TREASURY SHOULDN'T HAVE GIVEN PANDEMIC AID TO TRUCKING COMPANY, REPORT FINDS
WASHINGTON, D.C., June 27, 2023
Treasury Shouldn’t Have Given Pandemic Aid to Trucking Company, Report Finds
by David Harrison
Wall Street Journal
June 27, 2023
The Treasury Department erred in giving a loan to a troubled trucking company as part of a 2020 Covid-19 rescue package and should refrain from similar sector-specific loan programs in the future, according to a new congressional report.
Yellow, a trucking company, received a $700 million loan from the Treasury Department as part of an aid program for private industries included in bipartisan legislation known as the Cares Act enacted early in the pandemic.
But Treasury had to skirt the program’s rules to make the loan, the report said. The agency designated Yellow—then known as YRC Worldwide—as critical to national security even though the company didn’t meet the standard for that designation, the report said.
To qualify as a national-security company, a firm needed to have high-priority defense contracts or a top-security clearance. Although the company was a Defense Department contractor it “was not critical to maintaining national security given that the shipping services it provides to the military could be provided by other trucking companies,” the report said.
Instead, Treasury used a “catch-all provision” allowing for loans based on the recommendation of the Defense Department or Director of National Intelligence, according to the report, released Tuesday by the Congressional Oversight Commission, which was set up to monitor how Cares Act money was spent.
Originally made up of four members, the commission is now down to just Rep. French Hill (R., Ark.), who is the sole author listed on the report. Other members have resigned or are no longer in Congress.
In exchange for the loan, Treasury received a roughly 30% stake in the company.
“In the view of the Commission, their ‘catch-all provision’ is not an effective policy and should not be considered in future periods where Treasury loan programs are considered by Congress,” the report said.
At the time of the loan the company was rated noninvestment grade by Moody’s Investors Service and was at risk of bankruptcy, according to the report. The trucking industry slashed spending and cut back on hours and pay in the first few weeks of the pandemic as lockdowns spurred a deep economic downturn.
The company’s dire financial situation raised the possibility that it would default on the loan, the report said. The company remains current on its loan, which is set to be paid off in September 2024.
In recent months, Yellow has again suffered from the broader freight slowdown. The International Brotherhood of Teamsters, which represents drivers, recently refused a company restructuring request, prompting the company to sue the union for breach of contract Tuesday.
The company says the restructuring is necessary for the company to pay back the loan.
“But for the union’s blocking of Yellow’s modernization effort, Yellow would be sitting here today with upwards of an additional $100 million in cash and would be well-positioned to ride out the economic cycle and on track to refinance its Cares Act loan and other upcoming obligations,” said Heather Nauert, a company spokeswoman.
Teamsters President Sean O’Brien said the union is abiding by the terms of its contract with the company.
“After decades of gross mismanagement, Yellow blew through a $700 million bailout from the federal government, and now it wants workers to foot the bill,” O’Brien said in a statement.
Yellow shares were down about 24% in midday trading Tuesday to about $1 a share. Its share price is down about 68% since July 2020, when the company got the loan.
The congressional report says lawmakers should no longer create sector-specific loan programs in the future. Such programs can become “a risky taxpayer bailout for businesses.”
Government loans should come with more protections for taxpayers, the report said and any private company that gets a government loan should only use the money for specific expenses.
Loans should also be limited to companies “that are in good financial condition prior to the emergency events that lead to the program’s creation,” the report said.
A Treasury spokeswoman said the agency is monitoring the loan, which went out under the previous administration.