A Delaware bankruptcy court ruled Wednesday that approximately $7.8 billion in pension withdrawal liability claims against bankrupt less-than-truckload carrier Yellow’s estate will remain under its jurisdiction and not be decided by arbitrators as numerous pension funds had sought.
The court denied motions from the multiemployer pension plans (MEPPs) to which Yellow (OTC: YELLQ) contributed on behalf of its union employees. The motions sought to either compel arbitration or grant relief from an automatic stay so the pension funds could pursue arbitration. Following a bankruptcy filing, an automatic stay halts creditors from collecting on debts until valid claims, and the order in which they are to be repaid, are determined.
Judge Craig Goldblatt’s decision said either venue would ultimately be required to apply the same legal standard in making a decision and that both were likely to arrive at the same outcome, which would be reviewed by a district court.
“While governing caselaw dictates that in some circumstances a bankruptcy court must enforce an arbitration provision, the Court concludes that this is not such a circumstance,” Goldblatt said.
Goldblatt ruled the ultimate outcome of the claims allowance process is “a core bankruptcy matter” and reminded all parties that they had already agreed that the settlement of the claims was “perhaps the most important issue to be decided in the bankruptcy case.”
He also said the bankruptcy court will allow other interested parties to participate in the claims dispute, which may not have happened in arbitration, and that a timeline has already been established versus “the uncertainties about how long an arbitration process might take.”
The judge heard arguments on the matter from all parties on March 6, at which time a trial date of Aug. 5 was set. Central States and other pension funds agreed at the hearing to allow Yellow’s largest equity holder, MFN Partners, to participate in arbitration.
The Boston-based investment firm amassed a more than 40% stake in Yellow’s equity just weeks before it shut down.
The pension funds recently served subpoenas to MFN seeking documents regarding Yellow’s shutdown and the company’s bankruptcy filing. Information on the firm’s financial analysis of Yellow and what would happen to the withdrawal liability claims has also been requested.
Billions in claims could turn to just millions in payments
Claims against the estate from 11 MEPPs have been estimated at as much as $7.2 billion. Court filings have shown Central States Pension Funds claims it’s due $4.8 billion. Yellow participated in at least 20 MEPPs, with claims amounting to $7.8 billion in total.
Any of those amounts would likely leave shareholders with no monetary recovery. However, an expert on pension withdrawal claims has told FreightWaves the ultimate payout will likely be negotiated down to a fraction of the headline amount.
While counsel for Yellow and the various funds previously acknowledged the matter was mostly procedural, both parties clearly wanted separate venues. Yellow asserted the funds’ claims were made to the bankruptcy court and should be decided there, while the funds as well as pension insurer Pension Benefit Guaranty Corp. (PBGC) pointed to a federal statute requiring arbitration, not the bankruptcy court, as the ultimate authority.
The funds also argued that arbitration would provide the expertise to determine if the correct actuarial assumptions were made when determining unfunded vested benefits (UVBs) — the basis for any withdrawal liabilities due — and whether the correct rates of return and discount rates were applied, among other items contested by Yellow.
Yellow said there are no UVBs following the government’s 2021 MEPP bailout. Congress awarded roughly $80 billion in special financial assistance under the American Rescue Plan Act, which is being overseen by PBGC. Yellow maintains that the MEPPs are now fully funded, meaning it has no withdrawal liability and that the funds are simply seeking a “double recovery.”
PBGC has said in filings that it enacted a rule that requires MEPPs to recognize the distributions over time, not as a lump sum, meaning Yellow is still on the hook for pension withdrawal liabilities. It said the rule was created to keep employers from seeking an early exit from MEPPs, which could ultimately lead to plan insolvencies.
Central States received $35.8 billion under the rescue plan.
Other claims from the funds, like unpaid benefits payments for June and July, among other items, are not subject to arbitration.
It was roughly $50 million in missed benefits payments to Central States that prompted Yellow’s Teamsters employees to file a strike notice last summer. That sent Yellow’s customers fleeing to other carriers over concerns about having shipments stuck in its network should it close. Central States ultimately granted the company an extension for the late payments, but with little freight to haul the carrier was forced to shut down one week later.
Central States returning $127M overpayment from PBGC
Central States has started the process of returning a $127 million overpayment earmarked for nearly 3,500 dead participants received from PBGC as part of the pension bailout, PBGC Director Gordon Hartogensis said at a March 20 House committee hearing.
Central States’ bailout application, which was approved by PBGC, included 3,479 dead plan participants. PBGC didn’t cross-check the list against Social Security Administration records, resulting in the overpayment.
A February letter from Sen. Bill Cassidy, R-La., alleged the pension fund was not planning to return the money, claiming it would “lack sufficient funds to cover all of its liabilities.” The amount is a small fraction of the nearly $36 billion it received from the bailout.
Hartogensis said PBGC is auditing applications from and payments to other pension funds to make sure other overpayments were not made.
Yellow’s liquidation continues
Yellow’s estate has repaid all secured creditors, including the U.S. Treasury, which provided the carrier a $700 million COVID-relief loan in 2020. The Treasury received a 30% equity stake in Yellow as part of the transaction. MFN, which provided debtor-in-possession financing, was also repaid. The estate generated roughly $2 billion in proceeds from the sale of service centers.
The estate is still in the process of selling an additional 30 to 40 owned properties and unloading 78 terminal leases, which could fetch “hundreds of millions of dollars.” It is terminating leases on approximately 40 other locations.
Equipment auctions started earlier this month with additional auctions scheduled through May.
Shares of YELLQ jumped nearly 14% when the court’s decision was published late in the trading session on Wednesday.