1 billion in liabilities, per court documents. Some of its largest unsecured creditors include Amazon, with a claim of more than $2 million, and Home Depot, which is owed nearly $1.7 million.
Yellow is the third-largest small-freight trucking company in a part of the industry known as “less than truckload” shipping. The industry has been under pressure over the last year from rising interest rates and higher fuel costs, while customers have been reluctant to accept higher prices.
Those forces collided with an ugly labor fight this year between Yellow and the Teamsters union over wages and other benefits. Those talks collapsed last month and union officials soon after warned workers that the company was shutting down.
After its bankruptcy filing, company officials placed much of the blame on the union, saying its members caused “irreparable harm” by halting its restructuring plan. Yellow employed about 23,000 union employees.
“We faced nine months of union intransigence, bullying and deliberately destructive tactics,” Mr. Hawkins said. The Teamsters union “was able to halt our business plan, literally driving our company out of business, despite every effort to work with them,” he added.
In late June, the company filed a lawsuit against the union, asserting it had caused more than $137 million in damages by blocking the restructuring plan.
The Teamsters union said that Yellow’s executives unjustly blamed the union for the demise of the company, which had been “plagued with financial trouble for nearly two decades,” officials said in a statement.
“Teamster families sacrificed billions of dollars in wages, benefits and retirement security to rescue Yellow,” said Sean O’Brien, the union’s general president. “The company blew through a $700 million government bailout.” Calling Yellow’s top executives “dysfunctional” and “greedy,” he blamed them for failing to “take responsibility for squandering all that cash.”
The bankruptcy could create temporary disruptions for companies that relied on Yellow and might prompt more consolidation in the industry. It could also lead to temporarily higher prices as businesses find new carriers for their freight.
“Those inflationary prices will certainly hurt the shippers and hurt the consumer to a certain extent,” said Tom Nightingale, chief executive of AFS Logistics, who suggested that prices would probably normalize within a few months.
In late July, Yellow began permanently laying off workers and ceased most of its operations in the United States and Canada, according to court documents. Yellow has retained a “core group” of about 1,650 employees to maintain limited operations and provide administrative work as it winds down. Yellow said it expected to pay about $3.4 million per week in employee wages to operate during bankruptcy, which “may decrease over time.” None of the remaining employees are union members, the company said.
The company also sought the authority to pay an estimated $22 million in compensation and benefit costs for current and former employees, including roughly $8.7 million in unpaid wages as of the date of filing.
Yellow had readily accessible funds of about $39 million when it filed for bankruptcy, which it said would be insufficient to cover its wind-down efforts, and it expected to receive special financing to help support the sale process and payment of wages.
Jack Atkins, a transportation analyst at the financial services firm Stephens, said that Yellow’s troubles had been mounting for years. In the wake of the financial crisis, Yellow engaged in a spree of acquisitions that it failed to successfully integrate, Mr. Atkins said. The demands of repaying that debt made it difficult for Yellow to reinvest in the company, allowing rivals to become more profitable.
“Yellow was struggling to keep its head above water and survive,” Mr. Atkins said. “It was harder and harder to be profitable enough to support the wage increases they needed.”
David P. Leibowitz, a Chicago bankruptcy lawyer who represents several trucking companies, said Yellow had found itself in a “perfect storm, and they have not managed that perfect storm very well.”
The company’s financial problems fueled concerns. It lost more than $100 million in 2019 and was being sued by the Justice Department over claims that it defrauded the federal government during a seven-year period. Last year it agreed to pay $6.85 million to settle the lawsuit.
Congressional oversight committees have scrutinized the company’s relationships with the Trump administration. President Donald J. Trump tapped Mr. Hawkins to serve on a coronavirus economic task force, and Yellow had financial backing from Apollo Global Management, a private equity firm with close ties to Trump administration officials.
Democrats on the House Select Subcommittee on the Coronavirus Crisis wrote in a report last year that top Trump administration officials had awarded Yellow the money over the objections of career officials at the Defense Department. The report noted that Yellow had been in close touch with Trump administration officials throughout the loan process and had discussed how the company employed Teamsters as its drivers.
In December 2020, Steven T. Mnuchin, then the Treasury secretary, defended the loan, arguing that had the company been shuttered, thousands of jobs would have been at risk and the military’s supply chain could have been disrupted. He predicted that the federal government would eventually turn a profit from the deal.
“Yellow had longstanding financial problems before the pandemic, was not essential to national security and thus should never have received a $700 million taxpayer bailout from the Treasury Department,” Representative French Hill, Republican of Arkansas and a member of the Congressional Oversight Commission, said in a statement. “Years of poor financial management at Yellow has resulted in hard-working people losing their jobs.”
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After the Republican Supreme Court struck down the student debt relief program last month the Biden administration promised to look for other ways to roll back exorbitant student debt.
Today's fix is a first step which is more like an accounting adjustment than anything. It's a bit complicated though it is for real.
The Biden administration announced on Friday that it would cancel $39 billion of student debt owed by more than 804,000 borrowers whose debts have been outstanding for more than 20 years.
The Education Department said it was implementing its plan, announced in April 2022, to compensate borrowers for what it called “historical inaccuracies” and other failures in how the agency and its contracted loan servicers have managed the income-driven repayment programs.
The program is separate from President Joe Biden’s sweeping student debt relief program that the Supreme Court struck down last month. But the announcement comes as the Biden administration looks to highlight its alternative pathways for delivering student debt relief in the face of that legal defeat.
“We will not stop there,” Vice President Kamala Harris said in a statement, praising the announcement as a “historic step” to alleviate student debt burdens.
Tangible debt relief will start to be felt in 60 days and will continue through next year for the more than 800,000 people eligible.
Department officials revised borrowers’ accounts to retroactively count months towards forgiveness under the income-driven repayment plans that previously weren’t counted or wouldn’t typically qualify.
Those months of credit pushed the more than 804,000 borrowers to reach the threshold for loan forgiveness of 20 or 25 years, depending on the type of income-driven repayment plan.
The US Department of Education has more information here.
Biden-Harris Administration to Provide 804,000 Borrowers with $39 Billion in Automatic Loan Forgiveness as a Result of Fixes to Income Driven Repayment Plans
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“HAMILTON TRIES TO REDUCE RELIEF,” Brantford Expositor. June 23, 1932. Page 7.
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Suggestions Made at Meeting of Controllers Yesterday
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In view of comparisons that have been made from time to time between the relief systems in Brantford and Hamilton and the government's threat to cut off assistance at Hamilton unless the system were made less costly, efforts in the Ambitious City to alter their arrangements are being followed with interest here. Already controllers from Hamilton have been here to study the Brantford Community League plan and there appears to be a possibility that a similar organization will be set up in the neighboring city.
In response to the request of government officials that expenditures for direct relief were high, the Hamilton Board of Control yesterday instructed Relief Officer John McMenemy to revise the relief lists and reduce allowance, wherever possible, to the level of last summer's rates. The session was marked by a clash between Controller Lawrence and Mayor Peebles.
Controller Lawrence objected to such action being taken, and believed it would only result in general dissatisfaction among relief recipients who would come to him to have their allowance adjusted.
Mayor Peebles then suggested that a committee of three members of the City Council should be appointed to deal with all grievances, and in this way Controller Lawrence would be relieved of the troubles he anticipated. His worship said: "We will ask all complainants to submit their grievances in writing, and we also shall obtain a written report from the relief officer."
"I won't do it," broke in Controller Lawrence. "You are just trying to make me a messenger boy. I would have to sit here and get the complaints and then go to the relief officer and get a statement."
Mayor Peebles: - All right, then, keep your old system. I just thought we might be able to relieve you a little.
Controller Lawrence complained bitterly that he was the most persecuted of men.
The mayor continued: "All right. I withdraw my motion about the committee. I won't discuss the matter further with you."
It was explained that no reductions had yet been made this year in relief allowances, although such action was taken last summer. Controller Bell urged that the city engage competent investigators, and pay them good wages, as their inquiries would save the city thousands of dollars by perhaps discovering the names of many persons who are not deserving of the city relief.
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The Supreme Court on Friday invalidated President Joe Biden’s student loan debt relief plan, meaning the long-delayed proposal intended to implement a campaign trail promise will not go into effect.
The Justices, divided 6-3 on ideological lines, ruled in one of two cases that the program was an unlawful exercise of presidential power because it had not been explicitly approved by Congress.
The court rejected the Biden administration's arguments that the plan was lawful under a 2003 law called the Higher Education Relief Opportunities for Students Act, or HEROES Act. The law says the government can provide relief to recipients of student loans when there is a “national emergency,” allowing it to act to ensure people are not in “a worse position financially” as a result of the emergency.
Chief Justice John Roberts said the HEROES Act language was not specific enough, writing that the Court's precedent "requires that Congress speak clearly before a department secretary can unilaterally alter large sections of the American economy."
The plan, which would have allowed eligible borrowers to cancel up to $20,000 in debt and would have cost more than $400 billion, has been blocked since the 8th U.S. Circuit Court of Appeals issued a temporary hold in October.
About 43 million Americans would have been eligible to participate.
The student loan proposal is important politically to Biden, as tackling student loan debt was a key pledge he made on the campaign trail in 2020 to energize younger voters.
The ruling will immediately put pressure on the Biden administration to find an alternative avenue to forgive student debt that could potentially withstand legal challenge.
Advocates, as well as some Democrats in Congress, say the Education Department has broad power to forgive student loan debt under the 1965 Higher Education Act, a different law to the one at issue in the Supreme Court cases.
Separately, the student loan repayment process is set to begin again at the end of August after having been put on pause during the COVID-19 pandemic, although first payments will not be due until October.
The court considered two cases: one brought by six states, including Missouri, and the other brought by two people who hold student loan debt, Myra Brown and Alexander Taylor. The court ruled that the program was unlawful in the case brought by states but found in the second case that the challengers did not have legal standing.
The three liberal Justices on the conservative-majority bench dissented, with Justice Elena Kagan saying that by ruling against the plan, the Court had "exceeded its proper limited role in our nation's governance."
She said the states bringing the challenge did not have legal standing to even bring the case, and in analyzing HEROES Act, the conservative Justices ignored the clear language of the law.
"The result here is that the Court substitutes itself for Congress and the executive branch in making national policy about student-loan forgiveness," Kagan wrote.
The Court decided the case in part based on a legal argument made by the challengers that the conservative majority has recently embraced called the “major questions doctrine.”
Under the theory, federal agencies cannot initiate sweeping new policies that have significant economic impacts without having express authorization from Congress.
The conservative majority cited the major questions doctrine last year in blocking Biden’s COVID vaccination-or-test requirement for larger businesses and curbing the authority of the Environmental Protection Agency to limit carbon emissions from power plants.
The challengers argued that the administration’s proposal — announced by Biden in August and originally scheduled to take effect last fall — violated the Constitution and federal law, partly because it circumvented Congress, which they said has the sole power to create laws related to student loan forgiveness.
Biden had proposed canceling student loan debt during the 2020 presidential election campaign.
The administration ultimately proposed forgiving up to $10,000 in debt for borrowers earning less than $125,000 a year (or couples who file taxes jointly and earn less than $250,000 annually). Pell Grant recipients, who are the majority of borrowers, would be eligible for $10,000 more in debt relief.
The administration closed the application process after the plan was blocked. Holders of student loan debt currently do not have to make payments as part of COVID relief measures that will remain in effect until after the Supreme Court issues its ruling.
The nonpartisan Congressional Budget Office estimated in September that Biden’s plan would cost $400 billion.
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