A $700 million federal loan to a money-losing Kansas trucking company has raised red flags for a Capitol Hill committee that monitors covid-19 relief funds.
U.S. Rep. French Hill, R-Ark., and the Congressional Oversight Commission's other three members are trying to determine why the U.S. Department of Defense considered YRC Worldwide "vital to national security" and, hence, deserving of a major government bailout.
Commissioners have "a keen interest" in the loan "and we want to know a lot more," Hill said in an interview Tuesday.
In a report released this week, the commission said it has "serious concerns about whether that loan was properly and prudently incurred."
The 85-page document is posted at: https://coc.senate.gov/sites/default/files/2020-12/COC%20November%20Report%20with%20Appendix.pdf
YRC Worldwide "was highly leveraged. It was paying premium interest rates. It had a record of challenging economics," Hill said.
With net losses of $104 million in 2019, the Overland Park-based company was struggling long before covid-19 arrived in the United States.
Its credit hadn't been classified as investment-grade for more than a decade. An April 6 research report by Stephens Inc. foresaw the risk of a "potential bankruptcy," the report stated.
The company's fortunes improved after U.S. Sen. Jerry Moran, R-Kan., appealed to Treasury Secretary Steven Mnuchin for help during a Senate Banking Committee hearing.
The Defense Department ultimately classified YRC Worldwide as "critical to maintaining national security," the commission noted, because the company "carries 68 percent of the Department of Defense's less-than-truckload shipments and is the leading transportation provider to the Department of Homeland Security and U.S. Customs and Border Protection."
As part of the loan agreement, the U.S. Treasury received a 29.6% equity stake in the nation's fourth-largest less-than-truckload shipping company, Hill said.
Company officials did not respond Tuesday afternoon to a request for comment; the Pentagon did not immediately have a response.
Shares doubled
Shares in the company doubled in the space of a week this summer, rising from $1.56 each on June 24 to $3.23 on July 1, the day that the loan was announced. Tuesday, YRC Worldwide shares closed at $6.17 each on the Nasdaq Stock Market.
The Coronavirus Aid, Relief, and Economic Security Act provided the U.S. Treasury Department with $500 billion for loans and other investments "to provide liquidity to eligible businesses, States, and municipalities related to losses incurred as a result of coronavirus."
It also created the oversight commission on which Hill serves to monitor the use of taxpayer funds.
Up to $17 billion of the overall amount was targeted for businesses that are "critical to maintaining national security."
Much of that money was never loaned. The oversight commission has been raising questions about the YRC Worldwide loan since at least mid-July.
On Sept. 4, the Treasury Department provided written responses about its role, outlining the loan's terms and conditions.
It differed with the Pentagon on the company's strategic importance but military officials "did not respond timely to the Commission's queries," the report stated.
After an "inexcusable" delay, the Pentagon, on Oct. 22, provided a response that was "incomplete," the commission said.
Dissatisfied with the responses, the commission ultimately decided to hold a public hearing on the loan.
Ellen M. Lord, the Pentagon's undersecretary of defense for acquisition and sustainment, declined an invitation to appear before the panel on Dec. 10, saying she was "unavailable for a public hearing," the commission report said.
"I am willing to discuss this matter further over the phone at a mutually convenient time in order to address any outstanding questions and supplement my previously provided written answers," she wrote to the commissioners.
Mnuchin agreed to participate.
Director of National Intelligence John Ratcliffe has also been invited, but hadn't yet responded, the report stated.
Hill, a Little Rock resident who serves on the House Financial Services Committee, said he wouldn't have given the company a loan during his banking days.
The 2nd District congressman served as chairman and chief executive officer of Delta Trust and Banking Corp., a Little Rock financial institution that he founded and led before its purchase in 2014 by Simmons First National Corp. of Pine Bluff.
Hill said it's unclear why the Pentagon relied so heavily on YRC Worldwide, given the competition that currently exists.
"How did the Defense Department get into this dependency on a company that was doing very poorly before the pandemic and get dependent on it for 68% of its logistics business here in the United States?" Hill said.
Commission members need to hear from Lord, he added.
"She declined our invitation to appear on the 10th. We found that unsatisfactory. We have urged her to reconsider that decision, and we are discussing among ourselves and with the Pentagon alternatives to that if she cannot be there," Hill said.