A recent ruling from a Delaware bankruptcy court has sent shockwaves through the financial world, particularly impacting the stock of Yellow Corp, a company that has been struggling since its abrupt closure last year. The court’s decision revolves around significant pension liabilities, resulting in a staggering 90% drop in Yellow’s stock price on Friday, leaving shares at just 50 cents each.
This dramatic decline highlights the precarious situation for Yellow, which finds itself facing claims amounting to $6.5 billion related to withdrawal liabilities from multiemployer pension plans (MEPPs). Although the exact financial obligations Yellow will incur remain uncertain, the court has made it clear that the company is indeed accountable for a portion of these claims.
In the days leading up to this court decision, MFN Partners, a private equity firm holding over a 40% stake in Yellow, had been monitoring the company’s fortunes closely. They had even provided financial backing during the bankruptcy process, alleviating some of the pressures on their equity investments. Alongside this, the U.S. Treasury also holds a 30% stake in Yellow—a part of a collateral arrangement involving a substantial Covid-19 relief loan secured by the company.
The MEPPs allege that since Yellow’s sudden cessation of operations, the company is now liable for its allocable share of unfunded vested benefits. However, Yellow argues that these pension plans are currently fully funded, citing a governmental bailout package provided in 2021 through the American Rescue Plan Act as a significant factor. This legislation aimed to ensure that the bailout funds would strictly cover legitimate plan benefits and associated costs, rather than clearing employers’ liabilities for exiting such plans.
In a significant turn of events, Judge Craig Goldblatt backed the MEPPs while also agreeing with Yellow’s stance on limiting its withdrawal liability. He confirmed that the Pension Benefit Guaranty Corp. (PBGC), which oversees these funds, acted within its mandate when establishing regulations to guarantee that financial assistance wouldn’t allow companies to sidestep their obligations.
As a result, Yellow owes a considerable amount to various MEPPs that have benefited from government assistance, amounting to over $40 billion in total aid distributed among the affected plans. Notably, one fund, the Central States Pension Fund, alone has laid claim to nearly $5 billion. The court also ruled that a cap defined by the Employee Retirement Income Security Act will apply to Yellow’s withdrawal liability, translating to a potential total exposure of around $1 billion based on the company’s previous annual contributions.
Despite some favorable rulings for Yellow, particularly concerning its obligations which may be capped at 20 years’ worth of contributions, the outlook remains precarious as the company grapples with the disheartening reality of its dwindling stock value. With the court’s decisions still unfolding, stakeholders are urged to pay close attention to the developments as negotiations about the liable amounts proceed.
As the situation continues to evolve, financial analysts and investors alike will be keenly watching the proceedings, as Yellow Corp’s future hinges dramatically on how these legal interpretations affect its financial responsibilities towards its employees and the pension funds.
Whether or not Yellow can navigate this turbulent path will depend on the effectiveness of its financial strategy moving forward, particularly in managing its debts and liabilities while concurrently striving to restore investor confidence in a recovering stock market.