The Treasury Department in the Trump administration erred in granting YRC Worldwide, now known as Yellow Corp., a $700 million loan as part of the COVID-19 rescue legislation.
That is the finding of a report from the Congressional Oversight Commission just released. The report was authored by U.S. Rep. French Hill, R-Ark., who is a member of the oversight commission.
The report comes out at a time when Yellow is embroiled in a battle with its union drivers over restructuring. Also, The New York Times floated the idea the morning of June 28 that the company may be forced to file for bankruptcy protection.
Yellow Corp. stock on the Nasdaq stock exchange was below $1 per share on Wednesday morning.
Not critical to national security
The report said Yellow did not qualify for a loan because of its importance to national security. Although it was a Defense Department contractor, the company “was not critical to maintaining national security given that the shipping services it provides to the military could be provided by other trucking companies,” according to the report.
Instead, a loosely defined “catch-all provision” created by the Treasury Department under Secretary Mark Esper was used to approve the loan.
The loan was part of the Coronavirus Aid, Relief and Economic Security Act signed into law March 27, 2020. The CARES Act provided $500 billion to provide liquidity to eligible businesses, states and cities affected by the COVID-19 pandemic.
Of the total, $735.9 million was provided to 11 businesses to protect national security. The loan to Yellow Corp. accounted for 95% of the total for those businesses important to national security, the report noted.
Yellow Corp. “had been rated noninvestment grade for over a decade before the COVID-19 pandemic, struggled financially for years before the pandemic, and was at risk of bankruptcy before it obtained a loan from Treasury,” it said.
Not only was the company not essential to national security, the money was used to prop the company up and not to address issues caused by the COVID-19 pandemic, according to the report.
The report noted Yellow increased its lobbying effort in 2020 while it was applying for the loan. Lobbying expenditures increased from $80,000 in 2018 and zero in 2019 to $570,000 in 2020.
Oversight committee’s recommendations
The big loophole in the CARES Act loan legislation was the loose definition of a “business critical to national security,” according to the report.
“Congress should clearly define the term ‘business critical to maintaining national security’ and prohibit the executive branch from having unfettered authority” to designate a business as critical to national security, the committee recommended.
Congress also should limit any national security loan program to businesses that are in good financial condition before the national emergency that leads to a program’s creation.
Yellow Corp.’s restructuring and union battle
Yellow is engaged in a battle with the International Brotherhood of Teamsters over the company’s restructuring. It filed a lawsuit against the Teamsters this week for blocking the restructuring, which it calls One Yellow.
The Teamsters issued a statement in response to the lawsuit.
“Yellow Corp.’s claims of breach of contract by the Teamsters are unfounded and without merit,” Teamsters General President Sean M. O’Brien said in the statement. “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. For a company that loves to cry poor, Yellow’s executives seem to have no problem paying a team of high-priced lawyers to wage a public relations battle – all in a failed attempt to mask their incompetence.”
Previous coverage
In previous coverage from April 2022 of the Yellow CARES Act loan, Land Line’s Tyson Fisher reported that a subcommittee said the Trump administration went against the Department of Defense’s recommendation to deny Yellow Corp.’s request for the $700 million CARES Act loan.
Another report from April 2022 said the Trump administration bucked the Department of Defense recommendation on the Yellow Corp. loan.
Yellow Corp., formerly headquartered in Overland Park, Kan., has principal offices in Nashville, Tenn.
Read the full Congressional Oversight Commission report here. LL
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