Yellow Corp., a bankrupt trucking company, recently lost a key court ruling regarding $6.5 billion in debt claimed by pension funds. The ruling, issued by US Bankruptcy Judge Craig T. Goldblatt, sided with the pension funds on how to calculate the penalty Yellow must pay for canceling workers’ retirement plans when the company shut down last year.
The decision means there is little chance Yellow will have any cash left for shareholders like hedge fund MFN Partners after selling its real estate portfolio and paying the pension penalty. Yellow sold its trucking terminals for $1.9 billion last year, enough to cover its secured debt but not the pension claims. Shares of Yellow plummeted 90% on Friday afternoon following the court’s decision.
The stock dropped to 50 cents per share, reflecting stockholders’ concerns that the company’s asset value might not exceed the amounts owed to its creditors. The court’s ruling centered around multiemployer pension plans (MEPPs) to which Yellow once contributed. These plans claimed that Yellow owed them for unfunded vested benefits following the company’s abrupt shutdown a year ago.
Yellow argued that these plans are now fully funded, thanks to a 2021 pension fund bailout package known as the American Rescue Plan Act, which should significantly reduce its exposure to these claims. Judge Goldblatt’s opinion sided partly with the Pension Benefit Guaranty Corp. (PBGC), allowing MEPPs to recognize the bailout money as an asset only upon receipt and to phase it in.
Yellow’s pension liability ruling impacts recovery
This ruling implies that Yellow is now responsible for some form of withdrawal liability to the 11 different MEPPs that received government funds. Central States Pension Fund holds nearly $5 billion in withdrawal liability claims against Yellow.
It was awarded $35.8 billion in special financial assistance on Dec. 5, 2022, but did not receive the funds until Jan. 12, 2023, after its plan year ended.
Yellow filed for bankruptcy on Aug. 6, 2023, and the unfunded vested benefit calculation used the plan year 2022 to determine the amount owed. Goldblatt also entered a partial summary judgment in favor of Yellow, citing that the 20-year cap established by the Employee Retirement Income Security Act should be placed on the company’s total withdrawal exposure.
This means Yellow is responsible for 20 times its annual contribution amount. Yellow’s junior creditors have raised concerns over the bankrupt trucker’s proposed restructuring plan, particularly issues surrounding liability releases for the company’s leaders. The creditors argue that Yellow has not provided the committee of junior creditors with adequate oversight and consent rights regarding the implementation of its Chapter 11 plan.
The implications of this ruling will significantly impact Yellow’s financial recovery process and its liabilities moving forward. The outcome of the dispute over pension claims and other elements of the plan remains critical as both parties await further developments.
