Yellow’s new bankruptcy plan revealed, next steps still uncertain

An amended Chapter 11 bankruptcy plan outlining final distributions to Yellow Corp.’s creditors was submitted to a U.S. bankruptcy court in Delaware on Friday. As with the prior plan, the latest iteration would make former employees whole for their priority claims of unpaid time off and commissions due. The current version is backed by Yellow and the defunct estate’s committee of unsecured creditors but may not have the support of a key party in interest.

Classes for secured, priority, employee PTO and convenience claims totaling as much as $706 million would see a full recovery under the proposed plan. Payout ratios for general unsecured claims were narrowed to 12% to 17% versus prior scenarios that provided 0% to 26% recovery. Claims and interests held by debtors against other debtors would be deemed impaired and not eligible for a recovery.

Employee claims against Yellow (OTC: YELLQ) totaling $30 million to $40 million for “unpaid vacation or paid time off pay, sick pay, or sales commissions” remain unimpaired and subject to 100% recovery. This class of claims doesn’t include individual employee claims or Worker Adjustment and Retraining Notification Act claims.

Holders of certain nonpriority general unsecured claims above $7,500 can opt to reduce the amount to $7,500 and have their claims paid in full.

Liability claims stemming from Yellow’s abrupt withdrawal from the pension plans it once contributed to (as well as a claim from Pension Benefit Guaranty Corp.) totaling $3.29 billion are projected to see a recovery of between 12% and 16%. This group includes claims from Yellow’s largest pension provider, Central States Pension Fund, which now shows $1.66 billion in withdrawal liability and contribution claims. (Original claims from the pension fund totaled $5.8 billion, $4.8 billion of which were tied to alleged withdrawal liability.)

Similar claims from other pension funds account for the other half of the $3.29 billion claims pool.

Central States is also listed with an additional $65 million in other allowed claims, some of which are tagged “other priority claim” and designated for full recovery.

The amended plan established May 9 as the voting deadline and May 19 as the confirmation hearing date. Affected classes are entitled to vote on the proposal with unimpaired classes, including employees, not granted a vote as they are “presumed to accept.” Creditors with claims that will be canceled won’t vote either as they are “deemed to reject.”

What’s the holdup?

Yellow’s largest shareholder, MFN Partners, could be the remaining holdout.

Counsel for the Boston-based hedge fund, which acquired 42.5% of Yellow’s equity in the weeks leading up to the 2023 closure, told a the Delaware court on March 17 that it had been excluded from the recent negotiating process and would object to any plan detrimental to its claims and interests.

MFN provided bankruptcy financing to Yellow, and more recently its affiliate Mobile Street Holdings acquired withdrawal liability claims totaling roughly $200 million from two separate pensions. Those transactions placed the firm in an “irreconcilably inconsistent” position, the committee of unsecured creditors previously said, as MFN was fighting both sides of the battle – as a claimant seeking maximum recovery and as an equity holder attempting to maximize payouts to shareholders. The ploy may have been a hedge against its equity position, which suffered a blow when the court ruled Yellow would be liable in some form for early withdrawal from the plans.

MFN has appealed certain aspects of the Delaware court’s withdrawal liability ruling. It also has asked the court to move forward and rule on a pending summary judgment motion regarding withdrawal liability calculations.

Yellow and its creditors argued at a Wednesday hearing that a ruling on the motion would “gut consensus” recently achieved for the plan. The court agreed to delay a ruling until Friday to give the committee more time to engage with MFN.

“A debtor in possession, as a fiduciary of its estate, must be given the ability to settle claims asserted against it both because the bankruptcy system promotes settlements and because any other outcome would give an objecting party such as MFN the unfettered power to derail settlements,” a Thursday letter from Yellow’s counsel to the court stated. “If MFN were allowed to exercise that unfettered power in these chapter 11 cases, the results could be disastrous for the remaining stakeholders of these estates.”

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