A hedge fund that played a significant role in the bankruptcy proceedings of Yellow Corp. is advocating for greater influence for shareholders as the company prepares for its liquidation phase. MFN Partners, which acquired more than 40% ownership in the now-defunct less-than-truckload carrier in July, has communicated its recommendations to the company through a letter.
In this letter, MFN Partners revealed its proposal to nominate a suitable candidate for one of the two vacant board seats that emerged on the day Yellow filed for bankruptcy. Although the individual’s identity was not disclosed, MFN emphasized the nominee’s extensive expertise in overseeing valuable transactions in unique situations. The hedge fund also indicated its intention to propose another candidate shortly.
Matt Doheny, the former chairman of Yellow, departed from the board to assume responsibilities as the chief restructuring officer amid the bankruptcy process.
Based in Boston, MFN Partners has put forward additional suggestions. One is the establishment of an incentive program aimed at retaining key employees throughout the liquidation process. Additionally, MFN has urged the U.S. trustee overseeing the proceedings to establish an official committee to safeguard the interests of shareholders.
Beyond its considerable ownership stake, MFN is one of the creditors in Yellow’s bankruptcy case. Recently, the hedge fund was designated as one of the two creditors to provide a debtor-in-possession (DIP) financing package totaling $142.5 million. Another hedge fund, Citadel, based in Miami, is contributing $100 million to this financing, while MFN is covering the rest and retaining the option to provide an additional $70 million if necessary.
The DIP deal proposed by Citadel and MFN prevailed over an offer from Apollo Global Management, which was reportedly the only viable offer when Yellow filed for bankruptcy. Citadel entered the scene by acquiring the $485 million term loan that Apollo held with Yellow.
MFN is banking on a successful auction process, but its position is subordinate to secured lenders. Any remaining proceeds after addressing unsecured claims will be divided among equity holders.
The success of the company’s efforts to market and sell its portfolio of approximately 170 terminals will be a crucial factor. A competing company, Old Dominion Freight Line, established a minimum value for these properties with a $1.5 billion initial bid.
Shareholders are optimistic that other potential buyers will exceed Old Dominion’s bid before or during the auction. Alongside maximizing the profits from real estate sales, shareholders are also interested in the valuation of Yellow’s fleet of trucks and trailers, estimated at around $900 million.
Yellow owes the U.S. Treasury $737 million from a contentious COVID-relief loan granted in July 2020. The Treasury holds a primary lien position on the $400 million second tranche of the loan, which was utilized for equipment replacement. Most of the equipment was acquired in 2021, likely including the newest models in Yellow’s fleet.
The Treasury also possesses 30% of Yellow’s equity, which was obtained along with collateral at the time the loan was extended.
In its Chapter 11 filing, Yellow reported secured debts of $1.2 billion and total liabilities of $2.2 billion. Among its unsecured claims are pension fund obligations, with claims amounting to billions due to prior concessions made to keep the carrier operational. Yellow’s recent quarterly filing highlighted potential withdrawal liabilities exceeding $6.5 billion due to ceasing contributions to multiemployer pension plans.
