A letter obtained by FreightWaves shows less-than-truckload carrier Yellow Corp. is seeking to defer health and welfare as well as pension contribution payments for the next two months.
A Friday letter penned by Yellow Chief Financial Officer Dan Olivier is asking for a deferral for plan contributions for the months of July and August. The company said it would repay the delayed contributions with interest once it is able to refinance its outstanding debt.
“As a consequence of the Company’s inability to proceed with One Yellow, combined with the challenging business conditions confronting the entire LTL industry, the Company has been operating at a loss and rapidly exhausting its liquidity,” the letter read.
A spokesperson from Yellow told FreightWaves that the company has taken other actions to preserve liquidity and that the deferral it is seeking would not interrupt employee benefits.
“Our request to Central States should not have any effect on the pension benefits of our union employees. We are asking the pension funds that there be no interruption in payments or coverage for our employees. Our beneficiaries should see no impact to the contributions employees receive from the Pension Fund or the Health and Welfare Fund,” a statement read.
In an intraquarter update issued on June 9, Yellow (NASDAQ: YELL) reported that tonnage declined 16% year over year (y/y) in April and May. Over the last two years the carrier has seen its tonnage fall by roughly one-third, in part due to yield improvement initiatives but largely due to a broader network overhaul called One Yellow.
As part of the plan, the company is in the process of consolidating its four LTL operating companies and closing terminals deemed redundant. However, a second phase of the operational changes has been rejected by the International Brotherhood of Teamsters, which says the changes would violate the current collective-bargaining agreement.
The two parties had agreed to reopen their five-year labor deal early to hash out requests to modify work rules and increase the use of purchased transportation while at the same time establishing new employee pay and benefits rates. However, talks appear to have broken down as the union is adamant it will not entertain another bailout of the company at the expense of its members.
Teamsters officials have said wages, benefits and work rules concessions have cost its members billions in the past.
Yellow repaid $66 million of contribution deferral agreement notes in early 2023. The sum represented deferred contributions and interest payments to multiemployer pension funds dating back more than a decade.
Just prior to receiving a controversial $700 million COVID-relief loan in the summer of 2020, Yellow received a grace period for contributions to health and welfare and pension funds. The extension was intended to give the carrier time to catch up on delinquent payments associated with a sharp falloff in volumes tied to pandemic-related lockdowns.
At the time, the Central States Health Fund, known as TeamCare, estimated a three-month delinquency would total approximately $75 million. With no concrete repayment terms established, the program slid into suspension status with eight weeks of “layoff coverage” being enacted to cover member medical claims. As layoff coverage was set to expire, the company received the relief loan. A first tranche of $300 million was used to repay contractual obligations, which included health insurance and pension commitments among other items like lease payments for real estate and equipment and interest on debt.
Yellow recently said that its bankers will only sign off on a debt refinancing and a proposal for employee pay increases if the second phase of the One Yellow overhaul is approved by the union in short order. The company has advised it will “be out of money by August” if the plan isn’t approved.
Yellow reported total liquidity of $168 million at the end of the first quarter, which was down $109 million y/y. However, the change included a $98 million reduction in debt. Cash flow from operations was $13 million in the period.
The company continues to record net losses and booked a 100.8% operating ratio (operating expenses expressed as a percentage of revenue) in the quarter, meaning it incurred slightly more than a dollar in operating expenses to generate each dollar of revenue.
“The Company has been experiencing a significant deterioration in business conditions, which began in Q3 of 2022 and has persisted throughout 2023,” the letter said. “Unfortunately, Yellow’s ability to respond to those conditions has been materially impaired by the Teamsters’ continued resistance to implementation of the Company’s One Yellow network modernization.”
The Yellow spokesperson said the company is still hopeful it will be able to engage with the union at the bargaining table.
“We are doing everything possible to meet with the IBT to discuss the future of One Yellow and the importance of our 22,000 union jobs. We have been clear with the IBT that meeting to discuss Yellow’s common sense, company-wide modernization effort is essential to preserving jobs and strengthening the future of Yellow. We stand ready to meet anytime and anyplace.”
The Teamsters see it differently, according to a notice to members last week.
“Yellow has been unable to effectively manage itself for a long time,” Sean O’Brien, Teamsters general president, told members. “It is not left for the Teamsters to save this company; we have given enough. What happens next is out of our control.”
Shares of YELL were off 8.7% at 10:17 a.m. on Wednesday compared to the S&P 500, which was down 0.6%. The stock was down 16.7% on Tuesday.
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