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Mnuchin to testify at hearing on $700M YRC, Treasury loans

Congressional Oversight Commission sets public hearing addressing concerns over CARES Act loans

YRC loan will be topic of commission hearing (Photo: Jim Allen/FreightWaves)

The rationale behind the $700 million pandemic-relief loan made to less-than-truckload (LTL) carrier YRC Worldwide (NASDAQ: YRCW) appears to be a likely topic during an upcoming commission hearing on the national security loan program established under the Coronavirus Aid, Relief and Economic Security (CARES) Act.

The seventh report from the congressional commission overseeing the distribution of federal loans made to businesses negatively impacted by the pandemic noted “serious concerns” with the YRC loan and said the “Department of Defense has yet to provide the commission a satisfactory explanation for how YRC is critical to national security.”

A $17 billion carve-out under subtitle A in the lending program allows a national security designation, deemed by the secretary of defense or the director of national intelligence, to qualify a company for relief. It was former Defense Secretary Mark Esper who recommended and certified that YRC, which provides 68% of the Defense Department’s LTL services hauling food, electronics and other supplies domestically for the military, met the standard.

The Defense Department said it has recommended and certified that 20 companies, including YRC, qualify under the national security standard.

The primary sticking points for the commission on the loan made to YRC have been the Defense Department’s designation of YRC as “critical to maintaining national security” and the Treasury Department’s underwriting of the loan to a company that was in “precarious financial condition” prior to the pandemic.

Defense Department draws commission’s ire

The commission said the Defense Department was slow providing a response and when one was provided it wasn’t sufficient. “The commission finds the Department of Defense’s delay inexcusable and its answers incomplete.”

The commission also has concerns that the Defense Department didn’t look to other LTL carriers for replacement service, noting that YRC is “merely the fourth-largest less-than-truckload shipping provider in the United States, and it is not the only provider of such services to the Department of Defense.”

“In short, the Department of Defense’s responses to the commission’s inquiries regarding why this company was deemed critical to maintaining national security raise more questions than they provide answers.”

Treasury’s decision still scrutinized

The $300 million first tranche of the loan was designated for the repayment of deferred health, welfare and pension payments. In its third-quarter filing, YRC reported that it has accessed the first $75 million of the $400 million second tranche, which is slated for the replacement of equipment. The carrier plans to take delivery of 300 new tractors and 950 new trailers before year-end, exhausting the remainder of the tranche in 2021. Self-funding equipment purchases and the associated expense reduction with operating new equipment is a significant cog in the company’s restructuring plan.

The Treasury’s underwriting and its determination of the terms and conditions of the loan have drawn the scrutiny of the commission, which noted the company “has been operating at a loss and has had poor credit ratings — both before and during the pandemic.”

The commission also found fault in the interest rates established on the loan and the Treasury’s lien position, which is subordinate to other creditors in the first tranche of the loan. Further, it believes the 30% equity stake the government received may ultimately be worthless, leaving the risk for loss of taxpayer money as “strikingly higher” when compared to other loans in the program.

The Treasury’s initial response addressed many of these items and spelled out the rationale behind the loan for YRC, which it described as the nation’s “second-largest” LTL carrier. The department said YRC met the standards — incurred losses due to the coronavirus, which created a liquidity crisis; met all of the criteria of the Treasury’s “credit test”; and pledged $1.6 billion in assets along with the equity stake as adequate collateral.

Treasury also contends that YRC was facing a strike and ultimately bankruptcy if its employees’ health coverage was withdrawn and that it was urged by both political parties to give YRC’s loan request “full and fair consideration.” The department said the interest rates were set 50 basis points higher than other loans made in the program and that the second tranche requires its approval of the quarterly capital expenditures (capex) plan before funds are released.

Public hearing date set

The commission said it was holding a public hearing on the national security loan program on Dec. 10 to “examine the funds authorized by the CARES Act that provide up to $17 billion for loans and loan guarantees to businesses critical to maintaining national security.”

Treasury Secretary Steven Mnuchin is expected to testify. The commission said it has also invited Director of National Intelligence John Ratcliffe and Department of Defense Undersecretary Ellen Lord. According to the report, Lord said she was unable to attend. Ratcliffe has yet to respond.

“Given these significant concerns, the commission believes it imperative that the public have the opportunity to hear from the officials involved in extending the YRC loan. The commission appreciates Secretary Mnuchin’s willingness to testify at [the Dec. 10] hearing regarding the YRC and other national security loans, and it strenuously encourages the Department of Defense and the Director of National Intelligence to also make themselves available.”

Citing frustration with the Defense Department’s lack of cooperation, the commission has asked the Treasury and Defense departments to provide it with copies of all communications between the two departments.

Click for more FreightWaves articles by Todd Maiden.

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  1. Tim Ahearn

    I worked for YRC ( started at Yellow) for over 30 years, retiring in 2015. The first 20 were good when the Powell family had control of the company. Then, like a lot of companies in America , Yellow was sold to predatory investors. The employees had to take wage and benefit cuts while the vultures hired to run the company paid themselves millions in bonuses each year .My story is the same as millions of blue collar workers over the last 30 years. The vultures pick the carcass clean and then throw what’s left down to the people doing the hard work. The biggest problem with this business model is sooner or later there won’t be any more companies for these vultures to swoop down on. Sooner or later middle class America will rise up against this flock of vultures.


    Yrc was in trouble before covid-19 way before. Just another union/government wrong doings and wasting money that should be for people who need help not a company in debt over a billion dollars Taking from their employees.

  3. No name

    YRC was under an alienation investigation lawsuit that showed the department of defense opened after the accused YRCW of over pricing do to over estimating the loads for the military. The lawsuit showed they was only speculations for ex carrier’s from the past. During the time of the investigation that lasted 10 years and a few more years later of the court proceedings these accusations had tainted the name of YRCW as a good company. Following the end of the lawsuit during the time of this all going on they lost alot of leaders and employees as well as made it so the company not only couldn’t sustain alot of different customers as well as made them sell equipment because of non use so the company not only had been given a bad name by the military investigation and court proceedings for over a decade but had to downside substantially to survive. I can’t speak on either yrcw or the military nor can I speak on the court proceedings anymore than I have already done with my own research and views. However in retro spect you would think the military owes them for ruining there name for over a decade and for causing them to downside in my opinion.

    1. Charlie Green

      The government should have place a lien on the two companies. And the government should control how the money loaned was spent. The pensions should have been paid up, up to date going forward, the company should be made, to pay back their 15% that the employees loaned them, this should all be in the agreement from the government to yellow freight and Roadways freight, and the government needs to look into the reason there was a consolidation in the two companies. These companies stocks, the largest share holders, are they with this company, or did they leave, so they could own other companies? And the government should control all pay-outs, until things are in balance with the company Yellow Roadway going forward. And payment are paid back as agreed.

  4. Robert Keith

    I started working for yellow freight in 1996 in St Joseph Missouri who’s a good job it was at least 12 drivers at the st. Joseph Missouri terminal and then they became YRC by 2004 yellow freight came to an end I stayed work and work full-time got laid off 2008 was called back for another bid can laid off again and in 2011 they closed our terminal in St Joseph Missouri and give it to old Dominion freight I didn’t even get to clean out my locker I started losing my house, this doesn’t surprise me corporate greed and now my pension that have been vested in it’s been cut in half, 15 years on the dock City driving it’s like it never happened now this

  5. Cecil Houck

    How about giving the drivers back their pay of 9k a year, they have been losing since 2009, that hurts and still does seeing it on a man’s check stub each week is depressing by experience. Was one of the best Companies to work for and most of our drivers use to invite other drivers to come to work for us because we were proud of our Company, not the case and hasn’t been for a long time.

  6. Brisco

    Well I work at YRC, and we’re pulling together to service the customer. Are you part of the problem, or part of the solution? We’re moving forward. One delivery at a time!!

  7. Mark.

    YRC, has definitely screwed over all their employees, 15% pay cuts, and not paid into their pensions for 7 years, now only offering a no match 401k plan,
    They have royally messed up any business they have touched, now they are getting loans from the government. Get ready U.S. government they will definitely find a way to embezzle this money too.

    1. I’m management

      Couldn’t agree more they hadn’t ran this company right in years other than running it in the ground they piss away a dollar to save a dime we see it I see it. Management? Blind leading the blind they’ll lose it,or hide it in other words they’ll mismanage it for sure. I wish the government would have come in and investigate and clean house

Comments are closed.

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.