Yellow shouldn't have received $700M COVID bailout Congressional report says

Amid an ongoing battle with the Teamsters union and dire financial conditions, the Congressional Oversight Commission (COC) released its final report on Yellow Corporation’s $700 million national security loan from the Treasury Department that was part of COVID-19 relief funding. The COC was established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and was tasked with overseeing how the Treasury and the Board of Governors of the Federal Reserve System utilized specific taxpayer funds to provide economic stability as a result of the COVID-19 pandemic.

Yellow (CCJ Top 250, No. 6), operating as YRC Worldwide at the time, received the loan because it was designated as a “business critical to maintaining national security” due to its work with the Department of Defense. The loan came in exchange for nearly 30% ownership stake of YRC by the U.S. government.

The COC said it expressed concerns over the loan in a report dated July 20, 2020, just weeks after the loan was announced.

“That report raised concerns with the Treasury’s decision to deem Yellow a business critical to maintaining national security and the process for reaching that conclusion,” COC said in its final report. “The Commission noted that 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.’”

COC added that the report also raised concerns about the riskiness of the loan due to Yellow’s poor financial condition even before the pandemic began, noting the company had been “non-investment 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 the Treasury.”

Yellow, when questioned last year about the loan, didn't deny its use of the CARES Act funds to make capital investments, and instead insisted they were completely proper and in line with negotiations the firm had with the Treasury.

A Yellow spokesperson told CCJ Thursday that its CARES Act loan "had broad, bi-partisan support in Congress, the full support of the International Brotherhood of Teamsters (IBT), the endorsement of the Department of Defense, and was authorized by the U.S. Treasury. Moreover, as additional consideration for the loan, the United States Treasury took a significant equity interest in Yellow, thus making it Yellow’s largest shareholder and creditor."

Yellow's stock was trading at around $3 per share in July 2020 when it was awarded the loan. Yellow stock closed Thursday below 70 cents per share.

The company added that the loan allowed it "to continue critical pick-up and delivery operations during the height of the pandemic," allowing 30,000 employees to keep their jobs and benefits.

The spokesperson also said at the time the loan was granted, Yellow was in the process of implementing its One Yellow strategy to improve efficiency, speed, choice and value for its customers. "Yellow’s modernization strategy, known as One Yellow, was intended to enable the company to better compete against its more competitively nimble, efficient, and therefore successful, non-union carriers," the spokesperson added.

Additionally, the expected savings and synergies from One Yellow, the spokesperson said, "will enable Yellow to refinance its debt and fully repay the CARES Act loan in September 2024, when due," adding that as of the end of the first quarter of 2023, the company had made cash interest payments to the Treasury totaling $56.8 million. "Yellow’s CARES Act loan is and remains collateralized by Yellow’s hard assets, including real estate properties and rolling stock equipment. As company management has previously stated, it fully intends to repay the CARES Act loan."

COC said in its final report this week that it found that Yellow had spent millions of dollars from 2009 to 2020 lobbying for a national security loan.

The COC report also outlines how Yellow stakeholders, including executives and the Teamsters union, benefited from the Treasury loan.

In its recommendations, COC said Yellow “was not critical to maintaining national security given that the shipping services it provides to the military could be provided by other trucking companies.”

The commission recommended that Congress, in the event of another loan program in response to future emergencies, “clearly define the term ‘business critical to maintaining national security’” and prevent the Executive Branch from having the unrestricted authority to designate a business as such. COC also recommended that Congress limit any national security loan programs to companies “in good financial condition prior to the emergency events that lead to the program’s creation.”

Finally, the commission recommends the Treasury should seek to dispose of its Yellow stock to minimize risk to taxpayers. Despite its nearly 30% stake in the company, COC said there is “significant risk … that the Treasury’s equity and debt stakes in Yellow will be worth little if the Treasury continues to hold them. To minimize the risk of loss to taxpayers, the Treasury should immediately explore options to sell (a) its 15.9 million shares of Yellow stock no later than January 1, 2024, and (b) its $700 million loan to Yellow before the loan’s September 30, 2024 maturity date.”

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