Pension tussle taking center stage in Yellow bankruptcy

Yellow Corp.’s bankruptcy case is progressing on several fronts—but not yet on the one with the biggest dollar amounts at play.

In recent weeks, Yellow attorneys exchanged filings with their peers at the Central States Pension Fund and the federal Pension Benefit Guaranty Corp. in U.S. Bankruptcy Court for the District of Delaware about how to resolve the question of the company’s remaining pension obligations. Yellow, which was the sixth-ranked carrier on the 2023 FleetOwner 500: For Hire list before it shut down in July, claimed in December that the PBGC’s early-2023 bailout of Central States meant the pension plan couldn’t then also claim billions from Yellow.

International Brotherhood of Teamsters-affiliated Central States asked Yellow last summer to cover nearly $5 billion in withdrawal liabilities (the company’s alleged share of unfunded benefits) and another $900 million in so-called participation guarantees. Yellow called those claims an attempt to collect “hundreds of millions of dollars in damages it has not sustained” and said pension officials were asking for “free money.”

Lawyers for Central States responded in early January not by directly addressing the legal merits of their claim but by saying that various federal courts have held that a dispute over pension withdrawal liabilities needs arbitration. On the same day, PBGC attorneys told the court that the Yellow team was wrong to view the bailout (enacted under the scope of the American Rescue Plan Act) as letting companies in multiemployer pension funds off the hook for their obligations.

In addition, the PBGC’s representatives said Yellow’s challenge to Central States’ claims amounts to “efforts to convince the court to disregard a PBGC regulation that has the force of law.” In short: Yellow has no leg to stand on in requesting relief from Central States because it is actually challenging the PBGC’s rules for doling out pension plan rescue funds. If Yellow wants to contest those rules, a district court—not Judge Craig Goldblatt’s bankruptcy courtroom—is the place to do that.

“A challenge to the regulation is not a matter that could only arise within the context of a bankruptcy case and is a noncore matter subject to review by a district court,” the PBGC lawyers wrote.

In a separate filing on Jan. 19, Central States’ attorneys amplified the PBGC’s argument. They said that, in looking to dump their pension funding claims, Yellow executives are doing the bidding of MFN Partners, the hedge fund rapidly built an equity stake of more than 40% during Yellow’s last pre-bankruptcy weeks, and other investors looking to cash in “lottery tickets” in the form of liquidation proceeds. In most cases, equity investors get nothing from the winding down of bankrupt companies. Still, the bumper first auction of Yellow real estate holdings in December gave some investors hope that money will be left to distribute once the company’s debts and other claims have been resolved.

Untying this legal knot looks set to take a while: The attorneys involved earlier this month gave each other a bit more time to present documents and prepare their cases. Rather than tackle this topic at a hearing on Jan. 22, they are now scheduled to do so on Valentine’s Day.

Injury claims and a new prominent shareholder

While the pension-related track of filings centers on the largest pool of money in question, the most significant number of filings in Yellow’s bankruptcy journey arguably belongs to the topic of addressing personal injury and insurance claims. Representatives of the company, insurance carriers, and people with accident-related claims have been working on settlements since the fall, including by setting up an alternative dispute resolution process or pursuing cases through other courts.

A handful of those claims appear to be moving closer to being resolved, but, as with the Central States question, hearings about many more have been pushed into February.

In early January, a more significant individual claim also surfaced: Southeastern Freight Lines (2023 FleetOwner 500 No. 44) provided the court with an update on five leases Yellow had signed with Southeastern in 2009. In addition to more than $130,000 in back rent and taxes, Southeastern’s lawyers claim Yellow also needs to pony up about $9 million to fulfill its repair obligations on the Southeastern properties.

Most notable among the claims, similar to those filed in November by Estes Express Lines, are $3.7 million worth of work required at a terminal in Miami. That facility, Southeastern claims, needs a new roof and lots of paving work.

And lastly, for this update: The investment team at MFN isn’t alone in viewing the value of Yellow’s assets as a decent—in the words of Central States’ lawyers—“lottery ticket.” Around Christmas, the managers of Conversant Capital, a firm based in New Jersey, told the U.S. Securities and Exchange Commission they controlled 5% of Yellow’s common shares.

Based on other SEC filings, Conversant last fall managed about $330 million and had built its entire Yellow stake since Sept. 30. The firm’s LinkedIn page says its principals aim to be “the most flexible capital provider to real estate and real estate-adjacent companies” while investing “opportunistically across public and private markets and capital structures.”

Conversant’s filing came after Yellow shares (Ticker: YELLQ) had more than tripled to about $4.50 on the heels of the successful first leg of the company’s real estate auction. Since late December, the stock has surged past $5 before giving up some of those gains. It was changing hands around $4 on Jan. 22, valuing the company’s equity at more than $200 million—more than six times what it was worth when Yellow shut its doors in late July.