This story has been updated to show MFN has appealed Monday’s ruling.
A federal bankruptcy court in Delaware cleared the path for the final liquidation of defunct Yellow Corp.’s estate on Monday. The plan outlines the distribution of as much as $700 million to remaining creditors, including former employees. The Monday order, however, could be challenged on appeal by Yellow’s largest equity holder, MFN Partners.
Boston hedge fund MFN amassed a 42.5% equity stake in the former less-than-truckload carrier in the days leading up to its July 30, 2023 shutdown. The firm bet that proceeds raised from the sale of Yellow’s 325 terminals and other assets would more than cover its debts.
MFN and its affiliate, Mobile Street, objected to the proposed bankruptcy plan, arguing that the governing committee, which was composed of creditors with inherent conflicts of interest, would inevitably prioritize their own financial outcomes. MFN also put forward a scenario asserting recoveries to unsecured creditors would be higher in a Chapter 7 liquidation.
Despite their opposition, a single voting class of creditors recently approved the plan.
(The plan’s liquidating trust board of managers includes Central States Pension Funds and New York State Teamsters Pension and Health Funds.)
Judge Craig Goldblatt overruled MFN’s objections on Monday and entered an order to confirm the final Chapter 11 plan. He said that he doesn’t believe the plan was “proposed in bad faith” and that by his calculations, creditors wouldn’t see greater recoveries in a Chapter 7.
He ruled that the agreement “contains standard and appropriate protections regarding interested party transactions and other conflicts of interest.” He also noted that converting the bankruptcy would allow other claimants to come forward and that incremental administrative and legal costs would outweigh any benefit of conversion. (The estate had incurred $235 million in legal and professional fees through the end of September.)
Goldblatt acknowledged that some assumptions in the analysis provided by the debtors’ liquidation expert – which projects a high-teen percentage recovery for unsecured creditors – were “problematic.” However, he does not believe “that creditors here would be better served by a conversion of this case to a Chapter 7.”
He also said that the value of the estate’s distributable value has declined from a high end of $900 million a year ago to $700 million currently, warning that extending the process “has a way of consuming value.” (Goldblatt clarified that some of this decline was likely due to lower-than-anticipated asset sale values, not solely to accumulating fees.)
“I believe the introduction of a Chapter 7 trustee into a case with $600 million of cash sitting in the bank and several high stakes matters in which one could very reasonably persuade oneself that continuing the litigation would make sense, would ultimately yield an ongoing cash burn for a long period of time,” Goldblatt said.
The exact timeline for creditor recoveries is uncertain. Potential factors affecting the schedule include MFN’s ability to challenge the Monday ruling, ongoing litigation regarding claims from Central States and the Teamsters, and the recent reinstatement of Yellow’s breach-of-contract lawsuit against the Teamsters.
Employee claims for PTO and sick time are classified as priority by the plan and will be paid.
The estate has sold nearly $2.4 billion in real estate and realized $176 million in net proceeds from fleet sales. These proceeds have been used to satisfy approximately $1.2 billion in secured debt, $213 million in bankruptcy financing, and various other claims and expenses.
MFN filed a notice appealing the court’s decision on Tuesday.
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