MFN Partners trying to protect equity investment in Yellow

A hedge fund with an integral role in Yellow Corp.’s bankruptcy proceedings is pushing for shareholders to have a bigger say in the company’s upcoming liquidation. MFN Partners, which amassed a more than 40% stake in the now-defunct less-than-truckload carrier during July, sent a letter to the company urging several changes.

The firm said it has proposed a candidate to fill one of two board seats that were vacated the day Yellow filed for bankruptcy. The individual was not named. MFN said the candidate has “deep and relevant experience in structuring, implementing, and/or overseeing value-maximizing transactions in special situations to the Board.” It said it would put forth another candidate in the near future.

Yellow’s former chairman, Matt Doheny, left the board to assume duties as chief restructuring officer during the bankruptcy.

Boston-based MFN has also asked the company to consider an incentive program to retain key employees during the liquidation and said it called on the U.S. trustee overseeing the proceedings to form an official committee to protect shareholder interests.

In addition to its equity stake, MFN is one of Yellow’s bankruptcy lenders. The firm was recently named as one of two lenders that will provide the company a $142.5 million debtor-in-possession (DIP) financing package. Miami-based hedge fund Citadel is providing $100 million in financing, with MFN providing the remainder as well as a delayed draw of up to $70 million if needed.

The DIP deal presented by Citadel and MFN beat out an offer from Apollo Global Management (NYSE: APO), which was said to be the only viable offer available at the time of Yellow’s bankruptcy petition. Citadel entered the fray when it bought the $485 million term loan Apollo had with Yellow.

MFN is banking on a successful auction process as its lien position is junior to secured lenders and any proceeds left over after unsecured claims are met would be split among equity holders.

A key determinant will be the success the company has at marketing and selling a portfolio of roughly 170 terminals it owns. Former competitor Old Dominion Freight Line (NASDAQ: ODFL) set the floor for the value of those properties with a $1.5 billion stalking horse bid earlier this month.

Shareholders are hoping that Old Dominion’s offer will be topped by other suitors before or during the auction process. In addition to maximizing the proceeds on the real estate sales, shareholders are eager to see what the company’s fleet of trucks and trailers brings in. The company has valued those assets at approximately $900 million.

Yellow owes the U.S. Treasury $737 million from a controversial COVID-relief loan provided to the company in July 2020. The $400 million second tranche of the program, in which the Treasury holds first-lien position, was used to replace tractors and trailers. The bulk of the purchasing took place in 2021 and likely represents the latest models in Yellow’s fleet.

The Treasury also holds 30% of Yellow’s equity. It received those shares in addition to collateral at the time the loan was made.

Yellow listed secured debt of $1.22 billion in its Chapter 11 petition with total liabilities of $2.15 billion. Its unsecured claims include those from the pension funds, which have said in the past they are due billions from prior concessions made to the carrier to keep it afloat. In its recent quarterly filing, Yellow noted potential withdrawal liabilities from ceasing contributions to multiemployer pension plans in excess of $6.5 billion.

Counsel from Central States Pension Funds is chairing a recently formed unsecured creditor’s committee.

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