Credit ratings for less-than-truckload carrier Yellow Corp. have been lowered further by Moody’s Investors Service.
The credit rating agency on Monday downgraded the carrier’s corporate family rating from B3 to Caa1. “Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk,” Moody’s said.
Downgrades were also made to Yellow’s default probability rating and its speculative grade liquidity rating, the latter of which now sits on the lowest rung of Moody’s scale. The agency did maintain its stable outlook on Yellow.
“The downgrade of Yellow’s ratings reflects Moody’s expectations that delays in implementing the next phase of the company’s ‘One Yellow’ strategic plan and weaker sector fundamentals will slow expected improvements in operating results, limit liquidity and increase uncertainty regarding the company’s ability to successfully address its 2024 debt maturities,” the report said.
The carrier has been executing a multiyear overhaul dubbed “One Yellow,” which includes consolidating its regional operating companies, realigning its management teams and consolidating sales forces onto the same tech and operating platforms.
Last year, it implemented a change of operations (COO) to consolidate YRC Freight and Reddaway terminals in the West. However, the recent COO attempt, which would consolidate brands Holland and New Penn with YRC terminals in the East, Central and South regions, has faced strong opposition from the union.
The two parties have agreed to renegotiate their labor contract a year ahead of schedule, addressing the proposed network changes at the same time. The International Brotherhood of Teamsters recently said it wants “sufficient financial improvements” to the current employee pay structure. Yellow maintains the network overhaul will eliminate redundancy, reduce costs and improve service to its customers, which it asserts is vital to its survival.
Yellow recently reported operating and net losses for the first quarter of 2023. The company posted a 100.8% operating ratio in the period as revenue fell 7% year over year (y/y). Shipments declined 13% in the period, which was partially offset by a 5% increase in revenue per shipment excluding fuel surcharges.
The company has roughly $1.5 billion in debt, nearly $1.3 billion of which matures next year. That number includes more than $700 million in loans with the U.S. Treasury.
On a first-quarter earnings call, Yellow’s management said it would look to refinance its capital structure once it reaches a resolution with the Teamsters and completes its restructuring.
The Moody’s report also pointed to refinancing risk as justification for the downgrades.
“The Caa1 [corporate family rating] reflects Yellow’s significant refinancing risk with 2024 debt maturities, thin operating margins, weak interest coverage, and moderately high financial leverage. The rating also reflects a history of negative free cash flow given the high capital intensity of the business,” Moody’s said.
It issued a stable outlook for Yellow as it expects “a delayed but successful implementation of the company’s ‘One Yellow’ strategy,” which “would result in [an] improved operating margin through more efficient utilization of its network.”
Yellow has one debt covenant — adjusted earnings before interest, taxes, depreciation and amortization of at least $200 million over the last 12 months. It again met that threshold in the first quarter. However, it has generated only $89 million in adjusted EBITDA over the last six months, meaning it has some ground to make up.
The second and third quarters each year typically see much stronger freight demand than in the first quarter. However, seasonality so far in 2023 has been muted.
Total liquidity for Yellow declined 40% y/y in the first quarter to $167.5 million as cash was used to pay down debt.
During the consolidation process Yellow will continue to lower its outstanding debt with the sale of terminals, which Moody’s estimates will reduce its debt-to-EBITDA ratio from 4.8x at the end of the first quarter to 4x by year-end. Using adjusted EBITDA, debt stood at 4.6 times at the end of the first quarter.
According to an April congressional oversight commission report on pandemic loans, Yellow’s risk of default within one year was in Bloomberg’s “riskiest category” and stood at 17.7%.
Yellow declined to comment on the matter.
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Freight Zippy
While LTL Carriers are not seeing record revenue and record profits, they remain quite profitable.
Except this parasite of a company. Without corporate welfare Yellow could not exist.
If other carriers were given this level of welfare they’d operate in record territory.
With debt at 20 TIMES the market value this will never improve.
The lazy unionized workforce offers huge workman’s compensation costs and outrageous OS&D/Calmis ratios.
Please put this company out of its misery and allow the freight to garivate to better operated carriers.
The taxpayers have donated enough to this disaster on wheels…
Trevor Murray
Yellow has destroyed every company it has bought. Holland made money, yellow seems to hemorrhage it. How does a company that says it loses millions quarter after quarter stay in business? If I ran my finances like them I would be in jail or homeless. Fed Ex, XPO, and all the other big carriers pay their drivers $5 to $8 an hour more and didn’t need a government bailout. This is plain and simple, a management problem
Dick Bischoff
with the economy headed downward, freight volumes will continue to shrink ( no spring bounce back) which means carrier’s rates will drop as they buy market share. This is all very bad news for Yellow. Yellow cannot make money in the good times, how they going to do it in the next few years? Credit rating in the tank, debt ever growing and a teamster group that would rather put them out of business than give up a dime. Between Yellow and TForce Freight, could be interesting as to which one bites the dust first. My money is on Yellow turning red.
Craig
Yellow claimed they sold all properties 10 years ago,so someone is lieing. 2nd what about the 15 percent they took from their employees and not paying in the teamsters pension. Where is that money. Yellow has done nothing but lie and cheat their employees. Someone really needs to look into that and force the company to back pay current and past employees.
Driver Dave
In a short sentence, it freight not rocket science. This company consistently makes redundant decisions on dispatching to the proper terminals. I will provide 2 options to turn this ship around.
1 – the board needs to show Hawkings the door. His leadership effectiveness has come and gone.
2- Central dispatch needs to be reset and put under solid supervision.
3- possibly sell off some of the newly acquired operating companies. I do realize they are under union contract however it’s obviously not working out. We don’t have to be the biggest , especially when you tack failure on the end of it.
TCS53
With a stock price of $1.34 would somebody please end this nonsense! Put a fork in them they’re done!
Bruce A. Frakes
It’s not the Teamsters that are the problem with our pay or benefits. Management sends drivers over 500 miles with a tractor and dolly to put drivers to bed and lay on the clock waiting for work…incompetent.
Pure and simple. I’m a 28.5 year road driver from KC..
They operation is atrocious…decisions by management…the West COO the Company is burning cash for traveling workers every day…