Yellow Corp. bought more time because it fights for survival with a deal that waives certain covenants under its credit agreements.
The agreement was effective retroactive to June 30 and filed with the Securities and Exchange Commission late Friday.
In keeping with the 8-K filing with the SEC, the amended and restated credit agreement between the LTL carrier and a consortium of lenders did have a testing deadline for covenant compliance on June 30. That now has been delayed.
In a prepared statement released to FreightWaves, Yellow said the agreement for one quarter was with the U.S. Treasury and for 2 quarters with its term lenders.
The agreement also waives a covenant compliance deadline that had been in place for Sept. 30. The waiver in query is described as testing Yellow’s compliance with a “minimum consolidated EBITDA financial covenant.”
As a part of the waiver agreement, the lenders would require Yellow (NASDAQ: YELL) to offer its lenders with regular reports on the state of its funds.
Starting Wednesday, Yellow will likely be required to offer the lenders with a weekly “liquidity report.” In that report will likely be the overall amount of liquidity at Yellow, including unrestricted money readily available, money readily available that’s held for payroll and to settle contracts, and the sum of money — defined as “availability” — that the corporate is holding.
One piece of positive news for Yellow is the requirement that liquidity not fall below $35 million. Elsewhere within the 8-K, liquidity at Yellow is claimed to be in excess of $100 million.
The lenders may even appoint an operational adviser at Yellow. That person, based on the SEC filing, “will, amongst other things, provide financial planning and evaluation services and assistance creating the aforementioned budgets.”
The budget reference is to a requirement that starting this week, Yellow must deliver weekly to the lenders a 13-week “consolidated operating budget and a budget variance report.” The report will spell out actual results against the quantity budgeted within the 13-week period. Starting in two weeks, a monthly complement to every budget will likely be required under the terms of the waiver.
Yellow will likely be getting other hands-on involvement from the lenders. Under the agreement, they’ve the best to designate a representative who could be a “non-voting observer” of any meetings of the corporate’s board of directors or committees of the administrators. The agreement also calls for a weekly call with the operational adviser and monthly calls with Yellow’s senior management.
“We’re pleased that Yellow has successfully negotiated adjusted EBITDA covenant waivers to its existing credit agreement,” Yellow said in its statement. “This, together with liquidity preservation efforts similar to requesting to defer select health welfare and pension payments for July and August should give us additional runway to barter with the [Teamsters] on an answer that gives material wage increases and aligns each parties on modernization of the corporate.”
A report issued Monday morning by the transportation team at Deutsche Bank led by Amit Mehrotra said the “bottom line” within the agreement is “the precarious position of YELL, in our view. Lenders are clearly taking a rather more lively approach on the each day operations than ever before. We predict that is more noteworthy than the limited waivers, given potential for extra business to exit the corporate as customers divert volumes.”
The report also noted that the liquidity at Yellow said to be in excess of $100 million remains to be down from a figure at the top of March of $168 million.
“Our customers want us to be here, even with all of the noise around the corporate our shipment counts have held up and that’s crucial for us to work through this era while we get to negotiations,” Yellow said in its statement to FreightWaves.
The SEC filing also disclosed that Yellow has recently sold an “obsolete” terminal in Compton, California, for $80 million. Yellow said the sale was “consistent with our modernization strategy and won’t have a cloth impact on jobs.”
S&P downgrades Yellow debt
The waiver agreement comes just days after a second rankings agency downgraded the publicly traded debt of Yellow.
S&P Global Rankings last week cut the corporate’s rating to CCC-. Satirically, at the same time as conventional wisdom has Yellow getting ready to collapse, the rating given by S&P Global Rankings still has room to fall on its approach to a rating of D or SD, which occurs when an organization is deemed to have defaulted on its debt. (SD stands for selective default and is usually given to debt that’s restructured quite than suffering an outright default.) S&P has a gaggle of rankings under a classification of C or CC that’s below the CCC- rating now applied to Yellow.
However the S&P motion from Thursday takes its rating of Yellow to a level lower than that of Moody’s, which moved down its rating on Yellow in late June. The Moody’s motion set Yellow’s rating at Moody’s (NYSE: MCO) to Caa1. The CCC- rating at S&P Global (NYSE: SPGI) is mostly seen as two notches lower than Caa1, which aligns with an S&P rating of CCC+.
The S&P Global downgrade said Yellow faces “significant” debt maturities into 2024, with a $567 million senior secured term loan that’s due in June 2024 and a loan from the U.S. Treasury of $729 million issued by the Trump administration in 2020 that can also be due in 2024.
The S&P report on its downgrade also noted the reluctance of the Teamsters to barter with Yellow. “We imagine contentious labor contract negotiations will make it tougher for the corporate to implement its recent operating strategy across its central and eastern network,” the report said. “In our view, Yellow will need to deal with each maturities and the labor contract to avoid a default.”
In addition to lowering the rating on Yellow debt, S&P Global Rankings listed the outlook for Yellow as negative. “The negative outlook reflects our expectation that Yellow is vulnerable to a payment default or distressed exchange over the following 12 months.”
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