CARES Act watchdogs question Treasury on national security loan to trucking company

CARES Act watchdogs question Treasury on national security loan to trucking company
© Bloomberg/Pool

The congressional coronavirus response oversight panel on Monday questioned why the Treasury Department lent $700 million to a cash-strapped shipping company in an effort to protect national security.

In a report released Monday, the Congressional Oversight Commission charged with monitoring trillions of dollars in emergency relief said it would look deeper into how and why shipping firm YRC Worldwide received a rescue loan meant for companies essential to national defense.

“The Commission intends to explore the decision to designate YRC as critical to maintaining national security, in part, because the risk of loss of U.S. taxpayer money on this loan appears high,” the panel wrote.

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“The level of risk taken in the loan to YRC appears strikingly higher than the risks associated with the other facilities over which the Commission has oversight.”

The $2.2 trillion Coronavirus, Aid, Relief and Economic Security (CARES) Act allocated $500 billion to the Federal Reserve and Treasury for emergency loans and grants, including a pool of more than $30 billion set aside for the aircraft sector, airlines and other businesses essential to national defense. 

Treasury and YRC on July 8 finalized a $700 million loan from the national security tranche after the Defense Department certified that YRC is essential to national security. YRC specializes in “less-than-truckload” shipping, where smaller loads from multiple clients are combined in one trailer.

Treasury called YRC a “leading provider of critical military transportation and other hauling services,” in a July 1 press release, including 68 percent of less-than-truckload services for the Defense Department. The company also boasts contracts with the Departments of Energy and Homeland Security.

Even so, the oversight commission questioned whether propping up YRC was truly essential to national security and raised concerns about the company’s past financial woes causing future losses for taxpayers.

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Under the CARES Act, a company can qualify for a national security related loan if it's fulfilling a high priority Defense Department contract or operating under a top secret security clearance. YRC did not qualify under either of those terms, the panel wrote, but rather “under a catch-all provision created by the Treasury … based solely on a recommendation and certification from the Secretary of Defense or the Director of National Intelligence.”

“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,’” wrote the commission.

The commission also raised concerns with YRC’s long-standing financial troubles and whether the terms of the loan match the risks of lending to the company. The panel noted that YRC’s debt has been rated below investment grade for more than a decade and that the company took out a five-year, $600 million loan with an interest rate 4 percent higher than the cost of its Treasury loan. Treasury also took a 29.6 percent stake in YRC as a term of the loan.

“But given the company’s long-term non-investment grade rating and previous close calls with bankruptcy over the years, it is not clear that an equity stake in YRC will provide much, if any, compensation or protection to taxpayers,” the commission wrote.

“The Commission would like to better understand the rationale for this risk tolerance, especially in light of the statutory restrictions on national security loan terms and the fact that the single such loan the Treasury has made — to date — is to a company that may not be critical to maintaining national security,” it added.