As part of its bankruptcy proceedings, Yellow Corp. seems to be working to assign its leases for several properties owned by Estes Express Lines entities to third parties. But the shuttered carrier is facing a roadblock in Estes' attorneys, who argue that Yellow maintained their terminals so poorly that repairs will require $27 million, a sum that dwarfs the amount Yellow offered in October.
In a filing last week with the U.S. Bankruptcy Court for the District of Delaware, attorneys for Estes argued that Yellow cannot be granted its recent request to assume the leases for 14 properties owned by Estes so that another tenant could take over. Under bankruptcy laws, a company can assign its leases on commercial properties to third parties—Yellow plans to run an auction for its real estate network and leases—thus avoiding owing damages to its landlord.
There is one catch, however: In addition to showing evidence that the new tenant can meet the lease's terms, the bankrupt company must "cure" any debts it owes to its landlord—which is where Yellow and Estes are miles apart.
See also: Yellow bails on equipment auction, hires liquidator
Inspectors find list of problems at Yellow terminals
In late October, Yellow announced it was prepared to pay Estes about $652,000 to meet its remaining lease obligations on the 14 properties in 10 states. That amount roughly corresponds to the August rents, real estate taxes, and late fees for the terminals, but Estes says Yellow needs to pony up a lot more because it has "failed to fulfill myriad maintenance and repair obligations that Estes estimates will cost in excess of $27 million to remedy."
Estes-hired inspectors identified several problems. The company, which submitted a $1.525 billion stalking-horse bid for Yellow's portfolio of more than 140 terminals, cited some of those problems:
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In Kearny, New Jersey: "failed and separated roof flashing, roof membranes unadhering from the building structure, and a broken roof drain that are permitting water to enter the building."
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In Joliet, Illinois, and South Bend, Indiana: Damage to parking lots' asphalt that the Estes team estimates will cost a combined $5.9 million to repair
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In Charlotte: "rusting metal structures, cracked concrete floors and loading dock aprons, damaged asphalt paving, and major interior damage and deterioration" that contractors say will take $9.9 million to fix
Estes: Yellow subleases delay equipment auction
In addition to the alleged property damages, Estes calls the bankruptcy court's attention to four subleases Yellow has signed that weren't allowed per its agreements with Estes. In New Jersey, Yellow is collecting nearly $32,000 per month from a security service that has contracts at several area ports. In Tacoma, Washington, another trucking company, a tire disposal business, and a logging and construction venture are parking some of their vehicles through month-to-month subleases. Those arrangements, Estes' lawyers told the court, need to be terminated before Yellow can assume and/or assign the lease via an auction process scheduled for later this fall.
Yellow officials did not respond to a request for comment on Estes' claims. The now-defunct carrier, which filed bankruptcy papers in early August, can work to resolve out of court the issues raised. If that doesn't happen, Estes' filing will be heard by Judge Craig Goldblatt as part of a broader hearing on the sale of many of Yellow's assets or be handled separately as the case progresses.
Several other landlords around the country have filed claims similar to Estes', but none are as expansive or expensive. Another prominent name objecting to Yellow's lease cure plans is Union Pacific: Lawyers for the railroad giant on Nov. 6 said Yellow put up a fence at its Bloomington, California, terminal that encroaches on Union Pacific's adjacent property. Before any other tenant can take on Yellow's lease, Union Pacific says, the fence needs to come down, and Yellow needs to repair the railroad's property.
Landlords and other parties have until the afternoon of Nov. 9 to file objections like these to Yellow's lease assumption plans. The auction for Yellow's real estate portfolio is scheduled to start on the morning of Nov. 28.
This article was originally published on FleetOwner.com.
