Yellow Corp (NASDAQ: YELL) stock could well go to zero as the WSJ reports that it filed for bankruptcy. True, a Chapter 11 filing does mean the dismemberment of the firm but in this case it does make it likely. Do note that likely is not the same as certain.
On Friday there was some speculation that they might manage to work through this problem with the Teamsters - thus the near 50% rise in the YELL stock price - but that does seem to have been something of an error.
The news itself about Yellow: “Cash-strapped U.S. trucking company Yellow Corp (YELL.O) has ceased operations and is filing for bankruptcy after failing to reorganize and refinance over a billion dollars in debt, the Teamsters Union said on Sunday.”
Now, it is true that sometimes something arises from the ashes. But there are two reasons to think against this in this case. The first is that the debt load is particularly high. Well above any asset value - so there's nothing to be recouped for the equity. This is often true in Chapter 11 proceedings, of course. That's why they take place. But there are times when the reorganization leaves something for the previous equity. That's not the way to bet this time.
Yellow Corp stock price from Google Finance
As to why the bankruptcy, well, the heart of it is lockdown. This of course hugely disrupted all trucking operations. At which point YELL got a loan from the US government - and they became 30% stockholders. Well, that's fine. It's just that the loan there - $700 million - comes due soon enough.
Alongside that there's the new Teamsters' contract to negotiate. And Yellow has been saying it can only afford this much, the Teamsters' are insisting on much higher: “In the proceedings, the union asked for the $11-per-hour package. Yellow rejected and countered with “a proposal that was less than what it had told the Union and the members as recently as late as last week would be available.” The union rejected the counter and said the $11 increase is “its bottom line.””
And then the coup de grace. As it looks like there might be a strike then freight forwarders stop booking with the company. Because who wants freight in the back of a strike bound truck? Which damages cashflow, which makes the bankruptcy more likely - who wants stock in the back of a bankruptcy stopped truck? Which then feeds back into more people not booking freight with Yellow and then there we go, the bankruptcy announcement over the weekend.
Well, what's to happen next? Our best guess here is that the equity will go to nothing. Sure, there could be all sorts of meme stock action but even if Yellow comes back again - and as a union operation competing in a non-union market we think even that's unlikely - we doubt there will be any value to the old equity.