YRC receives $700 million CARES Act loan from Treasury
July 1, 2020
Just days before YRC Worldwide employees completely lost their health benefits, the U.S. Department of Treasury has bailed out the mega carrier with a $700 million loan in exchange for part ownership.
On Wednesday, July 1, the Treasury announced a deal with YRC after the company failed to pay health insurance contributions, putting insurance for thousands of employees in jeopardy. The Treasury is giving YRC $700 million to catch up on those payments. In exchange, the Treasury will receive a 29.6% equity stake in the company.
YRC’s $700 million loan from the Treasury comes from the CARES Act.
Earlier this year, YRC employees received a letter informing them of suspended insurance. The company was unable to pay its contribution for work performed during March, April and May. Consequently, the insurance company, TeamCare, suspended coverage until YRC met its obligations.
Fortunately, YRC employees received some relief. Workers who are laid off receive continued coverage up to eight weeks. TeamCare extended that coverage to active YRC employees during the suspension. As a result, eligible claims incurred after May 10 – up to eight weeks – may be paid despite the suspension.
Those eight weeks run out around July 5. As the clock continues to wind down, YRC still had not caught up with its insurance contributions. Without the government bailout, YRC employees would likely lose all health insurance benefits. Including its subsidiary companies, YRC employs about 30,000 people.
YRC will receive the $700 million loan in two parts:
- $350 million to cover short-term contractual obligations and certain other obligations including pension and healthcare payments. The loan terms are a London Inter-bank Offered Rate (LIBOR) benchmark plus 3.5%, consisting of 1.5% cash and 2% payment in kind. This loan matures on Sept. 30, 2024.
- $350 million for essential capital investment in trailers and tractors. An expected interest rate of LIBOR plus 3.5% in cash. This loan also matures on Sept. 30, 2024.
The massive financial crisis for the company is largely a consequence of the COVID-19 pandemic, according to YRC.
“In light of the current pandemic led economic crisis, YRCW has taken a range of actions to streamline operations, reduce costs, and amend debt covenants to ensure that we and our employees continue to play a vital role in transporting goods for the U.S. government and many essential businesses,” YRC told Land Line in a statement in May. “In keeping with our efforts to preserve liquidity, we have delayed some fund contributions and are working closely with the funds and the Teamsters Union to ensure that YRCW employees have uninterrupted access to healthcare benefits.”
According to the Treasury, YRC provides military transportation and other hauling services to the U.S. government. It provides 68% of less-than-truckload services to the Department of Defense. The loan will allow YRC to maintain approximately 30,000 trucking jobs and continue to support essential military supply chain operations and the transport of industrial, commercial, and retail goods to more than 200,000 corporate customers across North America, the Treasury said in a news release.
“Our 30,000 employees have continued to serve hundreds of quarantined communities across the country during the pandemic, and this financial assistance will enable us to bridge this pandemic-related crisis and continue to provide essential shipping services for the nation’s supply chain,” YRC CEO Darren Hawkins said in a statement. “The funding will also enable us to continue successfully implementing our multi-year strategic plan to transform our five powerful brands to operate as one company, one network to better serve our customers and the nation’s supply chain as economic recovery takes hold.”
Overland Park, Kan.-based YRC Worldwide owns YRC Freight, Holland, New Penn, Reddaway and HNRY Logistics. According to the Federal Motor Carrier Safety Administration’s database, YRC Freight has more than 9,000 drivers. Holland has more than 5,500 drivers.