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An increasing number of companies have filed for bankruptcy recently, including Yellow, one of the oldest trucking companies in the U.S. And when companies file for bankruptcy, they often try to find a way to sort it out and keep doing business, but not Yellow. It says it intends to break itself up and sell itself off completely. The Indicator From Planet Money's Adrian Ma and Paddy Hirsch report.
ADRIAN MA, BYLINE: This news stunned the trucking world. Now 30,000 workers are worrying about finding new employment. And the people who lent the company the money, $1.2 billion, are worrying about whether they're going to get that money back.
PADDY HIRSCH, BYLINE: That includes you and me, the taxpayer, by the way, because $737 million of that debt was lent to Yellow by the U.S. Treasury during the pandemic. For a little help understanding the bankruptcy process, I called Betsy Lynch. She's a bankruptcy attorney in Kansas City, Mo., who's pretty good at explaining stuff like this.
BETSY LYNCH: I'm, you know, a diggy (ph) farm girl from the Bootheel who talks to a lot of blue-collar people, so...
MA: Betsy says when a company goes through bankruptcy, it usually goes through it in one of two ways. So, one, it can reorganize its finances so that it can continue to operate and keep paying interest on its debt. Or, two, it can simply liquidate.
HIRSCH: And this is what Yellow has decided what will happen to it. But unlike when you and I go bust and the court appoints a trustee to take our stuff and sell it off, in a corporate bankruptcy like Yellow's, something different happens - something called debtor in possession, or DIP.
LYNCH: A debtor in possession is basically just a debtor in bankruptcy who has control of their own assets.
MA: Yellow gets to keep its assets - its trucks and its real estate and whatnot - on the understanding that it is going to sell those assets off itself to pay off the loans, which makes sense, right? I mean, the U.S. Treasury, which also is invested in this company, knows nothing about the trucking business.
LYNCH: The whole concept is premised on getting as much value out of the assets as you possibly can.
HIRSCH: The other thing the DIP does is allow Yellow to borrow some more money.
MA: And you might be thinking, wait. What?
HIRSCH: But here's the thing. Yellow needs to continue operating. It needs to keep paying interest on its debts. It also needs to pay the people who are figuring out how to break it up and sell it off. But when you're bankrupt...
LYNCH: A lot of lenders don't want to loan money to a company that is obviously financially distressed.
MA: Institutions usually need some serious incentives to get involved lending money to a bankrupt company, and they usually get to move to the front of the line when it comes to collecting from the company that is paying down its loans.
LYNCH: They're going to be, like, a super priority. So they're going to get paid before anybody else does.
MA: Yellow has reportedly found a lender who might be willing to pony up a DIP loan. But here's a weird thing. They appear to be willing to lend the money to Yellow without taking that super-priority position, which means they would let the U.S. Treasury get their money back first before they got theirs.
HIRSCH: Why would they do this? Because they're presumably confident that Yellow will be able to sell its assets for more than the sum of all of the company's debt. And they may be right. In its last quarterly filing, the company listed assets worth just shy of $2.2 billion, which, if they do end up selling for that much, will mean all the creditors, including the U.S. taxpayer, should get their money back, which kind of makes the DIP a bit like a risk-free loan.
MA: And whoever wins the bid to provide it will be laughing all the way to the bank. Adrian Ma.
HIRSCH: Paddy Hirsch, NPR News.
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