You might be surprised who owns one of the biggest slices of Yellow's stock going into the company's bankruptcy protection. You and the rest of U.S. taxpayers.
The U.S. Treasury is the No. 2 largest shareholder of the trucking company that filed for bankruptcy on Aug. 6, says S&P Global Market Intelligence. More than 30% of the company is owned by the U.S. Treasury, making it the second-largest holder of the stock following hedge fund MFN Partners, which owns 42% of the common stock.
How did the U.S. government wind up being such a large investor in a company in such bad shape? Yellow won a $700 million loan from the government exactly three years ago in July 2020. The bailout was part of a Covid-era rescue package. And that's a bailout that perhaps never should have happened.
"While the national security loan program may have been a well-intentioned response to extraordinary events, it ultimately proved to be unnecessary and morphed into something that Congress never intended — a risky taxpayer bailout for businesses, like Yellow, that struggled financially before the Covid-19 pandemic and were not critical to maintaining national security," says a July 2023 special report by the Congressional Oversight Commission.
Yellow's Sweet Deal
The Covid pandemic slammed the brakes on many companies. But Yellow found a way to take advantage of most of the bailout funds floating around. And taxpayers are paying for it now.
Yellow, known as YRC Worldwide in 2020, scored 95% of the $736 million lent to 11 businesses deemed to be "critical to maintaining national security," the COC report said. Yellow spent more than $570,000 on lobbying to secure the loan. But the company had long been struggling.
"Yellow had been rated non-investment grade for over a decade before the Covid-19 pandemic, struggled financially for years before the pandemic, and was at risk of bankruptcy before it obtained a loan from the Treasury," the report said. The government took a 30% stake in the company in exchange.
What's Next For Yellow Bankruptcy?
Yellow is just the latest in an avalanche of corporate bankruptcy filings.
More than 64 companies filed for bankruptcy protection in July. That's the largest monthly total in any single month in 2021 or 2022, says S&P Global Market Intelligence. Roughly the same number of companies filed for bankruptcy this year than in all of 2021.
"High interest rates and a challenging operating environment continue to push U.S. companies over the brink," S&P Global Market Intelligence said.
Take Yellow. The company faces a massive pile of debt of $1.6 billion, according to its bankruptcy filing. Meanwhile, it holds just $154.7 in cash and short-term investments. The company, though, does have assets valued at $2.2 billion, says the bankruptcy filing. The company has a market value of $187 million.
Rounding Up The Yellow Bankruptcy Creditors
And many of these lenders, including the U.S. government, are going to demand their money back before shareholders see a dime. And the list of creditors is a long one. Yellow owes Amazon.com $2 million, making it the largest creditor. Other public companies —including ExlService Holdings and Goodyear Tire & Rubber — are also in line to get their money back.
That's why YELL stock's relative durability during all this is so perplexing. Shares of Yellow are actually down just 12.5% from the date the Treasury's loan executed on July 7, 2020. Shares are flat this year. There's speculation that Yellow is turning into a new meme stock that individual investors are betting will rise from the ashes.
But perhaps these gamblers on the company don't realize they already own a huge position through the U.S. government?
Largest Owners Of Yellow Stock
| Holder | Common stock held (millions) | % of shares outstanding |
|---|---|---|
| MFN Partners Management | 22.1 | 42.5% |
| U.S. Treasury Department | 15.9 | 30.6 |
| Vanguard Group | 2.6 | 5.1 |
| D.E. Shaw | 2.1 | 4.1 |
| Marshall Wace | 1.7 | 3.2 |
