The fighting over the corpse of Yellow Freight has already started. It is unclear what the outcome will be however it appears likely that at least some of the road freight capacity will remain in the market.
Yellow Corporation, which owns Yellow Freight, lodged a Chapter 11 Petition on August 6th stating that it was looking to put in place a “debtor-in-possession financing facility” which would “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”.
The Wall Street Journal and the Financial Times report that the private equity company Apollo led a group of lenders to support this “debtor-in-possession financing facility”, offering to extend $142m in credit to Yellow. However, according to the Wall Street Journal, it was shoved aside by “rival proposals, including from another trucking business that offered Yellow a bigger loan and more time—180 days—to wind down its business and sell assets”
The large hedge fund, Citadel, has now bought Apollo’s holding of Yellow Corporation debt, with the Financial Times reporting that Citadel paid Apollo “full face value” for the debt.
It seems that the desire to lend money to Yellow Corporation is due to the assumption that it has assets that can be sold easily and at a good price. These include trans-shipment depots and related infrastructure. Yellow Corporation’s latest set of accounts published on August 9th declare that net holdings of property and equipment are valued at $1.139.7bn.
However, the Wall Street Journal states that amongst the companies keen to extend credit to Yellow Corporation are “MFN Partners, which accumulated a 42% stake in Yellow as the company collapsed into bankruptcy” which is “a significant shareholder in XPO” and Estes Express Lines, a large ‘Less-than-Truck load’ provider.
What appears to be happening is that some road freight providers are looking to absorb Yellow Freight’s capacity, especially their cross-docking and handling facilities. This may be motivated by a desire to obtain lower-priced assets, or it could be a wider ambition to occupy part of Yellow Freight’s market position. The implications of this for pricing in the US less-than truckload market may be significant. Although market participants may be reduced by the exit of Yellow Freight, road freight capacity may not be reduced as much.
Author: Thomas Cullen
Source: Ti Insights
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