A Delaware bankruptcy court ruled Wednesday that approximately $7.8 billion in pension withdrawal liability claims against bankrupt less-than-truckload carrier Yellow’s estate will remain under its jurisdiction and not be decided by arbitrators as numerous pension funds had sought.
The court denied motions from the multiemployer pension plans (MEPPs) to which Yellow (OTC: YELLQ) contributed on behalf of its union employees. The motions sought to either compel arbitration or grant relief from an automatic stay so the pension funds could pursue arbitration. Following a bankruptcy filing, an automatic stay halts creditors from collecting on debts until valid claims, and the order in which they are to be repaid, are determined.
Judge Craig Goldblatt’s decision said either venue would ultimately be required to apply the same legal standard in making a decision and that both were likely to arrive at the same outcome, which would be reviewed by a district court.
“While governing caselaw dictates that in some circumstances a bankruptcy court must enforce an arbitration provision, the Court concludes that this is not such a circumstance,” Goldblatt said.
Goldblatt ruled the ultimate outcome of the claims allowance process is “a core bankruptcy matter” and reminded all parties that they had already agreed that the settlement of the claims was “perhaps the most important issue to be decided in the bankruptcy case.”
He also said the bankruptcy court will allow other interested parties to participate in the claims dispute, which may not have happened in arbitration, and that a timeline has already been established versus “the uncertainties about how long an arbitration process might take.”
The judge heard arguments on the matter from all parties on March 6, at which time a trial date of Aug. 5 was set. Central States and other pension funds agreed at the hearing to allow Yellow’s largest equity holder, MFN Partners, to participate in arbitration.
The Boston-based investment firm amassed a more than 40% stake in Yellow’s equity just weeks before it shut down.
The pension funds recently served subpoenas to MFN seeking documents regarding Yellow’s shutdown and the company’s bankruptcy filing. Information on the firm’s financial analysis of Yellow and what would happen to the withdrawal liability claims has also been requested.
Billions in claims could turn to just millions in payments
Claims against the estate from 11 MEPPs have been estimated at as much as $7.2 billion. Court filings have shown Central States Pension Funds claims it’s due $4.8 billion. Yellow participated in at least 20 MEPPs, with claims amounting to $7.8 billion in total.
Any of those amounts would likely leave shareholders with no monetary recovery. However, an expert on pension withdrawal claims has told FreightWaves the ultimate payout will likely be negotiated down to a fraction of the headline amount.
While counsel for Yellow and the various funds previously acknowledged the matter was mostly procedural, both parties clearly wanted separate venues. Yellow asserted the funds’ claims were made to the bankruptcy court and should be decided there, while the funds as well as pension insurer Pension Benefit Guaranty Corp. (PBGC) pointed to a federal statute requiring arbitration, not the bankruptcy court, as the ultimate authority.
The funds also argued that arbitration would provide the expertise to determine if the correct actuarial assumptions were made when determining unfunded vested benefits (UVBs) — the basis for any withdrawal liabilities due — and whether the correct rates of return and discount rates were applied, among other items contested by Yellow.
Yellow said there are no UVBs following the government’s 2021 MEPP bailout. Congress awarded roughly $80 billion in special financial assistance under the American Rescue Plan Act, which is being overseen by PBGC. Yellow maintains that the MEPPs are now fully funded, meaning it has no withdrawal liability and that the funds are simply seeking a “double recovery.”
PBGC has said in filings that it enacted a rule that requires MEPPs to recognize the distributions over time, not as a lump sum, meaning Yellow is still on the hook for pension withdrawal liabilities. It said the rule was created to keep employers from seeking an early exit from MEPPs, which could ultimately lead to plan insolvencies.
Central States received $35.8 billion under the rescue plan.
Other claims from the funds, like unpaid benefits payments for June and July, among other items, are not subject to arbitration.
It was roughly $50 million in missed benefits payments to Central States that prompted Yellow’s Teamsters employees to file a strike notice last summer. That sent Yellow’s customers fleeing to other carriers over concerns about having shipments stuck in its network should it close. Central States ultimately granted the company an extension for the late payments, but with little freight to haul the carrier was forced to shut down one week later.
Central States returning $127M overpayment from PBGC
Central States has started the process of returning a $127 million overpayment earmarked for nearly 3,500 dead participants received from PBGC as part of the pension bailout, PBGC Director Gordon Hartogensis said at a March 20 House committee hearing.
Central States’ bailout application, which was approved by PBGC, included 3,479 dead plan participants. PBGC didn’t cross-check the list against Social Security Administration records, resulting in the overpayment.
A February letter from Sen. Bill Cassidy, R-La., alleged the pension fund was not planning to return the money, claiming it would “lack sufficient funds to cover all of its liabilities.” The amount is a small fraction of the nearly $36 billion it received from the bailout.
Hartogensis said PBGC is auditing applications from and payments to other pension funds to make sure other overpayments were not made.
Yellow’s liquidation continues
Yellow’s estate has repaid all secured creditors, including the U.S. Treasury, which provided the carrier a $700 million COVID-relief loan in 2020. The Treasury received a 30% equity stake in Yellow as part of the transaction. MFN, which provided debtor-in-possession financing, was also repaid. The estate generated roughly $2 billion in proceeds from the sale of service centers.
The estate is still in the process of selling an additional 30 to 40 owned properties and unloading 78 terminal leases, which could fetch “hundreds of millions of dollars.” It is terminating leases on approximately 40 other locations.
Equipment auctions started earlier this month with additional auctions scheduled through May.
Shares of YELLQ jumped nearly 14% when the court’s decision was published late in the trading session on Wednesday.
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RANDEEP SINGH
ALL EMPLOYEES OF YELLOW THAT CONTRIBUTED ANY MONEY IN PENSION FUNDS OF ANY KIND WITH YELLOW MUST HIRE INDEPENDENT LAW FIRM TO REPRESENT IN COURT . PENSION FUNDS IS SUBJECT TO TRUST CLAIM ALSO . IT COULD NOT BE INCLUDE IN BANKRUPTCY OF YELLOW , JUST LIKE WARN ACT , BECAUSE IT WAS NEGOTIATED WHEN EMPLOYMENT WAS GIVEN TO EMPLOYEE , AFTER MONEY OF AN EMPLOYEE IS ATTACHED , IT MUST GO IN TRUST , IT COULD NOT GET LOST IN ANY SHAPE OR FORM BECAUSE IT IS EARNED MONEY BY EMPLOYEE .
Ronald Pellegrino
Shame on yellows top brass, for what they did to all the workers. The union gave concessions and the workers got the shaft. Nothing but GREEDY EXECUTIVE’S. YOU HAVE TO HAVE A HARD TIME SLEEPING KNOWING HOW YOU HURT SO MANY FAMILIES.
Lee V
Maybe FreightWaves could do an article about the fact YRC employees are owed (in my own case) thousands of dollars in unused vacation pay. I was there for 28 years and I am owed thousands of dollars still. Also, Ohio did everything it could to fight my unemployment. I am re-employed with another and much better LTL carrier, but I would like to someday see at least a portion of what I am rightfully owed by YRC. Thank you.
Thomas Pupp
I fail to understand why the employees always suffer from the mismanagement of the pension funds, or during a take-over/ buyout?
When the Teamsters Union got caught doing unscrupulous transactions with the pension fund the union was required to place these monies under independent management, so why do corporations get to steal the retirement monies from their employees, all the while either mismanaging or stealing the company to death? Then when the management team walks away the employees get screwed and the debt is dropped off with the PBGC.Then the employees end up getting a partial pension under the ruling of the Governmental control, usually less than full payment. I am getting about 40-50%. The company declared bankruptcy and paid the golden parachutes to the upper management.
Mario catracho
Downhill sistem .
Mark Chapman
Yellow corrupt management still at it. There should be a clawback of all monies paid to executives and Board of Directors including Stock. They contractually agreed to rules and payments to the funds. After being given break after break from the Teamsters to get their house in order, now they want to renege on that while lining their own pockets. Government should consider RICO case going back to Preston “sale” and Executives shell game. Follow the money. They bled every company they were involved in dry.
Peter C.Ely
The executives had done, what the Union Pacific has done. Give bonuses. Run rip and roar and then run away with the bag of money and leave the place in shambles…
Douglas W Ferguson
It’s a shame that the court cannot look back to the bonus money the eight top executives took the day before the company filed bankruptcy to show that they were very greedy and really didn’t care about the company or the people that worked for it.