Last Update: December 9, 2024

Last week, on December 2, 2024, Judge Goldblatt issued an order in the Yellow Corporation chapter 11 case (Docket No. 5057) related to the various multiemployer pension plans (MEPPs) litigation motions for summary judgment and reconsideration of his prior memorandum opinions. The order resolves certain questions, but leaves open other issues for further litigation, as discussed below. 

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What is the impact of SFA on MEPP withdrawal liability claims?

First, the Delaware Bankruptcy Court granted the Central States Pension Fund’s motion for partial summary judgment (Docket No. 3803), holding that the PBGC regulations at 29 C.F.R. § 4216.16(g)(2) properly exclude SFA funds from MEPP withdrawal liability calculations. For the purpose of calculating withdrawal liability, these regulations require special financial assistance (SFA) funds awarded to MEPPs to be “phased-in” over time and only considered as plan assets once actually received. Central States and other MEPPs that had received SFA awards prior to Yellow Corporation's chapter 11 filing had applied this method in their proofs of claim. The court agreed that from a policy standpoint, the PBGC regulations are reasonable because they align with Congressional intent to ensure that employers, not taxpayers, bear withdrawal costs and are not given added incentive to withdraw from their pension plans. 
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Implication for creditors  >> The judge’s decision effectively confirms that MEPP withdrawal liability claims will not be reduced based on SFA awards, keeping the liability pool larger and reducing the value available for other general unsecured creditors. 

Second, the Delaware Bankruptcy Court granted the MEPP’s motion for partial summary judgment (Docket No. 3085), and denied MFN Partners, LP and Mobile Street Holdings, LLC’s motion for reconsideration (Docket No. 4462), holding that the PBGC regulations which exclude SFA from plan asset calculations for withdrawal liability purposes are within the PBGC’s statutory authority under federal statutes ERISA and ARPA, did not improperly amend the ERISA framework, were consistent with other applicable laws and are not arbitrary or capricious. 
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Implication for creditors >> The judge’s decision knocks out one of the main arguments asserted by the Debtors as to why the receipt of SFA funds should have the effect of reducing MEPP withdrawal liability claims. 

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Does a 20-year cap on withdrawal liability payments apply for the purpose of calculating MEPP claims?

The Delaware Bankruptcy Court granted the Debtors’ motion for partial summary judgment (Docket No. 3825) in part, holding that each MEPP’s withdrawal liability should be calculated by applying a formula to determine Yellow’s annual payment obligations and then applying a cap on the payment stream equal to 20 times annual payments. The court held further that the 20-year cap applies regardless whether or not the payment stream is accelerated based on the finding of a default. 
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Implication for creditors >> The judge’s decision confirms (subject to an appeal, which we view as unlikely on this point) that MEPP claims will be subject to a cap, limiting the liability pool. This is positive for other general unsecured claims.  ‍

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Are withdrawal liability payments accelerated for the purpose of calculating MEPP claims?

In granting the Debtors’ motion for partial summary judgment (Docket No. 3825) in part, and granting the Debtors’ motion for reconsideration (Docket No. 4461), the Delaware Bankruptcy Court also held that whether a default occurred is not able to be resolved based on the current summary judgment record and that more briefing is needed to decide whether a default requires an actual payment obligation to be missed, or whether the bankruptcy filing itself is sufficient (typically ipso facto clauses are not enforceable in bankruptcy).
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The Debtors asserted in their reconsideration motion (Docket No. 4461) that there could not have been a prepetition default on withdrawal liability payments because under ERISA, payment obligations only arise after pension plans provide notice and demand. The MEPPs made their demands through proofs of claim filed after the bankruptcy petition and had no time to assess liability, obtain approvals and issue demands in the short window between Yellow’s withdrawal from the plans just days before the petition date. 
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The Debtors argued further that an "Insecurity Default" could not have occurred pre-petition because such defaults require pension plans to assess withdrawal liability first, then determine under plan rules that there is substantial likelihood of non-payment; because the MEPPs did not calculate withdrawal liability until after the bankruptcy filing, no such determination could have occurred. 
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Implication for creditors >> Permitting acceleration of 20 years of withdrawal liability payments without discounting for present value would mean substantially larger claims for MEPPs relative to the overall claims pool, diluting recoveries for other general unsecured creditors. Questions remain as to whether a default occurred, which will be subject to further litigation. Market pricing for general unsecured claims has fallen significantly on account of expected related delays in the case and increased administrative costs.

Other issues not expressly addressed in the order, are also subject to further briefing and argument before the court.‍

If no acceleration, what discount rate applies to determine the present value of the 20-year payment stream?

Assuming that the Debtors prevail on the argument that MEPP withdrawal liability payment streams cannot be accelerated and must be discounted to present value, additional questions remain as to the appropriate discount rate that should be applied to determine present value. Judge Goldblatt may determine that a blanket rate applies, calculated based on the Debtors’ cost of debt, or that the rate should be determined based on the funding rate applicable to each fund. 
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Implication for creditors >> We expect substantial administrative expense and time will be devoted to litigation over these issues with each pension fund, extending the timeline to case resolution and recovery and reducing the available assets for distribution. 

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What interest rates and other considerations are applicable for calculating the Debtors’ unfunded vested benefits (UVBs) as required by ERISA for determining MEPP withdrawal liability?

The Debtors have argued (Docket No. 5068) that certain non-SFA MEPPs cannot obtain summary judgement on the validity of their plan-specific calculation methods for the purpose of determining UVBs. Further discovery and briefing on each plan’s documents, side letters and past practices is necessary for the court to make determinations.  Each MEPP has engaged its own independent actuarial experts to determine the appropriate discount rate and many of these experts have elected to use blended discount rates that, in part, reflect very conservative expected investment returns of the pension fund in future years.

These conservative estimates result in much larger present value claims then the Debtors assert is appropriate given prevailing market interest rates. As emphasized in the MEPP briefings (see e.g., Docket Nos. 5042, 5039) the relevant legal standard is whether their discount rates are reasonable. The Debtors have the burden to show otherwise. 
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Implication for creditors >> We expect substantial administrative expense and time will be devoted to litigation over these issues with each pension fund, extending the timeline to case resolution and recovery and reducing the available assets for distribution. 

Will WARN Act claims get priority over GUCs and to what extent will they be allowed?

In addition to remaining uncertainty over the extent to which MEPP withdrawal liability claims will be allowed, separate litigation is heating up as to the validity of $200 million in WARN Act claims. After initial indications that the Debtors had met the requirements to zero out WARN Act liability, it now seems that the WARN Act claimants are likely to prevail on some or all of their claims, which have priority to all general unsecured claims (including MEPP withdrawal liability claims) in the recovery waterfall. Trial is set for January 21-23 2025. 
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Implication for creditors >> If the WARN Act claimants prevail (or agree to a settlement with the Debtors that delivers significant value to former employees of the Debtors), Yellow general unsecured claims may find themselves farther down the line to receive payments from the estate.Market pricing for general unsecured claims has fallen further on the increased risk.

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Xclaim can help

Xclaim has prepared the following update on the market for general unsecured claims and a summary of recent rulings in the Yellow Corp. chapter 11 cases for creditors considering a sale of their claims. This summary is provided for general information purposes only and shall not be construed as legal or financial advice. 
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Based on the developments discussed below and a backdrop of weak asset sales, indicative bids for allowed general unsecured claims have fallen from 26c to 19c since December 2. Pension claims continue to be priced on an individual basis, but bids are similarly depressed relative to prior indications. Seller credit risk, claim size, allowance status and other factors may impact pricing on your claim +/-. For a custom quote or to further discuss these developments, contact your Xclaim representative at brokerage@x-claim.com. 
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Billions of dollars of claims are created in reorganizations every year. The process is often opaque and confusing to creditors who may have only one bankruptcy claim over their entire business career. Retaining a professional or attorney to manage a claim is often a disproportionate cost for creditors. It also increases short term cash outflows. Selling a claim provides a cash inflow, which derisk a situation which is not a core business risk. Using a marketplace like X-claim helps bring more buyers to your claim and improves the offer for your claim. Visit https://www.x-claim.com to register to sell your claim today.