Delaware bankruptcy court says Yellow owes pensions, stock drops 90%

A Delaware bankruptcy court provided some clarity late Friday on $6.5 billion in kickback liability claims against Yellow Corp. The total amount the bankrupt company will actually pay less than the truck, however, remains to be decided. The mere fact that the estate would have to deal with a portion of the claims sent Yellow’s stock soaring.

Shares of Yellow (OTC: YELLQ ) fell 90% to 50 cents a share on Friday as shareholders realized a bet that the value of the company’s assets would exceed the amounts owed to creditors might not come true.

MFN Partners, which acquired a more than 40 percent stake in Yellow the day before it filed for bankruptcy last summer, is the largest holder. However, the Boston-based private equity firm provided the company with bankruptcy financing during its liquidation, the interest and fees from which helped offset the equity exposure.

The US Treasury owns a 30% stake in Yellow. The equity was issued as part of a package of guarantees for a $700 million Covid aid loan it provided the company in 2020.

The multi-employer pension plans (MEPPs) that Yellow once contributed to support the carrier’s sudden shutdown a year ago means it is now on the hook for its allocable share of unfunded benefits. However, Yellow said the plans are fully funded now, following a 2021 pension fund rescue package (the American Rescue Plan Act). Yellow claims his exposure is a fraction of the amounts claimed, if anything.

The legislation gave pension insurer Pension Benefit Guaranty Corp. the authority to develop guidelines to ensure that the money will only be used to cover plan benefits and costs and not to allow employers to avoid the withdrawal obligation.

Pension Benefit Guaranty Corp. created two regulations. The former said that the special financial assistance given to MSMEs will not be recognized as a plan asset until the money is actually received. The second mandated the recognition of funds to be introduced gradually over time, even if they were distributed in a lump sum.

The organization said the aim is to prevent other contributing employers from using the bailout as a way to leave the plans. Immediate recognition would mean that MEPPs are fully funded, eliminating any unfunded benefits and consequently the employer’s withdrawal obligation. That could have created a mass exodus from the plans, the PBGC argued.

Judge Craig Goldblatt’s opinion on Friday sided with both MEPs and, to some extent, yellow.

He said the PBGC acted within its authority when it installed the program’s guardrails and that lawmakers don’t have to recognize the payments as an asset until received and they could be phased in. The implication is that Yellow is now responsible for some form of withdrawal obligation to 11 different MPPs who received government funds.

The story continues

Central States Pension Fund has nearly $5 billion in withdrawal liability claims against Yellow. He was awarded $35.8 billion in special financial assistance on December 5, 2022, but did not receive the funds until January 12, 2023, after his plan year ended. Yellow filed for bankruptcy on August 6, 2023. The unfunded discretionary benefit calculation used the 2022 plan year to determine the amount owed.

“The regulations implement the specific directive by Congress in the American Bailout Act that special financial assistance be used only to pay the benefits and costs of the plan,” Goldblatt said. “The regulations prevent these funds from being used, in effect, to reduce the amounts employers would otherwise have to pay when withdrawing from a plan.”

However, Goldblatt also moved for partial summary judgment in Yellow’s favor, arguing that the 20-year cap (set by the Employee Retirement Income Security Act) should be placed on the company’s total retirement exposure. Essentially, the court ruled that Yellow is liable for 20 times the amount of its annual statutory contribution. Previous court filings from Yellow estimated a total debt of about $1 billion when using the 20-year cap.

The yellow discount to present value stated earlier should apply to the 20-year payment stream. However, Goldblatt said defaulting on contributions accelerates the amounts to “currently due and owing” and no abatement is required.

He also supported an agreement made between the Yellow funds and the Teamsters of New York and western Pennsylvania. Yellow re-entered those funds in 2013 under an arrangement where it would contribute just 25% of the regular rate, but repay any withdrawal obligations assuming a 100% contribution rate if it withdrew.

Goldblatt ordered the parties to submit the actual amounts owed. He said the task may be “relatively easy to resolve” now that the court has ruled on the legal issues at issue.

Yellow still faces a much smaller number of withdrawal liability claims from pensions that have not received special financial assistance.

The 11 MPs who participated in Friday’s opinion received more than $40 billion in government assistance.

More FreightWaves articles by Todd Maiden

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