A Congressional Oversight Commission tasked with reviewing CARES Act loans made by the federal government sent up some warning flags this past week. The $700 million loan to Yellow Corp, then known as YRC Worldwide, has been called “a mistake.” Questions have been raised about Yellow’s sudden surge in lobbying money, and about how they received the designation as being “critical to maintaining national security.”
When the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed, it allocated $2.2 trillion worth of spending, tax breaks, loans, and other resources to be pumped into the U.S. economy. $17 billion of that was earmarked for loans to “businesses critical to maintaining national security.” Ultimately, only $736 million in these loans were approved. $700 million of which went to YRC Worldwide.
At the time, YRC was having a rough go. A few years earlier they had been sued by the Department of Defense. The DOD claimed that the company “systematically overcharged” the DOD for their services, accused them of fraud, and claimed that YRC executives had “made false statements to the government that hid their misconduct.”
YRC was also deeply in debt. They borrowed hundreds of millions of dollars in 2011, 2014, and 2019. All of that had saddled them with a total of $880 million in debt. Then, with $0 spent on lobbying efforts in 2019, they spent $570,000 on lobbying in 2020.
Whether the result of the lobbying effort or not, YRC’s fortunes seem to have brightened significantly almost immediately.
Then-Treasury Secretary Steve Mnuchin told commissioners during a hearing in December that there were “plenty” of “very senior people in Congress” who asked him to approve the loan to YRC. In fact, Kansas Senator Jerry Moran went so far as to ask Secretary Mnuchin about what the Treasury Department could do to help YRC in an open Senate hearing.
Arkansas Online lists the other lawmakers who wrote to Treasury, on behalf of YRC:
Rep. Sharice Davids, D-Kan., Rep. Peter A. DeFazio, D-Ore., and Rep. Sam Graves, R-Mo.; Sen. Ron Wyden, D-Ore., then-Sen. Pat Roberts, R-Kan., Rep. Albio Sires, D-N.J., Rep. Bill Pascrell Jr., D-N.J., and Rep. Donald M. Payne Jr., D-N.J.
The CEO of YRC was placed on the coronavirus revival task force. A former CEO/Chairman/President of YRC was placed on the board of governors of the United States Postal Service on June 19th, 2020.
On that day, YRC’s stock price closed at $1.78. Twelve days later, YRC’s $700 million loan was announced. Overnight, the stock shot up to $3.23. Since then it has kept climbing to a 52-week-high of $10.20.
But despite the climbing stock price, YRC – now rebranded to Yellow – was still losing money. Their $53 million net loss in 2020 wasn’t as bad as their $104 million net loss in 2019. But just this past week Yellow announced their first-quarter results for 2021. In just the first quarter, they are reporting a net loss of $63.3 million. That news and the Congressional Oversight Report have sent the stock tumbling. At the end of trading today, the stock was down to $6.51 per share.
“The $700 million taxpayer backed loan Treasury made to Yellow, formerly YRC, was a mistake,” Congressman French Hill (R-AR) said in a written statement according to reporting by Arkansas Online. “Based on the oversight work conducted by the Commission, there is no evidence to support Yellow being critical to national security which means these loans should never have been executed.”
At the time of the loan’s approval, the Mnuchin’s Treasury Department told commissioners that YRC handled 68% of the Defense Department’s LTL shipping. Treasury and DOD both gave that 68% figure, and according to the oversight report, that number was “used frequently to justify why Yellow was deemed critical to national security.” Yet the despite following up and specifically asking, the commission was “unable to substantiate the 68% figure based on a review of materials.”
The $700 million loan raised some eyebrows when it was made, even here at TruckersReport. But Secretary Mnuchin assured taxpayers that they would eventually make money on the loan because the federal government had received a 30% stake in the company as part of the loan agreement.
At the time the loan was made, a 30% stake was worth around $28.4 million. Even at the company’s highest recent valuation, a 30% stake would be worth around $162.2 million.
Yellow maintains that the loan was and is a good thing.
“Our agreement with the U.S. Department of the Treasury was mutually beneficial,” wrote a Yellow spokesperson according to Arkansas Online. “The department invested in the future of the Company and our 30 thousand employees with the belief that it would pay off. Today, taxpayers are beneficiaries of this investment.”