Executives for less-than-truckload carrier Estes Express Lines have put their first preliminary offer on the table to buy the sprawling real estate holdings of defunct rival Yellow Corp. that consist of at least 160 freight terminals, attorneys told a U.S. Bankruptcy Court judge in Delaware on Aug. 17.
Richmond, Virginia-based Estes Express, which is No. 11 on the 2023 for-hire FleetOwner 500, emerged last week as potentially a pivotal player in the complex Chapter 11 bankruptcy of Nashville-based Yellow, which ceased operations late last month after its customers bolted to other carriers on the heels of a strike threat from its labor union, the International Brotherhood of Teamsters, over Yellow's failure to make pension and health care benefits payments for unionized employees. The shutdown and Yellow's early August bankruptcy filing, which its executives blamed on the Teamsters for allegedly obstructing its One Yellow financial restructuring, put roughly 30,000 employees out of work, 22,000 of them Teamsters members.
See also: Yellow's exit 'reshuffling' the LTL deck
Last week, Estes officials first stepped forward with a proposal to provide debtor-in-possession (DIP) financing, money Yellow needs to pay its bills and other expenses while its leaders prepare to auction off the company's extensive assets.
But during the Aug. 17 hearing in U.S. Bankruptcy Court, lawyers for Yellow said Estes has now submitted a so-called "stalking-horse" bid of $1.3 billion for Yellow's more than 160 terminals. The stalking-horse bid places a floor under the planned auction of Yellow's properties and gives other potential bidders a number to beat. Estes itself has a fleet of more than 9,600 trucks, 37,200 trailers, and 280 terminals across the U.S., Canada, and Puerto Rico, and also serves Mexico.
The $1.3 billion figure, a lawyer for Yellow noted to District of Delaware Judge Craig T. Goldblatt, would cover a significant portion of Yellow's pre-bankruptcy debt and lease obligations. Yellow, which was No. 6 on the FleetOwner 500 before it folded, finished June with nearly $1.5 billion in debts—including the $720 million pandemic-era CARES Act loan from the Trump administration that the company still owes and that has come under much scrutiny. The 2020 loan gave U.S. taxpayers a 30% stake in Yellow.
In the Chapter 11 announcement, Yellow executives pledged to pay the loan from U.S. taxpayers back in full. But it will compete with Yellow's other creditors for settlement from upcoming asset auction proceeds. In addition to its real estate holdings, the defunct company and its subsidiaries held 12,700 tractors (about 1,000 of them leased) and 42,000 trailers (of which 7,200 are leased). And the real estate holdings up for bid might also include six more warehouses run by Yellow's logistics subsidiary, if the planned separate sale of that subsidiary does not in the end take place.
Allison Smith, the Kirkland & Ellis attorney representing Yellow at the Aug. 17 hearing, told Goldblatt that intense negotiations over the past week with Estes and other parties in the Yellow case have made the process "a bit of a moving target" but added that she and her team believe there is consensus about the plans now coming into shape.
Bankruptcy financing taking shape among several bidders
In addition to Estes' real estate bid, those plans include DIP funding of $142.5 million from Citadel—the prominent hedge fund that late last week bought the term debt previously held by Apollo Global Management and Beal Bank—and MFN Partners Management, which is Yellow's largest equity investor. Citadel has agreed to provide $100 million in funding, and MFN has said it will kick in $42.5 million on more favorable terms than the first DIP terms that Yellow received last week from Apollo.
A key element of the new Citadel/MFN debtor-in-possession proposal—vital because Yellow's leaders project they will run out of cash as soon as this coming weekend—is that it wouldn't mature for 180 days. That's twice the length of previous iterations on the table and well beyond the initial timeline that Yellow executives had laid out to complete the auction of the company's assets, a timeline one bankruptcy expert last week told FleetOwner would be "very difficult."
See also: 'Yellow's customers are gone': Inside the LTL giant's bankruptcy filings
A representative of MFN echoed Smith's comment about the intensity of recent talks among the interested parties in the complex Yellow Chapter 11 case. Eric Winston, of law firm Quinn Emanuel Urquhart & Sullivan, called the negotiations "very hard-fought and continuous" but added that his clients at MFN are hopeful about where things stand now. One reason for that optimism, Winston said, is that the DIP proposal expected to be put before Goldblatt soon provides extra time to help Yellow get the most money possible from the sale of its assets. (Because MFN owns Yellow equity and not debt, MFN and other equity holders rank behind Citadel and the U.S. government in priority for potential payouts.)
Smith told the court the new plan's fee structure and interest rates stand to save Yellow between $27 million and $43 million versus prior proposals. She added that her team is looking to draw up the appropriate documents for Goldblatt and other stakeholders to review later.
Teamsters left in the lurch while Yellow execs cash in?
Among those who want to review the terms of any financing plan is a committee of unsecured creditors, which was organized on Aug. 16 and includes representatives from the Teamsters, the union's Central States pension fund, and the Pension Benefit Guaranty Corp. Those groups want to recover as much as possible from sales of Yellow's assets. Yellow's executives noted recently that pension claims and penalties could grow to a whopping $6.5 billion, so some of the creditors' claims—including those from the labor union—could go unpaid in the wake of Yellow's bankruptcy proceedings.
See also: Yellow files for Chapter 11, blasts union
The union has been outspoken in its criticism of Yellow and its executives for seeking the shield of bankruptcy protection. "Yellow may try to use the courts to eradicate its financial responsibilities, but they can't escape the truth. Teamster families sacrificed billions of dollars in wages, benefits, and retirement security to rescue Yellow. The company blew through a $700 million government bailout. But Yellow's dysfunctional, greedy C-suite failed to take responsibility for squandering all that cash. They still don't," Teamsters General President Sean O'Brien said in an Aug. 7 statement, its most recent one on the Yellow situation.
Also worth noting from the recent developments in Yellow's case: CEO Darren Hawkins and other senior company executives sold shares in Yellow worth nearly $1.5 million recently, so they have cashed out at least some of their personal financial interest in the defunct LTL.
The transactions were completed ahead of Yellow's stock being delisted from the Nasdaq stock market at the end of the trading day on Aug. 15. The shares now trade over the counter (Ticker: YELLQ) and have lost 30% of their value since the delisting this week from Nasdaq.
Managing Editor Scott Achelpohl contributed to this story.
