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Company earningsLess than TruckloadNewsTrucking

Oversight commission still waiting on Pentagon’s explanation of YRC loan

Treasury Department appears to be working with the commission

The commission overseeing the distribution of federal money provided to businesses negatively impacted by the pandemic said that it has yet to hear from the Defense Department regarding a request for more information on its designation of less-than-truckload (LTL) carrier YRC Worldwide (NASDAQ: YRCW) as a “business critical to maintaining national security.”

In a Thursday report, the commission said the Defense Department’s Sept. 2 letter stated it expected to have a response ready by Sept. 18. As of Thursday, the commission hadn’t received a response to its initial or follow-up queries.

On July 1, YRC announced that it would receive a $700 million Coronavirus Aid, Relief, and Economic Security Act (CARES Act) loan from the Treasury Department to repay short-term obligations and fund capital expenditures (capex) on tractors and trailers. The department used the national defense designation provided under a subtitle in the lending program, which requires either the secretary of defense or the director of national intelligence to recommend and certify that a company meets the standard.

It was Defense Secretary Mark Esper that gave the OK.

The commission is seeking understanding of the Defense Department’s “national security” designation to a carrier that hauls 68% of the department’s LTL freight, which consists of items like food, electronics and domestic military supplies. Further, they want to know if replacement service with another carrier was sought.

A July 20 report from the commission called into question the Treasury’s decision-making as well. The group is attempting to determine if the department’s use of the national defense provision was used appropriately and if YRC’s “precarious financial condition at the time of the loan” placed an undue risk burden on taxpayers. Other concerns include the commission’s perception that the interest rate on the new loan was too low and that the deal may be undercollateralized.

A July 30 response from the Treasury Department said the lending program contained vague guidelines as to which businesses would qualify and that it established guidance for qualifying companies in April, which YRC later met. The department pointed to a 30% decline in YRC’s shipments from mid-March to mid-April as creating a “liquidity crisis” and that a bankruptcy filing would be imminent, leaving 30,000 unemployed and “undermining the economic recovery,” if relief wasn’t provided.

The Treasury Department said the company passed all of the underwriting criteria and that the interest rate was modestly higher than those issued on other pandemic relief loans. Treasury pointed to $1.6 billion in pledged assets and the government receiving a 30% equity stake in the company as adequate collateral.

However, the Treasury’s first explanation didn’t pass muster with the commission, prompting additional requests for information from both the Treasury and Defense departments.

The Treasury Department appears to be working with the commission. “The Treasury and the commission are in the process of coordinating the transmission of additional confidential materials responsive to the commission’s questions,” the commission’s latest report stated.

The department has made only one loan from the $17 billion available under the “national security” carve out. YRC CEO Darren Hawkins was named to the president’s Great American Economic Revival task force in April and former YRC Chairman and CEO Bill Zollars was appointed by the president and confirmed by the Senate to the U.S. Postal Service board of governors in June.

YRC reported in its second-quarter filing with the U.S. Securities and Exchange Commission that it has used $245 million of the $300 million allocated under the first tranche of the loan for the repayment of deferred health, welfare and pension payments. At the time of the Aug. 3 filing, the carrier hadn’t drawn any of the funds from the $400 million second tranche, which is allocated for equipment capex.

Click for more FreightWaves articles by Todd Maiden.

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Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.

9 Comments

  1. The dopes that have run this company into the ground along with the incredibly profitable companies they bought deserve prison time.
    Management is running the place just like they did 30 years ago. They haven’t changed any processes except what they were forced to do by law because “that’s what we’ve always done.” Failure is what they’ve always accomplished.

    Also to save money none of the new trucks have radios in them. Seriously that’s what they think of their drivers who spend more time in these trucks than they do at home. I’m glad they still have seats in them. They could have deleted the passenger seats though. That would have saved real money. We don’t allow passengers.
    Fortunately they do have fuel gauges unlike the old ones. Seriously folks they deleted the fuel gauges to save money. It also costs ~$500 when a truck runs out of fuel and next to nothing to have a fuel gauge. That’s never happened though. Nobody ever makes mistakes. Especially management who loves to blame the lowest paid labor in the LTL industry for their incompetence.

  2. I lost my one man truck company , because caterpillar only paid me $ 1200 on a out of court settlement deal that evolve hundred of small business owner operators, Caterpillar C-15 engine failures cost my company 2014.then to read the Care’s act, gave a failing coming YRc who’s in the bed with the Federal government gets a 700 million dollar loan , leadership playing favor with tax payers money, and big co-op . It makes me Sick. .

    1. I don’t understand ether why this company gets bailed out. Where is our bail out? YRC subcontracts a lot of last miles to the company I work for. We can see how pathetically they operate first hand. They literally give us deliveries because their drives don’t want to do them i.e. too big, too difficult to unload.

      Why do they get bailed out with tax payer’s money and we do not.

    1. That’s along the same line of lack of compassion. The trustees will cut your pension before they lay off one secretary. It’s a business like any other. Corruption is well documented. Sorry.

  3. If I said it once I said it a thousand times. The business is successful! It is doing what it is supposed to!
    You are NOT included! If two drivers pay top salaries that’s how they will run it. Like Zollars, if they shut it down they will go do something else.

  4. Since this was a federal bailout loan, why didn’t the Trump administration require YRC to purchase there trucks from a class 8 builder whose trucks for the U.S market are only built in the U.S as far as i know Volvo Trucks is the only class 8 builder that can claim that title every other truck manufacturers have plants outside the U.S producing trucks for the american market.n

  5. YRC has some of the lowest pricing out there because in many cases this is the only way for them to keep or save customers. Their reputation is terrible as well as their overall performance. Wave head loads up to 20 feet no problem. Discounts over 90% no problem. They sold their terminals and leased some of them back sold their brokerage and truckload divisions and still have no cash. They will go thru this 700 million and still be in the same place they were before the bailout with nothing gained except some time and income until they have to ask for more to keep operating.

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