In the News

Mnuchin defends controversial loan to private equity-backed firm in contentious Hill testimony
Washington Post
12/10/2020



Republicans and Democrats in Congress grilled Treasury Secretary Steven Mnuchin on Thursday over his agency’s $700 million loan to a troubled trucking company backed by a massive private equity company with White House ties.

The Treasury Department made the loan to YRC Worldwide in July under a program authorized by Congress to help companies critical to national security suffering because of the coronavirus pandemic. The Congressional Oversight Commission, which is scrutinizing Treasury’s loans, has said the loan to YRC is suspect because the company is not critical to the nation’s defense and was struggling long before the pandemic.

The Pentagon, which also played a crucial part in the national security loans to YRC and other firms, declined to send an official to testify at the hearing, and is resisting the public release of its eventual testimony on the program, Sen. Patrick J. Toomey (R-Pa.) said at the hearing. 

YRC is backed by Apollo Global Management, a large private equity firm. One of its founders, Joshua Harris, advised the administration on infrastructure policy in 2017, the New York Times reported. Later that year, Apollo lent $184 million to the family real estate company of top White House official Jared Kushner, President Trump’s son-in-law, to help it refinance its mortgage on a Chicago skyscraper.

At the hearing, Bharat Ramamurti, a member of the Congressional Oversight Commission, cited a new report by the Government Accountability Office, which found that Treasury accelerated the loan to YRC even though other firms faced similarly urgent circumstances.

“At best, this is a loan … that puts nearly $1 billion of public money at risk with minimal protections, and that helps a private equity giant that was sitting on billions of dollars of its own money,” Ramamurti said. “And at worst, I think this generous loan was rushed into place to benefit a firm with close personal ties to the president’s family and I think that this warrants further investigation by this commission.” 

Mnuchin said he had no communication with Kushner or his staff about the YRC loan, and cited letters from members of Congress, saying there was “tremendous interest” to expedite the loan, and that the Department of Defense had certified that YRC qualified for the loan.

“So of course we were going to prioritize this,” Mnuchin said. “There was a tremendous risk to the Department of Defense, and a tremendous risk to the number of jobs.”

An Apollo spokeswoman, Joanna Rose, said the firm “was not involved at all” in YRC’s decision to seek the Treasury loan, and is “one of many lenders to YRC.”

Rep. French Hill (R-Ark.), a former commercial banker and investment manager, also criticized the terms of the loan, suggesting that U.S. taxpayers’ investment was at risk. He cited YRC’s past financial woes and high debt in the past decade, saying that the company had found “itself exactly in the same position before the pandemic.” 

“Having analyzed this data, reviewed the collateral, it makes me realize that were I still in finance, I would not have made this loan,” Hill said.

In exchange for its $700 million loan to YRC, the Treasury Department received a 30 percent equity stake in the company, which Mnuchin said is now worth $100 million.

Mnuchin acknowledged that Treasury may lose money on the YRC loan, but said that “both Congress and outsiders encouraged us to take losses” when providing relief to firms.

“Although I think because the economy has recovered taxpayers will do very well on this loan, I want to acknowledge, this was a risky loan,” Mnuchin said. “Again, we were very focused on saving jobs.”

Mnuchin also encouraged his successor next year to “seriously look at selling this [YRC] loan and recovering what I think will be a profit to taxpayers, because this was a success, but we do not want to be in the long-term business of lending to this type of company.” 

Treasury received 74 applications for the loan fund, which was initially meant for major companies like Boeing or the aviation division of General Electric. Instead, large firms balked at the terms and did not apply, leaving the $17 billion fund mostly unspent more than eight months after Congress passed the Cares Act. Treasury ended up making 11 loans from the fund, mostly to a hodgepodge of little-known companies.

Mnuchin also responded to criticism that the national-security loans took months to be approved — companies applied in May and received funds in late October or November, in most cases. He said that Treasury, tasked with “huge obligations” as a result of the coronavirus relief spending, had prioritized helping the aviation industry first ahead of the national security firms.

Mnuchin said no further loans would be made from the national security funds, and urged Congress to reallocate the funds to help aviation firms and small businesses. 

A YRC spokesman did not immediately respond to a request for comment. The Congressional Oversight Commission will hold a separate teleconference with the Pentagon regarding the loans, but the agency does not want the transcript of that teleconference to be made public, Toomey said.

“The commission strongly urges DOD to reconsider that position,” Toomey said. “The commission and DOD have a responsibility to inform the public how taxpayer funds are being used, especially given the concerns that have been raised about the YRC loan.”

The Pentagon played a key role in the loans because it certified that the firms, including YRC, were critical to national security and was crucial to qualifying for the funds. Jessica Maxwell, a Pentagon spokeswoman, said the Pentagon’s undersecretary for acquisition and sustainment, Ellen Lord, had responded to the commission’s questions in writing. 

Ramamurti called the termination of the facilities a “political decision ... intended to hamstring the incoming administration.”

“Let me put it this way: Does anyone think the Treasury would have ended these programs if Donald Trump was reelected?” Ramamurti said.

Congressional Republicans have backed Mnuchin’s interpretation of the law, with Toomey arguing the treasury secretary had no choice but to pull the funds back from the central bank.

Lord “welcomes a telephone call to answer any outstanding questions,” Maxwell said.

Mnuchin also at the hearing adamantly defended his decision to terminate several emergency lending facilities under the Federal Reserve.

The treasury secretary last month announced he would end a number of the central bank’s lending programs, such as the Main Street Lending Program and the municipal liquidity facility. Democrats have called the decision a politically motivated attempt to hamstring President-elect Joe Biden.

Mnuchin told the oversight commission he had no choice but to do so under the laws written by Congress, citing verbal guidance he had received from department attorneys. At the hearing, Mnuchin also pulled out a white binder with the Cares Act and read the statute aloud. “If Congress wants to reallocate this money from the Fed ... Congress can do that now,” Mnuchin said.