Yellow (NASDAQ:YELL) stock became the subject of a meme-stock short squeeze yesterday. On Sunday, the trucking company ceased operations and laid off about 30,000 workers as rumors swirled of a potential bankruptcy filing. Now, Bloomberg reports that the firm is nearing a deal with Apollo Global (NYSE:APO) for a bankruptcy loan.
YELL stock was trading at $3.74 per share early on Aug. 2, representing a market capitalization of about $200 million. It peaked late on Aug. 1 at about $5 per share.
Meme stocks are subject to wild gyrations in price as small investors fight short sellers over their possible failure.
YELL Stock: What’s Going On?
MFN Partners fueled the rally, accumulating 42.5% of the common stock as the bankruptcy rumors swirled. MFN, a Boston-based hedge fund, owns stakes in two Yellow competitors, XPO (NYSE:XPO) and RXO (NYSE:RXO). It wants to make sure Yellow dies so it can keep its gains as Yellow is liquidated.
Yellow, formerly known as YRC Worldwide, was based in Nashville. The company’s shutdown puts 30,000 people out of work. Many of them are members of the Teamsters Union. Yellow blames the union for its fall, insisting it refused to negotiate on a new contract. The union was reportedly preparing strike action before this series of events.
Yellow had about $1.5 billion in debt at the end of March. Nearly half was owed to the federal government under an agreement negotiated with former President Donald Trump’s administration. Teamsters supported the loan. Yellow lost $54.6 million, or $1.06 per share, for the March quarter on revenue of $1.16 billion.
The Apollo loan is meant to put that fund ahead of other creditors in liquidation. It’s called a debtor-in-possession transaction.
What Happens Next?
The Aug. 1 short squeeze is like the flash of a supernova as a star dies. The result will be a black dwarf to be picked over by creditors.
Common stockholders who don’t get out in time will get nothing. Consider this your final warning.
As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
