Estes Express Lines has positioned itself at the forefront of potential buyers for the 169 terminals owned by the insolvent less-than-truckload competitor, Yellow Corp. This move was solidified when Estes committed to a preliminary bid of $1.3 billion, as disclosed during a court proceeding on August 17th.
However, Estes has decided against extending a $230 million loan to Yellow, a matter that was previously discussed during the August 11th session at the U.S. Bankruptcy Court in the District of Delaware. This financial responsibility will not fall on Estes’ shoulders.
Rather, the major shareholder MFN Partners will collaborate with Citadel Credit Master Fund, another hedge fund, to provide a collective sum of $142.5 million during Yellow’s winding-down process. Allyson Smith, the legal representative for Yellow, conveyed this information to the court. In particular, Citadel will furnish a loan of $100 million, while MFN will contribute $42.5 million. These funds will play a crucial role as the assets of the longstanding 99-year-old company are liquidated.
Citadel, headquartered in Miami, took over Apollo Global Management’s $485 million loan on August 11th. Smith informed U.S. Bankruptcy Judge Craig Goldblatt that Citadel, now the largest debt holder following the acquisition, promptly expressed interest in providing debtor-in-possession (DIP) financing.
Comparatively, the loan terms presented by Citadel and MFN were considerably more advantageous for Yellow compared to Apollo’s offering. Smith emphasized that the DIP fee under the new arrangement would be 4%, a significant improvement from the previous 22% to 34% range. This translates to savings ranging between $27 million and $42 million for Yellow, which initiated Chapter 11 bankruptcy protection proceedings on August 6th.
The suggested loans extended by Citadel and MFN are planned to carry a 15% interest rate, a decrease from the 17% rate proposed by Apollo. Each of these loans will come with a 180-day term. Furthermore, there exists a preliminary understanding that MFN will additionally contribute $70 million.
Apollo’s offer was in consideration prior to Yellow initiating the process of seeking bankruptcy protection. However, Yellow retains the option to substitute this offer if it discovers a more advantageous proposal.
In this scenario, a “stalking horse bid” serves as the initial offer for the distressed company’s assets. This offer establishes a baseline that other potential bidders cannot go below. Nevertheless, other bids are still encouraged, allowing room for alternatives. Consequently, just as Apollo’s offer was replaceable, Estes could also be supplanted if a more favorable agreement becomes accessible to Yellow.
In the event that Estes’ bid doesn’t achieve success, the company will be entitled to a break-up fee equating to 2%, which amounts to $26 million, according to information presented by Allyson Smith.
