YRC’s $700M Treasury loan scrutinized by oversight commission

Less than three weeks after YRC Worldwide received a $700 million loan from the U.S. Department of Treasury, the Congressional Oversight Commission is criticizing the trucking company’s national security eligibility used to justify the loan, launching further oversight into the loan.

On Monday, July 20, the Congressional Oversight Commission released its third report. Created by the CARES Act, the commission’s role is to conduct oversight of the implementation of the $500 billion in CARES Act loans. In the latest report, the commission scrutinizes the Treasury’s decision to give YRC a $700 million loan on July 1.

“The Treasury has defined a ‘business critical to maintaining national security’ as a business that is at the time of its application performing under a defense contract of the highest national priority or operating under a top-secret facility security clearance,” the commission stated. “YRC apparently did not meet either of the two national security eligibility criteria.”

According to the report, YRC qualified for the program under a catch-all provision created by the Treasury. That provision allows the Treasury to determine if a business is critical to maintaining national security based solely on a recommendation and certification from the secretary of defense or the director of national intelligence. The commission noted that lawmakers had Boeing and General Electric in mind when the national security program was developed, as they were two companies supplying “sophisticated services and products” for national defense.

However, YRC’s role in national defense is more questionable, the commission argues.

“It is far from clear that the fourth-largest LTL shipping company in the United States is critical to maintaining national defense because it reportedly delivers ‘food, electronics and other supplies to military locations around the country,’” the commission stated. “The commission intends to conduct further oversight of this decision.”

One reason the commission is looking into YRC’s designation as critical to maintaining national security is because of the high risk of loss of taxpayer dollars on the loan. The report stated that the level of risk in YRC’s loans was “strikingly higher” relative to risks associated with other facilities.

“YRC has been rated noninvestment grade for over a decade, struggled financially for years before the COVID-19 crisis, and was at risk of bankruptcy before it obtained a loan from the Treasury,” the commission stated. “Under the CARES Act, a Treasury loan like this one is supposed to be ‘sufficiently secured’ or ‘made at a rate’ that ‘reflects the risk of the loan’ and ‘is to the extent practicable, not less than an interest rate based on market conditions for comparable obligations prevalent prior to the outbreak of the coronavirus disease 2019.’”

The commission states that YRC’s Treasury loan interest rate is 4% lower than the interest loan on its most recent debt financing. That was a five-year, $600 million term loan from last September.

Although the Treasury now has a 29.6% equity stake in the company, the commission questions whether that stake “will provide much, if any, compensation or protection to taxpayers.”

In its first quarter report, YRC had $879.9 million in total debt, with only $118 million in liquidity. As recently as April 6, a report from an investment bank suggested the company may be at risk of bankruptcy. In a SEC filing from May 11, YRC stated that “absent governmental assistance or a meaningful stabilization of the economy in the near term,” it had “substantial doubt” about its ability to continue operations. On May 28, Standard and Poor’s downgraded YRC from CCC+ to CCC. Even after the $700 million, YRC’s rating is only back to CCC+.

YRC did not immediately respond to requests for comment.