Yellow Found Liable for $6.5 Billion in Pension Claims
A federal bankruptcy judge ruled that the estate of Yellow Corp. is liable for $6.5 billion in debt claims made by its pension funds.
Judge Craig T. Goldblatt ruled the “withdrawal liability” claims must be paid out to the 11 multi-employer pension plans that the insolvent trucking firm exited when it shut down last July. In the time since, the company has avoided payment to any of the funds.
More from Sourcing Journal
The judge did not set a payment amount, or calculate how much is allocated to each individual pension plan.
Earlier this year, Yellow already sold off 130 owned terminals for $1.88 billion and 23 leased properties for $92 million in separate auctions, and sold off 60,000 trucks, trailers and equipment for roughly $114 million. While this was enough to cover all of Yellow’s secured debt, including the $850 million it owed the U.S. Treasury, it will not satisfy the pension claims.
As of Sept. 2, the trucking firm had $350 million in cash.
Yellow stock plummeted 88 percent last Friday in the wake of the news—a major concern for shareholders like hedge fund MFN Partners, which acquired a more than 40 percent stake in the company ahead of its bankruptcy filing last summer.
The Pension Benefit Guaranty Corporation (PBGC), which regulates retirement funds of private sector workers, now has the authority to issue rules on calculating the penalty Yellow must pay for withdrawing from the retirement plans.
PBGC argued to the bankruptcy court that other companies with traditional pension plans would be more enticed to cancel their retirement benefits if Yellow won, as shareholders wouldn’t be forced to pay a weighty penalty.
Yellow previously argued that it shouldn’t be liable because the pension funds received $41.1 billion in Covid-era relief from PBGC under the American Rescue Plan Act. But Goldblatt rejected the arguments, noting that the funds received through special financial assistance should be treated as if received over time, even if received as a lump sum.
Goldblatt gave Yellow one small victory in the ruling, deciding that the pensioner’s liability needed to be capped at 20 years of annual payments.
To kick off September, MFN Partners had proposed a Chapter 11 reorganization that was contingent on the court ruling in Yellow’s favor. With that plan in tow, the firm had sought to create a real estate investment trust (REIT) to manage and sell its remaining portfolio of trucking terminals.