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Congressional Panel Questions $700 Million Loan to YRC Worldwide
Loan to trucking firm was the first made from $17 billion Cares Act fund for businesses critical to national security
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The federal loan sent trucking company YRC’s shares soaring 75% after it was unveiled July 1.
Photo: Paul Page/THE WALL STREET JOURNAL
By Paul Kiernan


Updated July 20, 2020 1:58 pm ET

WASHINGTON—A bipartisan panel of legislators raised questions Monday about the Treasury Department’s decision to designate trucking company YRC Worldwide Inc. as critical to national security and lend it $700 million in coronavirus-relief funds.

The loan, which sent YRC’s shares soaring 75% after it was unveiled July 1, would give the government a 29.6% equity stake in the company. It was the first to be made from a $17 billion pot of money created by the Cares Act for businesses critical to national security.

YRC didn’t meet Treasury’s standards for identifying such businesses, which usually must have either high-priority defense contracts or top-secret security clearance, according to a report by the Congressional Oversight Commission.

Instead, the company qualified “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,” the report said.

The commission said it plans to investigate the decision “in part, because the risk of loss of U.S. taxpayer money on this loan appears high.”

The company’s shares were down 27% on the Nasdaq Stock Market on Monday afternoon.

YRC, based in Overland Park, Kan., is the fifth-largest U.S. trucking company by revenue. It does business with the Defense Department by delivering food, electronics and other supplies to military locations around the country, in addition to serving some 200,000 industrial, retail and commercial customers. The commission said “it is far from clear” that such activities make YRC eligible for a lending program that was designed with companies such as Boeing Co. in mind.

(continued)
 
“The Commission has questions about the decision to deem YRC a business critical to maintaining national security and the process for reaching that conclusion,” said the panel, made up of U.S. Sen. Pat Toomey (R., Pa.), Reps. Donna Shalala (D., Fla.) and French Hill (R., Ark.), and attorney Bharat Ramamurti.

According to the Cares Act, loans such as the one extended to YRC should be sufficiently secured or made at an interest rate that both reflects their riskiness and isn’t lower than market rates before the coronavirus pandemic. But the rate offered by Treasury is 4 percentage points lower than YRC’s most recent debt financing, in September 2019, according to the report.

The level of risk assumed by the government in lending to YRC “appears strikingly higher” than that of other lending facilities created to combat the economic damage caused by the pandemic, the commission said.

In drawing up a separate lending program for midsize companies, known as the Main Street Lending Program, Treasury officials resisted changes that would have increased the government’s risk-taking, leading to scant participation so far.

Under the agreement between the Treasury and YRC, the government would receive a 29.6% equity stake in the company to compensate taxpayers for the risk they would assume.

But the commission said that, “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.”

Write to Paul Kiernan at [email protected]
https://www.wsj.com/articles/congre...700-million-loan-to-yrc-worldwide-11595264213

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Congressional commission challenges $700 million YRC loan

Congressional commission challenges $700 million YRC loan
William B. Cassidy, Senior Editor | Jul 20, 2020 5:49PM EDT

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The CARES Act oversight commission questioned whether YRC Worldwide actually is as critical to maintaining national security as the Treasury and Defense departments indicated. Photo credit: Shutterstock.com

A congressional oversight commission said Monday it will investigate the $700 million US loan to YRC Worldwide, but it’s unclear whether anything short of legislation would prevent the less-than-truckload (LTL) carrier from getting the COVID-19 relief loan announced July 1.

The oversight commission established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act on Monday questioned whether YRC Worldwide actually is as critical to maintaining national security as the Treasury and Defense departments indicated.

The commission didn’t call on Treasury to drop the loan or change its terms, but did question the loan’s legitimacy. It also noted that none of the remaining $16.3 billion from the pool of funds tapped for the YRC Worldwide loan had yet been made available to airlines, as the commission said it expected would be done.

According to the commission, Treasury defines a “business critical to maintaining national security” as one 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.

YRC, the commission said, didn’t meet either of those requirements, but its loan request was approved under a “catch-all” provision allowing Treasury to declare a company critical if the secretary of defense or the director of national intelligence recommend and certify that it is.

Although Treasury said YRC Worldwide provides 68 percent of less-than-truckload services to the US Department of Defense, the commission said “it is far from clear that the fourth-largest LTL shipping company in the United States is critical to maintaining national defense.”

Secretary of Defense Mark Esper, however, certified that YRC Worldwide is critical to national security, and the trucking holding company said it has spent decades building a strong support network for the US military, handling more than 300,000 shipments a year for the US government, primarily military shipments.

(continued)
 
The loan threw a lifeline to YRC Worldwide, which faced a cash crunch that could have shut the company down. Critics of the loan within the trucking industry have said, though not for attribution, they believe YRC’s competitors could absorb the company’s military volume.

Shippers, however, were relieved by the loan. which brought stability to the LTL market at an uncertain time for the US economy. A reshuffling of the market might benefit some LTL carriers, but shippers would likely experience tighter capacity and higher LTL rates.

Were loan terms too favorable?
In its third monthly report, the commission also questioned whether the loan terms met appropriate standards, noting the interest rate on the Treasury’s loan is 4 percent lower than the rate YRC Worldwide received on a five-year term loan from its creditors last September.

The report also noted YRC Worldwide’s ongoing financial struggles. “This loan may indicate that the Treasury believes the national security designation permits a much higher risk tolerance to provide relief to firms that were struggling well before the COVID-19 pandemic,” it said.

“If that is the case, 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,” the commission said, noting this is the only such loan Treasury has made to date.

The $700 million loan to YRC Worldwide infuriated competitors, some of whom, JOC.com has learned, urged representatives on Capitol Hill against offering any lifeline to the company before Treasury’s surprise July 1 announcement.
(continued)
 
The commission’s members include Sen. Pat Toomey (Republican-Pennsylvania), Rep. Donna Shalala (Democrat-Florida), Rep. French Hill (Republican-Arkansas), and Bharat Ramamurti, a senior advisor to Sen. Elizabeth Warren (Democrat-Massachusetts).

An oversight commission can raise questions about the executive branch’s execution of laws passed by Congress, such as the CARES Act, and bring pressure on the executive branch to rethink or change a decision in several ways, most directly through legislation. No timetable has been released for an investigation, but the threat of one had an immediate impact on YRC Worldwide’s stock on Wall Street, driving its share price down from a high of $3.57 per share to $2.61 per share by 4 pm Monday, a 27 percent drop.

YRC Worldwide wasn't immediately available for comment.

Contact William B. Cassidy at [email protected] and follow him on Twitter: @willbcassidy

https://www.joc.com/trucking-logist...challenges-700-million-yrc-loan_20200720.html

:hyper:
 
The CARES Act oversight commission can't block it doesn't matter what they think we are still getting the money!
 
Airline Industry and National Security Businesses


......"At the time of our last report, the Treasury had not made any loans to the airline industry or businesses critical to maintaining national security under Subtitle A. In response to the Commission’s questions, the agencies have indicated that, as of June 16, 2020, the Treasury has received 190 applications for such airline industry loans. They also indicated that, as of June 17, 2020, the Treasury has “received 70 applications for the national security loan program, 25 of which meet one of the two national security eligibility criteria established by Treasury,” although one of those applications has been withdrawn.60 The most significant development with this lending program is the Treasury loan of $700 million to YRC Worldwide Inc. (YRC) under the national security loan program. In the third section of this report, we describe the terms of the loan and provide detailed information about YRC. In short, YRC provides transportation and logistics services, including to the U.S. Department of Defense (the “Defense Department”). 61 The company specializes in less-than-truckload (LTL) shipping where smaller cargos from multiple customers are combined on one trailer.62 According to the Treasury, YRC “provides 68% of less-than-truckload services to the Defense Department.”63 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.64 YRC apparently did not meet either of the two national security eligibility criteria. However, YRC qualified for the program under a catch-all provision created by the Treasury allowing it 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 has questions about the decision to deem YRC a business critical to maintaining national security and the process for reaching that conclusion. Secretary Mnuchin has publicly stated that the national security loan program was developed with the thought that Boeing and General Electric might need loans.65 Given the types of sophisticated services and products these two companies provide for our national defense, it is not hard to argue that they are critical to maintaining national security. 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.”66 The Commission intends to conduct further oversight of this decision..............."
 
"............ 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. In fact, the Commission notes that 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. YRC has been rated non-investment 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.67 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 (COVID–19).”68 It is questionable whether the loan to YRC meets these standards. The interest rate on YRC’s loan from the Treasury is 4% lower than the interest rate on the company’s most recent debt financing, which was a five-year, $600 million term loan that YRC obtained in September 2019 before the COVID-19 crisis.69 As part of the loan agreement, the Treasury has obtained a 29.6% equity stake in YRC to reportedly provide “appropriate taxpayer compensation” for the loan.70 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.71


This loan may indicate that the Treasury believes the national security designation permits a much higher risk tolerance to provide relief to firms that were struggling well before the COVID-19 pandemic. If that is the case, 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..............."
 
The commission said it plans to investigate the decision “in part, because the risk of loss of U.S. taxpayer money on this loan appears high.”??????? Gee ya think risk of loss is high for a $2 buck chuck penny stock ??? Let me consult with my Cayman Patel-Wong Office partners and see what they say about HIGH RISK LOANS ??? As they did loss BIG money on that Iowa Mirror factory high risk Loan :greedy dollars:
 
My question is: since the Government technically now owns 29plus% of YRCW- doesn’t that mean they’ve committed to owning the Liability to the Pensions? Any Private buyer would have to accept responsibility, so, why not Government then?
That would imply that all stockholders would be on the hook for the pension debt. Or at least, that any company that has a loan out to YRCW is on the hook for the pension.

Um no, that's not how that works. No one would loan money in that case. That's unfortunately where bankruptcy court comes in.
 
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YRC loan under scrutiny; board shied away from company stock in 2019

YRC board members changed their comp plan to favor cash over the company’s stock at the end of 2019

https://www.freightwaves.com/news/yrc-loan-under-scrutiny;-board-shied-away-from-company-stock-in-2019

YRC’s board favored cash compensation over company stock
YRC’s board of directors may not have had much faith in the company’s equity either. At the end of 2019, compensation plans for directors on the board were amended to allow for a higher percentage of cash payment, minimizing the portion of stock-based compensation.


The 2019 comp plan for nonemployee directors on the board at YRC paid a $75,000 cash retainer, $125,000 for the chairman, and amounts ranging from $10,000 to $25,000 for service committee chairs. Further, directors who served on labor or strategy committees that commenced one year ahead of the ratification of the new labor deal received an additional $40,000 annually.

The director compensation plan was amended and restated on Feb. 11, 2019, when shares of YRCW closed the day at $6.80. That amendment allowed an annual fully vested restricted stock unit (RSU) award equal to $125,000 with a settlement date three years after the grant date. The amendment also provided one-time performance RSUs equal to $152,760. Those units had an additional vesting requirement that YRCW’s average share price equal or exceed $11.75 for a 30-day period prior to the end of 2020, a level not seen since early 2018.

The performance RSUs “were awarded in addition to the Annual RSUs for the directors’ oversight of Company’s management in developing a comprehensive business strategy to achieve long-term profitability and stability for the Company.”

All of 2019’s directors ended up forfeiting the performance RSUs given the unlikelihood of achieving that stock price threshold.

At the end of 2019, faced with the unlikelihood of reaching and sustaining the $11.75 share price, the board decided to adopt a new, nonemployee director compensation plan favoring cash payments versus equity.

On Dec. 9, the board adopted a new director plan paying an annual cash retainer of $190,000, $300,000 for the chairman. Equity comp was reduced from $125,000 to $60,000. The new $250,000 package, excluding the performance RSUs, represented a $50,000 increase in pay and importantly doubled the percentage of cash compensation to 76%.

YRCW’s closing share price was $3.06 on Dec. 9, a 55% decline from the February amendment.

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That would imply that all stockholders would be on the hook for the pension debt. Or at least, that any company that has a loan out to YRCW is on the hook for the pension.

Um no, that's not how that works. No one would loan money in that case. That's unfortunately where bankruptcy court comes in.
I am in the understanding that no company will buy YRCW because it would obligate them to the pension liability? (i. e.- UPS paid $6 billion to get out of CSPF, and- if they bought YRCW, it would re-obligate them to CSPF liability.)If so, why not when the Government becomes a 29% owner? The article didn’t just say government became stockholders- it said the Government became part Owner. Would it only happen when the Part Owner becomes the Controlling Owner?
 
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