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Yellow Corporation – Court Approves Stalking Horse Arrangements with Estes Express Lines ($1.525bn Cash Bid for Owned Property); Debtors Cite “Substantially Below Market” Bid Protections in Choosing Estes Over Old Dominion (For Now)

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September 21, 2023 – The Court hearing the Yellow Corporation cases issued an order approving: (i) stalking horse arrangements with Estes Express Lines (“Estes,” $1.525bn cash bid) in relation to the sale of substantially all of the Debtors’ owned real estate (the "Owned Properties") and (ii) authorizing the Debtors to offer Estes "substantially below market" bid protections, including a $7.5mn break-up fee and a $1.6mn expense reimbursement [Docket No. 624, with Estes' September 12th APA attached at Exhibit A]. 

The designation of Estes as stalking horse for the Owned Properties follows a back-and-forth battle with Old Dominion (there was also an un-named third party that spent substantial time kicking the Yellow tires, but was "was unable to deliver on the timelines that Estes and Old Dominion contemplated"). 

On August 17th, the Debtors informed the Court that they had a presumptive stalking horse bid from Estes of $1.3bn, with Old Dominion quickly upping the ante to $1.5bn. 

Thereafter, the two trucking giants continued to negotiate with the Debtors, with the Debtors ultimately determining that the "the Estes Stalking Horse Bid is an improvement over the Old Dominion Bid because it offers more money for the Acquired Assets and less fees in terms of bid protections." 

As to those bid protections, the Debtors note: "the Estes Bid Protections are substantially below market. For example, had the parties agreed to a 3% breakup fee and 1% expense reimbursement, amounts routinely approved by bankruptcy courts in this and other districts, the requested bid protections for the proposed $1.525 billion transaction under the Real Estate Stalking Horse APA could have been $61 million. The Estes Bid Protections, in contrast, total only a maximum amount of $9.1 million, comprising (a) a $7,500,000 Breakup Fee and (b) an Expense Reimbursement of up to $1,600,000…"

That small bid protection package also leaves Old Dominion (and others) better positioned to deliver a topping bid at or before a scheduled November 28th auction. Two+ months is a long time.

The Debtors owned real estate is of course not the only asset grouping on the auction block, with the Debtors' rolling stock and leased property amongst other major pots of value. 

The Debtors note that  "Bidding Procedures contemplate separate Auction(s), in each case if required, for (i) the Rolling Stock and (ii) the Debtors’ Non-Rolling Stock Assets (i.e., the Real Property Assets (which includes the Owned Properties and the Leased Properties), the Intellectual Property, and the Other Assets (each as defined in the Bidding Procedures)), to commence on October 18, 2023 at 10:00 a.m. (prevailing Eastern Time) and November 27, 2023 [now the 28th] at 2:30 p.m. (prevailing Eastern Time), respectively."

Case Status

On August 6, 2023, Yellow Corporation and 23 affiliated Debtors (Nasdaq: YELL; “Yellow” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn ($1.2bn of funded debt; NB: the Debtors latest 10-Q lists assets of $2.152bn and liabilities of $2.588bn as of March 31, 2023). At filing, the debtors, The Debtors, “a leading trucking and logistics company, boasting one of the largest less-than-truckload (‘LTL’) networks in North America,” cited a “ruinous campaign to destroy the Company” led by the International Brotherhood of Teamsters (“IBT”) and IBT President Sean O’Brien, but also conceded macroeconomic factors such as a soft manufacturing sector leading to lower LTL demand [but not noticeably not conceding to fairly ubiquitous accusations of legacy mismanagement].

On August 7, 2023, the Debtors filed a motion seeking approval of a bidding procedures in relation to the sale of the substantially all of the Debtors’ assets in one or multiple transaction(s) [Docket No. 22].

On August 18, 2023, the Court issued an interim order authorizing the Debtors to access $60.0mn in new money, debtor-in-possession (“DIP”) financing (the “DIP Facility”) consisting of $17.9mn of new money DIP term loans (the “Junior DIP Loans”) being provided by Debtor’s largest shareholders MFN Partners, L.P. (the “Junior DIP Lender”) and (b) $42.1mn of new money DIP term loans (the “Postpetition B-2 Term Loans”) being provided by Citadel Credit Master LLC (the “Postpetition B-2 Lenders”).

Key Terms of Estes Stalking Horse APA

  • Seller: Yellow Corporation
  • Purchaser: Estes Express Lines
  • Purchase Price: $1.525bn (Cash Purchase Price), subject to certain potential adjustments.
  • Deposit: 5% of the Cash Payment portion of the Purchase Price.
  • Bid Protections: (i) a $7.5mn break-up fee and (ii) up to $1.6mn expense reimbursement.
  • Credit Bid: None
  • Acquired Assets: “Acquired Assets” means all of the Sellers’ right, title and interest, as of the Closing, in and to:
    1. the Owned Real Property of the Sellers set forth on Schedule 1.1(a) (the “Acquired Real Property”);
    2. the Contracts set forth on Schedule 1.1(b) (collectively, the “Assigned Contracts”);
    3. to the extent transferable under applicable Law, all of the rights, interests and benefits (if any) accruing under all Permits and Governmental Authorizations related to the Acquired Real Property, and all pending applications therefor;
    4. all Documents relating solely to the Acquired Real Property included in the Acquired Assets, but excluding any information to the extent prohibited by Law;
    5. all rights against third parties (including customers, suppliers, vendors, merchants, manufacturers and counterparties to any Assigned Contract), including causes of action, claims, counterclaims, defenses, credits, rebates (including any vendor or supplier rebates), demands, allowances, refunds (other than Tax refunds or Tax attributes), causes of action, rights of set off, rights of recovery, rights of recoupment or rights under or with respect to express or implied guarantees, warranties, representations, covenants or indemnities made by such third parties, with respect to any of the Acquired Real Property, or the Assumed Liabilities, in each case, other than (i) all preference or avoidance claims or actions arising under the Bankruptcy Code or applicable Law, (ii) all claims that any Seller or any of its Affiliates may have against any Person with respect to any other Excluded Assets or any Excluded Liabilities, and (iii) claims against any Seller or its Affiliates.

Real Estate Stalking Horse Motion

The motion [Docket No. 518] states, “Pursuant to the Debtors’ proposed Bidding Procedures, the Debtors seek to maximize the value of their Assets (including but not limited to their Owned Properties) for the benefit of all of their stakeholders. The Bidding Procedures contemplate separate Auction(s), in each case if required, for (i) the Rolling Stock and (ii) the Debtors’ Non-Rolling Stock Assets (i.e., the Real Property Assets (which includes the Owned Properties and the Leased Properties), the Intellectual Property, and the Other Assets (each as defined in the Bidding Procedures)), to commence on October 18, 2023 and November 27, 2023, respectively.

… Prior to and following entry of the Interim DIP Order, the Debtors and their advisors engaged in hard-fought negotiations with both Old Dominion and Estes regarding the terms of a value-maximizing Stalking Horse APA for the Owned Properties. As counsel to the Debtors stated on the record at the status conference held before the Court on August 17, 2023, Estes was the Debtors’ originally contemplated Real Estate Stalking Horse Bidder (under the DIP Facility) for the Acquired Assets, providing a stalking horse bid for the Acquired Assets in the amount of $1.3 billion (the ‘Original Estes Bid’). Immediately thereafter, Old Dominion Freight Line, Inc. (‘Old Dominion’) submitted a stalking horse bid to the Debtors for the Acquired Assets in the amount of $1.5 billion (the ‘Old Dominion Bid’).

The Debtors filed that certain Debtor-in-Possession Credit Facility Term Sheet (the ‘DIP Term Sheet’) on August 18, 2023, incorporating the Old Dominion Bid (in lieu of the Original Estes Bid) therein. Indeed, one of the key aspects of the Interim DIP Order and the DIP Term Sheet, consented to by each of the Junior DIP Secured Parties, the B-2 Secured Parties, the Prepetition ABL Secured Parties and the Prepetition UST Secured Parties, was the requirement of a Stalking Horse APA for the Owned Properties as part of the DIP Facility. Since then, the Debtors engaged in weeks of extensive and hard-fought negotiations with both Estes and Old Dominion. Ultimately, Estes offered the Real Estate Stalking Horse APA to purchase all of the Owned Properties for $1.525 billion (the ‘Estes Stalking Horse Bid’). 

The Estes Stalking Horse Bid is an improvement over the Old Dominion Bid because it offers more money for the Acquired Assets and less fees in terms of bid protections. The Debtors, in consultation with their advisors, believe that the Real Estate Stalking Horse APA offered by Estes represents the best available stalking horse alternative with respect to the Acquired Assets and is reasonable and necessary considering that the Interim DIP Order and the DIP Term Sheet require the Debtors’ entry into a Stalking Horse APA. This Motion seeks approval of the Real Estate Stalking Horse APA provided by Estes.”

The motion further provides, “The Debtors believe that the Real Estate Stalking Horse APA represents the highest and otherwise best value-maximizing stalking horse arrangement for the Owned Properties. The Real Estate Stalking Horse APA sets a meaningful price floor ($1.525 billion) for the Owned Properties in the aggregate, while the Bidding Procedures maintain flexibility for the Debtors to pursue the highest value achievable for proceeds of the Acquired Assets, by clearly establishing that Bids for the Assets may be submitted on an all-, packaged- or individualized- basis. Further, the Real Estate Stalking Horse APA provides assurance to the Debtors and their stakeholders that the Sale (or Sales) of the Owned Properties will at least exceed $1.525 billion, an amount sufficient to pay off the Debtors’ entire remaining prepetition secured capital structure in full, with remaining proceeds available for distribution to general unsecured creditors.

Moreover, the Estes Bid Protections are substantially below market. For example, had the parties agreed to a 3% breakup fee and 1% expense reimbursement, amounts routinely approved by bankruptcy courts in this and other districts, the requested bid protections for the proposed $1.525 billion transaction under the Real Estate Stalking Horse APA could have been $61 million. The Estes Bid Protections, in contrast, total only a maximum amount of $9.1 million, comprising (a) a $7,500,000 Breakup Fee and (b) an Expense Reimbursement of up to $1,600,000. Last, the Real Estate Stalking Horse APA provides for 30 days of rent-free storage of Rolling Stock and other equipment that the Real Estate Stalking Horse Bidder estimates could have a value to the Debtors’ estates in excess of $10 million.

Marketing Efforts

A declaration filed in support of the stalking horse motion by investment bankers Ducera [Docket No. 529] provides: "Since the Petition Date, the Debtors have negotiated with two primary parties (Old Dominion and Estes) regarding potential Stalking Horse Bids for all of the Debtors’ Owned Properties. The Debtors had substantial engagement with a third party that expressed interest in providing a Stalking Horse Bid, but such party was unable to deliver on the timelines that Estes and Old Dominion contemplated. The Debtors received written proposals for a Stalking Horse Bid for the Owned Properties from each of Old Dominion and Estes. Ducera and the Debtors negotiated with both parties regarding value of the Owned Properties and key business terms, including purchase price, deposit, assumed liabilities, excluded assets, deal contingencies, bid protections, and timing of closing a transaction.

After extensive negotiations and due diligence efforts with both parties, Estes ultimately delivered what the Debtors view, in consultation with their advisors, including Ducera, as the only actionable Stalking Horse Bid for the Acquired Assets, providing the best stalking horse economic terms available to the Debtors for the Acquired Assets. Accordingly, the Debtors, in consultation with their advisors (including Ducera), selected Estes’s proposal as the Real Estate Stalking Horse Bid for the Owned Properties. On September 12, 2023, the Debtors and the Real Estate Stalking Horse Bidder (i.e., Estes) entered into that certain Asset Purchase Agreement (including all exhibits and schedules related thereto, the 'Real Estate Stalking Horse APA'), whereby the Real Estate Stalking Horse Bidder has committed to purchase all of the Debtors’ Owned Properties (including certain related assets (as further described in the Stalking Horse APA), the 'Acquired Assets”) for cash consideration of $1.525 billion, subject to certain adjustments as set forth in the Stalking Horse APA (the 'Purchase Price')."

Approved Key Dates (Rolling Stock):

  • Bid Deadline for Rolling Stock: October 13, 2023
  • Auction(s) (if required) for Rolling Stock Begin: October 18, 2023
  • Notice of Winning Bidder(s) for Rolling Stock: October 23, 2023
  • Sale Objection Deadline for Winning Bid(s) for Rolling Stock: October 25, 2023
  • Sale Hearing as to Winning Bid(s) (or Back-Up Bid(s), as applicable) for Rolling Stock: October 27, 2023

Approved Key Dates (Real Estate and All Other Assets):

  • Bid Deadline for Non-Rolling Stock Assets: November 9, 2023
  • Auction(s) (if required) for Non-Rolling Stock Assets Begin: November 28, 2023
  • Notice of Winning Bidder(s) (and Back-Up Bidder(s), as applicable) for Non-Rolling Stock Assets: December 1, 2023
  • Sale Objection Deadline for Winning Bid(s) (or Back-Up Bid(s), as applicable) for Non-Rolling Stock Assets: December 8, 2023
  • Sale Hearing as to Winning Bid(s) (or Back-Up Bid(s), as applicable) for Non-Rolling Stock Assets: December 12, 2023

More Sales Background

The Bidding Procedures Motion

The motion [Docket No. 22] states, “[t]he Debtors filed these chapter 11 cases to effectuate a sale or sales of some or all of the Debtors’ assets and, in parallel, commence an orderly wind-down of the Debtors’ businesses to maximize value for all stakeholders. Through this motion, the Debtors seek the Court’s approval of bidding procedures pursuant to which they will seek bids for the sale or sales of their assets, which include a significant portfolio of owned real property across numerous states as well as thousands of trucks, trailers, and other forms of operational equipment. To preserve the value of the Debtors’ estates—and to offer the Debtors a chance to increase the ultimate value provided by the monetization and disposition of their assets— the Debtors propose the expedited timeline set forth herein. The Debtors will consider all viable options in accordance with the Bidding Procedures before determining if selling assets will, in their business judgment, maximize value for the estate.

The proposed sale process is the product of substantial discussion and planning by the Debtors. As more fully described in the First Day Declaration and the Kaldenberg Declaration, in the face of increasing operational inefficiencies and union disputes, the Debtors were forced to take the first steps towards implementing a full-scale wind-down of their business operations. Pursuant to this motion, the Debtors seek to formalize bidding procedures designed to maximize value for all stakeholders and minimize disruptions to the Debtors’ wind-down efforts.

The Debtors commenced these chapter 11 cases with committed postpetition financing in the form of a DIP Facility, granting the Debtors with runway to pursue a sale or sales of the Debtors’ Assets. Pursuant to the DIP Credit Agreement, the Debtors must satisfy certain milestones (the ‘DIP Milestones’) for the sale of their Assets, including: 

  • any Stalking Horse Agreement must be executed not later than 55 days after the Petition Date; 
  • any Bid Deadline must be not later than 70 days after the Petition Date; and 
  • any Sale Transactions must be consummated not later than 90 days after the Petition Date.

A thorough yet expedited bidding process and consummating Sale Transactions are vitally important to the Debtors’ efforts to maximize value by selling the Assets. The expeditious timeline set forth in the Bidding Procedures is necessary to comply with the milestones in the DIP Facility but is also reasonable under the circumstances of this chapter 11 case.”

The Prepetition Marketing Process

The motion further states, “Prior to the Petition Date, Ducera Partners LLC (‘Ducera’), the Debtors’ proposed investment banker, commenced a robust marketing process for the sale or sales of all or a subset of the Debtors’ Assets with the goal of maximizing the value of the Debtors’ estates in the event of a chapter 11 filing. As part of this prepetition process, Ducera contacted over 200 interested parties, including various financial institutions and other strategic buyers, that were considered likely participants in a sale process of the Debtors’ assets, and provided such parties with marketing materials. In addition to identifying potential bidders, prior to the Petition Date, Ducera began collecting and organizing diligence materials for inclusion in a virtual data room, access to which was provided to 63 interested parties that executed confidentiality agreements with the Debtors. The Debtors expect that additional parties will become aware of the potential sale through the chapter 11 process, thus driving even more interest in the Debtors’ Assets.

Contemporaneous with Ducera’s asset marketing process, on the Petition Date, after extensive arm’s-length negotiations with their prepetition secured lenders, the Debtors were able to secure the proposed DIP Facility of approximately $142.5 million in new money, as further described in the DIP Motion. The liquidity provided by the DIP Facility will facilitate the Debtors’ implementation of a fulsome and value-maximizing asset marketing process pursuant to the Bidding Procedures.”

About the Debtors

According to the Debtors: “Yellow operates one of the largest, most comprehensive logistics and less-than-truckload (LTL) networks in North America, providing customers with regional, national, and international shipping services throughout. Backed by a team of nearly 30,000 transportation professionals, Yellow’s flexible supply chain solutions and best-in-class expertise ensure the safe, timely delivery of industrial, commercial, and retail goods for customers of all sizes. Yellow’s principal office is in Nashville, Tenn., and is the holding company for a portfolio of LTL brands including Holland, New Penn, Reddaway and YRC Freight, as well as the logistics company Yellow Logistics.”

The Doheny Declaration adds: “Yellow has been a leading trucking and logistics company, boasting one of the largest less-than-truckload (“LTL”) networks in North America that enabled Yellow to provide customers with regional, national, and international shipping services of transportation logistics and LTL services. Entering 2023, Yellow was the largest unionized LTL carrier in the United States, in addition to being the third largest LTL freight carrier and the fifth largest transportation company in North America.

Yellow operated service terminals in 300 communities, with employees in all fifty states. In 2022, Yellow transported approximately 14.2 million shipments, for approximately 250,000 customers, including the U.S. Government, generating more than $5.2 billion in operating revenue. On an average workday, Yellow’s approximately 30,000 employees handled approximately 50,000 freight shipments. Yellow’s fleet is comprised of approximately 12,700 tractors, including approximately 11,700 owned tractors and approximately 1,000 leased tractors, and approximately 42,000 trailers, including approximately 34,800 owned trailers and 7,200 leased trailers. Yellow’s network includes 308 strategically located service facilities, including 169 owned facilities with approximately 10,000 doors and 140 leased facilities with approximately 9,100 doors, in addition to six warehouses managed by Yellow’s logistics solution provider, Yellow Logistics.”

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The post Yellow Corporation – Court Approves Stalking Horse Arrangements with Estes Express Lines ($1.525bn Cash Bid for Owned Property); Debtors Cite “Substantially Below Market” Bid Protections in Choosing Estes Over Old Dominion (For Now) appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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