A Delaware bankruptcy court offered some clarity late Friday on the $6.5 billion in liability claims against Yellow Corp., but the total amount the incomplete bankrupt company will pay remains undetermined. The fact that the estate will have to pay some of the claims sent Yellow’s shares sharply higher.
Shares of Yellow (OTC: YELLQ) plunged 90% on Friday to 50 cents a share after shareholders realized their bet that the company’s assets would be worth more than what it owed creditors might not be realized.
MFN Partners, who Acquired a stake of more than 40% Yellow in the days leading up to Bankruptcy declaration Last summer, it was the largest shareholder. However, a Boston-based private equity firm has offered the company Bankruptcy Financing During its liquidation, the resulting interest and fees helped offset its exposure to stocks.
The US Treasury owns a 30% stake in Yellow. The shares were issued as part of a security package for the issuance of $700 million loan to mitigate the effects of Covid It was introduced to the company in 2020.
Multiemployer pension plans (MEPPs) to which Yellow once contributed claim that the carrier’s sudden closure a year ago means they are now liable for their allocated share of unfunded vested benefits. However, Yellow says the plans are now fully funded, following the 2021 American Rescue Plan Act (ARPA) pension fund rescue package. Yellow claims its exposure is a fraction of the amounts it is claiming, if any.
The legislation gave the pension insurance company, Pension Benefit Guaranty Corp., the authority to set guidelines to ensure that funds would be used only to cover plan benefits and costs, and not allow employers to avoid liability for withdrawals.
The Retirement Benefit Guaranty Corporation has created two regulations. The first states that special financial assistance given to concessional retirement plans will not be recognized as an asset of the plan until the funds are actually received. The second states that the funds will be recognized in stages over time even if they are distributed in a lump sum.
The organization said the goal was to prevent other contributing employers from using the bailout as a way to exit the plans. Immediate recognition would mean that MEPPs are fully funded, eliminating any unfunded vested benefits and thus the liability of employer withdrawal. The PBGC alleged that this could lead to a mass exodus from the plans.
Judge Craig Goldblatt’s opinion issued Friday was in favor of both the Middle East prosecutors and to some extent in favor of Yellow.
He said the PBGC acted within its authority when it placed the guardrails on the program and that MEPPs did not have to recognize payments as assets until they were received, and could be phased in. That means Yellow is now responsible for some form of withdrawal liability for 11 different MEPPs that received government money.
The Middle States Pension Fund holds nearly $5 billion in liability claims against Yellow. It received $35.8 billion in special financial assistance on Dec. 5, 2022, but did not receive the money until Jan. 12, 2023, after its plan year ended. Yellow filed for bankruptcy on Aug. 6, 2023. The unfunded vested benefits calculation used the 2022 plan year to determine the amount owed.
“The regulations implement the specific guidance Congress gave in the American Rescue Plan Act that private financial assistance be used only to pay plan benefits and costs,” Goldblatt said. “The regulations prohibit the use of such funds instead, in effect, to reduce the amounts that employers may be required to pay when they withdraw from the plan.”
However, Goldblatt ruled in partial favor of Yellow, noting that the 20-year limit (mandated by the Employee Retirement Security Act) should be imposed on the company’s total exposure to the withdrawal. Essentially, the court ruled that Yellow was liable for 20 times the amount of its annual contributions under the law. Yellow’s previous court filings had estimated total liability at about $1 billion when the 20-year limit was used.
Yellow had previously argued that discounting to present value should apply to the 20-year series of payments. But Goldblatt said its default on contributions would accelerate the amounts due now, and no discounting was needed.
He also endorsed the agreement between Yellow and the New York and Western Pennsylvania trucking funds. Yellow returned to those funds in 2013 under a deal in which it contributes only 25% of its usual rate, but will pay any withdrawal obligations assuming a 100% contribution rate if it withdraws.
Goldblatt urged the parties to agree on the actual amounts owed. He said that task could be “relatively easy to resolve” now that the court has ruled on the disputed legal issues.
Yellow still faces a much smaller pool of claims related to pension withdrawal liability that did not receive special financial assistance.
Eleven MEPs who weighed in on Friday have secured more than $40 billion in government aid.
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Mail Delaware bankruptcy court says Yellow owes pensions, shares drop 90% First appeared on Shipping waves.
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