(Bloomberg) -- On rare occasions, shareholders discover their company might be worth more dead than alive. One hedge fund is betting its long shot, legal gambit over Yellow Corp., the iconic American trucking firm that went bust last year, will lead to just such a windfall.
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As Yellow veered toward bankruptcy in 2023, MFN Partners Management LP bought up more than 40% of the cargo hauler for less than $23 million. Now, the firm is trying to collect on the hundreds of millions of dollars left sitting in Yellow's coffers. To win, MFN has to convince a bankruptcy judge to reverse himself and throw out $6.5 billion in claims that pension funds are seeking on behalf of the company's retirees.
While the pensions, backed by the powerful Teamsters union, have the upper hand, MFN was given a second chance on Nov. 5 when US Bankruptcy Judge Craig T. Goldblatt said his September ruling -- which appeared to wipe out MFN and other shareholders -- contained an error and may need to be reversed. He's expected to rule as soon as Nov. 15.
MFN's gamble is tied to a $40 billion taxpayer bailout in 2021 that saved 11 union pension funds serving Yellow retirees from insolvency. MFN argues that the federal subsidy extinguished billions of dollars in debt the trucker would normally owe for pulling out of the retirement plans. With the pension claims gone, MFN and other shareholders would get the cash left from the sale of the company's valuable trucking terminals.
The arcane legal dispute is the first time shareholders have tried to profit from a loosely worded 2021 federal law designed to bailout troubled retirement funds known as multi-employer pension plans. Federal regulators and the Central States Pension Fund, one of the biggest retirement systems of its kind in the US., claim that a victory for MFN and Yellow would set off a stampede to abandon similar union benefits, sticking taxpayers with as much as $20 billion in future pension bills.
"This is a clash of the titans sort of thing," said Mark M. Trapp, a lawyer who represents companies in pension disputes. "The pension plans and Yellow and all the best lawyers they can find have come onto the field of battle to fight this out because there is so much money at stake."
The heart of the case stems from a 2021 federal Covid relief law written to prop up ailing pension funds through at least 2051. The legislation required the Pension Benefit Guaranty Corp. to draft regulations to ensure the bailout did not make it easier for companies to abandon their retirement obligations.