Yellow’s $2.59 Billion Bankruptcy: Examining Impact and Insolvency Trends
Leaving a substantial debt of $2.59 billion in its wake, the third-largest U.S. trucking company, Yellow, made headlines in August by filing for Chapter 11 bankruptcy protection, leading to the displacement of 30,000 workers and the announcement it will cease operations.
Among other debts, Yellow's financial landscape comprises a $700+ million government bailout under the CARES Act pandemic relief plan, a private-equity term loan nearing $500 million, and a secured revolving loan of approximately $450 million from a consortium of banks.
Yellow's Chapter 11 bankruptcy filing and subsequent plan to cease operations parallel the growing trend of corporate bankruptcy filings in 2023 that extends to other well-known players in various industries, including SVB Financial Group, Envision Healthcare Corp., Bed Bath & Beyond and Party City Holdco, as well as to a growing number of small- and medium-sized businesses.
NORTH AMERICAN BUSINESS INSOLVENCIES ON THE RISE
Coface North America Economist and Head of Political Risk Analysis Ruben Nizard shed light on fresh data that highlights the surge in insolvencies across North America throughout the first half of the year. This uptick is in contrast to a period of minimal insolvency during the pandemic recovery.
In the context of the United States, Nizard pointed out that Q2 2023 saw a +37 percent surge, with 4,554 business bankruptcy filings compared to the same period the previous year. This surge is chiefly fueled by Chapter 11 restructuring filings that have increased by more than 50 percent year over year. However, he shares it’s worth noting that the total number of business bankruptcy filings remains below the levels recorded in 2019.
Canada tells a slightly different story, with insolvencies experiencing a surge of +34.7 percent over the past six months compared to the previous year. Unlike the United States, Canada's insolvency numbers stand notably above 2019 levels by 11 percent. This surge in Canadian insolvency filings can be attributed to various sectors, especially accommodations, food services, retail and wholesale trade.
Looking forward, Nizard projects that the upward trajectory of insolvencies will persist during the second half of the year. However, the pace of this increase is expected to slow in Canada. As for the United States, Nizard anticipates that bankruptcies will eventually revert to levels more closely aligned with the patterns observed in 2019.
Jeanne Russell, an expert in Supply Chain Risk at Coface, provided insights into potential impacts on the supply chain and beyond.
“Considering that Yellow serves major clients, including numerous Fortune 500 companies such as Amazon, Home Depot, Goodyear Tire & Rubber Company, Keurig, Dr Pepper, and Walmart, it’s likely that we'll observe short-term supply chain disruptions in sectors like retail, construction, and automotive, unless a mitigation strategy is promptly developed.”
Russell further elaborated on the potential difficulties that Yellow's workforce might encounter, explaining, “The trucking industry has faced a deceleration in the past year, posing a potential challenge for drivers seeking alternative trucking positions that offer comparable or superior compensation to what Yellow provided.”
Russell added that Yellow’s rivals in the “less-than-truckload,” or LTL, sector stand to benefit as the demand for shipments increase. “Yellow's prices were one of the lowest in the industry. With the transition of shipments to Yellow's competitors, consumers can expect price increases.”
AN INTELLIGENT STRATEGY TO MITIGATE POTENTIAL RISKS
In the wake of this filing and subsequent others, companies may be asking what can be done to protect assets and better assess risk. A powerful tool that can offer significant protection against such uncertainties is Trade Credit Insurance (TCI).
Consider a situation where a company supplies goods or services on credit terms to a customer, only to have that customer experience financial distress, ultimately leading to insolvency. Without the safety net of TCI, the supplier could face dire consequences such as financial losses from unpaid invoices, disrupted operations that can cause a ripple effect across the entire supply chain, and debt accumulation as a result of the inability to recover funds owed by insolvent customers. Companies can use Coface’s TCI risk calculator to see how much additional turnover would need to be generated in order to absorb an unpaid invoice.
For businesses looking to expand operations, single risk TCI can help vet new suppliers. In a new case study, Global Resources Direct Founder Tom O’Brien shares how TCI worked to scale his network and grow his business. The study shows that TCI provided a way to reliably evaluate the creditworthiness of suppliers, customers and partners for Global Resources Direct. Read more about how TCI gave Global Direct the confidence – and protection – to become a growth pioneer.
RISK MANAGEMENT SOLUTIONS & DATA INSIGHTS
The recent bankruptcy of Yellow serves as a stark reminder of how a major player’s collapse can send shockwaves throughout the supply chain. Safeguards like TCI can help companies navigate tumultuous scenarios more confidently, preserving their bottom line, and ensuring ongoing operations.
Beyond TCI, other solutions like Coface’s innovative iCON Risk Management Platform can provide business intelligence to help companies better understand risks and avoid disaster. Data and insights help show a 360 view of the creditworthiness of a potential partner, empowering companies to make timely decisions while fully informed of risk levels.