On Friday, a Delaware bankruptcy court shed light on the $6.5 billion in withdrawal liability claims facing Yellow Corp. While the exact amount the bankrupt company will ultimately pay remains undetermined, the court’s decision significantly impacted Yellow’s stock.
Stock Market Reaction
Yellow’s shares plummeted 90% to 50 cents per share on Friday, reflecting investor concern that the company’s asset value might not cover its obligations to creditors. This dramatic decline came as stockholders realized their initial hopes of asset value surpassing creditor claims might not materialize.
Stakeholder Overview
MFN Partners, the largest stakeholder with over a 40% equity stake, had provided bankruptcy financing, mitigating some of its equity exposure through interest and fees. The U.S. Treasury holds a 30% stake from a Covid-relief loan, adding another layer of complexity to the financial landscape.
Pension Fund Claims and Court Ruling
The Multiemployer Pension Plans (MEPPs) to which Yellow contributed are asserting claims for unfunded vested benefits following Yellow’s abrupt shutdown last year. Despite Yellow’s contention that the MEPPs are now fully funded due to a 2021 bailout package, the court ruled that the Pension Benefit Guaranty Corp.’s (PBGC) guidelines—allowing phased recognition of bailout funds—were valid.
Judge Craig Goldblatt’s decision sided with both the MEPPs and Yellow to some extent. He upheld PBGC’s regulations, requiring MEPPs to recognize bailout funds only upon receipt and over time, preventing immediate relief from withdrawal liabilities. Yellow was found responsible for some withdrawal liabilities to 11 MEPPs that received government assistance.
Cap on Withdrawal Liability
The court also applied a 20-year cap on Yellow’s total withdrawal exposure, aligning with the Employee Retirement Income Security Act (ERISA). Yellow’s estimated liability under this cap is roughly $1 billion. The court rejected Yellow’s proposal for present value discounting of these payments, affirming that the amounts are due immediately due to default.
Resolution and Future Implications
Goldblatt also confirmed Yellow’s agreement with Teamsters funds in New York and Western Pennsylvania, which entailed reduced contributions but full repayment upon withdrawal. The court has directed further discussions to finalize the exact amounts owed. Yellow still faces smaller withdrawal liability claims from pensions that did not receive special financial assistance.
Conclusion
The court’s rulings have heightened financial pressures on Yellow Corp, with significant implications for its stock value and withdrawal liabilities. As the company continues to grapple with these challenges, stakeholders and investors will need to monitor the evolving legal and financial landscape closely.
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