One final Chapter 11 plan for Yellow Corp. would include a reorganization wherein the defunct company’s major shareholders backstop a rights offering to stand up a subleasing or real estate investment trust to manage the remaining properties. The plan would include the payment of all “allowed” general unsecured claims, leaving the reorganized equity interests to shareholders, a Monday filing with a Delaware bankruptcy court showed.
However, that plan is contingent on Yellow (OTC: YELLQ) receiving a favorable ruling on withdrawal liability claims currently before the court. Pension funds that Yellow once contributed to say they are owed as much as $8.6 billion from the company’s withdrawal. Yellow maintains it owes just a fraction of the claimed amounts as many of the pension funds no longer have unfunded vested benefits due to a 2021 relief package from Congress.
The reorganization plan was put forward by Yellow’s largest shareholder MFN Partners. MFN made waves in the weeks leading up to Yellow’s bankruptcy filing last summer, amassing a more than 40% equity stake in a bet that the company’s asset value exceeds what is owed to creditors.
Yellow’s proposed Chapter 11 plan, also filed Monday just hours before the expiration of its exclusivity period, would allow it to continue to liquidate assets through auctions and sales like it has for the past year. The court recently allowed it to retain real estate broker CBRE to sell its remaining 46 owned and 70 leased terminals.
Yellow has repaid all secured creditors with the roughly $2 billion it received from the sale of more than 160 terminals. It has also auctioned more than half of the 60,000 pieces of rolling stock it once operated.
Yellow said MFN’s plan is “not actionable” until the court makes a ruling on the pensions’ claims.
A separate filing for MFN’s plan listed just $750 million in allowed claims. However, there are other significant claims to the estate beyond those held by pension funds.
Other major creditors include Pension Benefit Guaranty Corp., which says it’s due $206 million for the company’s termination from an underfunded plan. WARN Act claims have been estimated to total as much as $244 million, and Yellow faces $2.1 billion in Environmental Protection Agency claims tied to contamination at a terminal it operated in New York City.
The estate also continues to resolve bodily injury and property damage claims, with 674 settled so far. No estimate was provided for the remaining personal injury claims.
Yellow has contested that many of the claims to the estate are overstated and it believes some will be “substantially reduced” or dismissed.
The MFN term sheet listed an enterprise value of $1.4 billion and said the reorganized entity would use $340 million in cash, $300 million in secured notes and $150 million from the rights offering to pay the allowed claims in full. Some smaller claims and trade-vendor claims would get a 90% cash payout or a promissory note for the full amount of the claim plus interest. Another group of general unsecured claims would be offered a note or just 40% upfront.
A reorganized Yellow board would consist of five members – two from “allowed interests” to the estate and two from the “backstop parties,” which include shareholders MFN, Conversant Capital and Carronade Capital Management. One independent director would be appointed by the estate. If stakeholders object to that person, the court would decide which party can appoint the last seat.
Yellow also asked the court on Monday for a 60-day extension through Dec. 30 to solicit Chapter 11 plan votes. It said the extension was not sought “to pressure or prejudice any of their stakeholders” but instead “to build consensus around a chapter 11 plan” and to “allow the creditors an appropriate amount of time, given the complexity of these chapter 11 cases.”
“Depending on the outcome of the [withdrawal liability] Litigation, it is entirely possible that one or more of the proposals made to date, or an alternative proposal or plan structure, as further developed through negotiation, could be a more value-maximizing path forward than the currently Filed Plan.”
