A Delaware bankruptcy court ruled Monday to give Yellow Corp. more time to exclusively oversee its liquidation. A 90-day extension keeps other financial firms from putting forward competing plans for unwinding the estate. Counsel for Yellow argued that other interested parties may have sought an expedited disposal of its remaining assets, resulting in lower proceeds and severely diminishing the chances of any monetary recovery for equity holders.
Testimony from Matt Doheny, former Yellow chairman and the company’s current chief restructuring officer, said the group in place represents the best option for maximizing value on the remaining properties, rolling stock and other assets that are being sold.
The committee of unsecured creditors to the estate argued the liquidation has slowed significantly in recent months and that the cash burn from professional fees to attorneys and advisers has become detrimental to the remaining stakeholders, which includes pension funds. It asserted the process is “running the estates into the ground.”
Court filings showed more than $100 million in professional fees have been billed to the estate as of May 10. Cash burn totaled $30 million in April, $16.9 million of which was tied to professional fees.
The filings also showed that Yellow currently has 272 employees (including 41 part-timers). Its four-person executive team is being paid $325,000 a month in salary. The group includes Doheny, CEO Darren Hawkins, Chief Financial Officer Dan Olivier and Tony Carreno, senior vice president of investor relations. The filing listed annual salaries and bonuses totaling $2.8 million for Doheny and $1.9 million for Hawkins.
The company is spending a total of $2.5 million in wages per month.
Yellow contended that the high fees are partly due to litigation of numerous duplicate, overstated and invalid claims, and that it’s required as a fiduciary to litigate the claims on behalf of all stakeholders, including shareholders. Also, it said that the unsecured creditors’ committee has racked up $21 million in fees against the estate.
Yellow said most of the individuals still on the payroll are tasked with looking after the company’s terminals and rolling stock, and performing due diligence and claims management. It said keeping the current individuals in place, versus the committee’s suggestion of outsourcing the duties, is the most efficient and least expensive option as they possess institutional knowledge that can’t be replicated.
The estate has liquidated more than 160 of the defunct less-than-truckload carrier’s terminals, generating roughly $2 billion in proceeds. It has also moved more than 30,000 units of rolling stock, primarily through auction. It has repaid more than $1.6 billion in funded debt and bankruptcy financing and currently has a cash balance of $327 million.
Yellow is in the process of selling 47 owned properties and 49 leased properties, and will soon make a decision on the disposal of an additional 17 properties. It also has roughly 27,000 pieces of equipment left to sell.
However, there are more than $10 billion in unsecured claims against the estate currently. The biggest claimants are the pension funds it contributed to, which say the company is on the hook for more than $7 billion in withdrawal liabilities (although some of these claims appear to be duplicates). Yellow also faces as much as $244 million in claims from former employees who say they weren’t given proper notification ahead of mass layoffs last summer.
There is another complaint from the Department of Justice over environmental matters that are expected to be remedied. The potential amount of that claim hasn’t been disclosed.
The committee said Yellow is incurring huge legal bills fighting the claims and that it would most likely need to win litigation on all fronts for shareholders to see any payout. It said Yellow’s handlers have implemented a “scorched earth approach in commencing and/or defending the Active Litigation,” including the resurrection of a breach-of-contract lawsuit against the International Brotherhood of Teamsters, which it blames for its July 2023 shutdown.
The original suit sought $137.3 million in damages and $1.5 billion for lost enterprise value but was dismissed in a federal court in Kansas.
The committee said the best path forward for Yellow is to work diligently to settle the claims and limit its cash burn. It said it recently presented a settlement proposal to Yellow but the request was denied.
Counsel for Yellow said the liquidation has been extremely successful and that it deserves to maintain exclusivity for delivering the company’s ultimate restructuring plan. Its working plan includes the potential formation of a separate entity, possibly a real estate investment trust, to liquidate the remaining properties.
Any reorganization of Yellow, however, would not include the resumption of LTL activities. “That’s unfortunately never going to happen,” Doheny said.
Yellow also said the committee’s offer was conditioned on a 30-day pause on litigating the claims against it. It said it is capable of pursuing both the settlement of the claims alongside litigation, and that the pause was unlikely to produce any global resolution. It said the litigation costs for the suit against the IBT have largely been incurred already and that moving forward with the action presents de minimis expenses compared to the potential upside.
The committee criticized the plan for forming a new company as no details have been provided yet. “They’re doing the right thing; it’s several months too late and it’s not quick enough,” said Meredith Lahaie, partner at Akin Gump Strauss Hauer and Feld, counsel to the committee.
Yellow said losing exclusivity and allowing other competing Chapter 11 plans would ultimately increase costs to the estate in the form of multiple solicitations and disclosure statements. Further, opening the process would likely result in the formation of an equity committee, representing the interests of shareholders, which would present another tranche of professional fees.
Both Yellow and the committee accused each other of operating with conflicting interests.
The committee said Yellow is acting in concert with its largest equity holder, MFN Partners, in its decision-making. Yellow said five of the eight members of the committee are affiliated with either the IBT, the pension funds, the Pension Benefit Guaranty Corp. or claimants of the Worker Adjustment and Retraining Notification Act violations, and that the collective group isn’t looking out for the interests of all stakeholders.
Yellow’s counsel said there is “nothing in the record” that shows Yellow is “in the pocket” of MFN. The committee also rebutted the claim that it’s “conflicted.”
“But what is clear is that the Debtors have earned and certainly deserve the protections provided by the Bankruptcy Code to ensure that allowed claims receive the highest recovery possible,” counsel for Yellow stated in a filing.
Judge Craig Goldblatt said Monday that Yellow has earned the right to exclusively pursue “hundreds of millions of dollars” in future recoveries.
“My overall conclusion is that the debtor has accomplished a great deal in this case and I’m persuaded that the debtor’s actions are consistent with an effort to maximize value for the benefit of all constituencies,” Goldblatt ruled.
The decision was not conditioned on future mediation as the court sees no need to micromanage the process at this juncture. It also reminded the parties, which are acting as fiduciaries, to be mindful of professional fees, but didn’t implement any oversight procedures for the expenses.
Shares of Yellow (OTC: YELLQ) closed Monday down 2.7% at $7.30 per share.