APO - Yellow Corporation Files For Chapter 11 But Expects To Repay All Secured Debt

2023-08-07 06:37:00 ET

Summary

• After ceasing operations nationwide at the end of last month, ailing trucking giant Yellow Corporation finally filed for bankruptcy protection on Sunday.
• Court filing lists total assets of $2.15 billion and total debt of $2.59 billion.
• Creditors led by existing lender Apollo Capital Management will provide up to $644 million in DIP financing including $501.5 million in rolled-up prepetition claims.
• The appraised value of the company's assets exceeds the aggregate amount of senior secured debt, but given more than $1 billion in unsecured claims ranking ahead of common equity holders, a recovery for shareholders looks unlikely at this point.
• While YELL stock is likely to remain highly volatile, I would advise investors to exit existing positions and move on, particularly given the risk of a near-term delisting decision by Nasdaq.

Note:

I have covered Yellow Corporation ( YELL ) previously, so investors should view this as an update to my earlier article on the company.

After ceasing operations nationwide at the end of last month, ailing trucking giant Yellow Corporation or "Yellow" finally filed for bankruptcy protection in the United States Bankruptcy Court for the District of Delaware on Sunday.

The filing lists total assets of $2.15 billion and total debt of $2.59 billion:

In the press release , management blames the International Brotherhood of Teamsters ("IBT") for the company's demise:

All workers and employers should take note of our experience with the International Brotherhood of Teamsters (" IBT ") and worry," said Hawkins. "We faced nine months of union intransigence, bullying and deliberately destructive tactics. A company has the right to manage its own operations, but as we have experienced, IBT leadership was able to halt our business plan, literally driving our company out of business, despite every effort to work with them."

Yellow expects to enter into an up to $142.5 million debtor-in-possession ("DIP-") financing agreement with creditors led by existing lender Apollo Capital Management ( APO ) to provide the company " with needed liquidity which will be used to support the businesses throughout the marketing and sale process, including payment of certain prepetition wages ".

According to court dockets , Apollo will roll $501.5 million in prepetition claims into the super-senior DIP facility at an anticipated 17% interest rate (Prime Rate of 8.5% plus applicable margin of 8.5%).

Pursuant to the Interim Order, the DIP Lenders have agreed to provide the Debtors with up to $644 million of postpetition financing under the DIP Credit Agreement, including up to $142.5 million in New Money DIP Term Loans and approximately $501.5 million of DIP Roll-Up Loans.

(...) these funds are necessary to ultimately generate sufficient proceeds from the asset sales to repay the DIP Lenders, provide the maximum possible recovery to the Debtors' other creditors, and to fund the remainder of these chapter 11 cases.

As of the filing date, the company only had $39 million in unrestricted cash left, down from $154.7 million at the end of Q1.

Perhaps most important, the court filings reveal that the company considers the value of its assets being sufficient to repay both Yellow's prepetition secured debt and the DIP facility (emphasis added by author):

As described in the First Day Declaration and the Kaldenberg Declaration, the Debtors have had their extensive portfolio of real estate, equipment, and other assets professionally appraised at an aggregate value that, if and once monetized at such appraised aggregate value, would exceed the aggregate amount of the Debtors' prepetition secured debt and the DIP Facility .

The company intends to initiate bidding procedures to market all of its assets to interested purchasers, including competitors over an approximately three-month process led by investment bank Ducera Partners LLC ("Ducera").

Concurrent with marketing its assets, Yellow will complete an orderly wind-down of its operations, which was commenced prior to the petition date.

Investors should note that a potential full repayment of the company's secured debt doesn't mean that there will be a recovery for common equity holders, particularly when considering more than $1 billion in unsecured claims ranking ahead of shareholders.

In addition, investors should be wary of Nasdaq's likely decision to delist the company's common stock in the near term.

Bottom Line

Yellow Corporation finally filed for bankruptcy protection on Sunday. Over the next three months, the company will market its assets to interested buyers with proceeds potentially being sufficient to repay all of the company's senior and super-senior secured debt including the $700 million loan provided by U.S. Department of Treasury in 2020.

That said, given the sheer amount of unsecured claims ranking ahead of equity holders, I do not expect a recovery for the company's common shareholders at this point.

While the stock is likely to remain highly volatile, I would advise investors to exit existing positions and move on.

For further details see: