Dive Brief:
- The Treasury Department’s $700 million loan to Yellow Corp. as part of a COVID-19 relief program in 2020 was riddled with problems, according to a Congressional report released Tuesday.
- Citing significant risk to taxpayers because of Treasury’s equity and debt stakes in the beleaguered LTL carrier, the report recommends the government “immediately explore” selling its 15.9 million shares of Yellow stock by Jan. 1 and selling its loan holdings before the loan’s Sept. 30, 2024 maturity date.
- The Congressional Oversight Committee, which authored the report, recommended Congress not create similar open-ended, sector-specific loan programs like Yellow’s in the future, as it created a risky taxpayer bailout.
Dive Insight:
The Congressional Oversight Commission raised questions about whether Yellow should have been eligible to receive the money, which the company used to cover short-term contractual obligations, payments for pensions and healthcare and to purchase trailers and tractors.
“The Commission questions whether Yellow’s precarious financial position at the time of the loan, and continued struggles, expose taxpayers to a significant risk of loss,” the report noted, adding that previous congressional reports have also raised concerns about the loan.
U.S. Rep. French Hill, the sole author of the report, said in a statement the findings verified Yellow “should have never received a $700 million taxpayer bailout from Treasury.”
The company objected to that conclusion in an emailed statement Wednesday. At the time of the loan, Yellow provided LTL services to the Department of Defense and hauled for the Departments of Energy and Homeland Security, including Customs and Border Protection.
“This loan enabled our nearly 100-year-old company to continue critical pick-up and delivery operations during the height of the pandemic,” a Yellow spokesperson wrote. “In doing so, 30,000 employees kept their jobs — and family health benefits — during a period of great uncertainty in America.”
But the report calls out Treasury and Defense department “missteps in deeming Yellow as critical to maintaining national security and in executing the loan to Yellow.” It also sheds further light on the loan’s approval process.
The report again raised a commission concern about the company’s spending on congressional lobbying, which was $570,000 in 2020.
“The Commission noted the correlation between lobbying the government and Yellow’s ability to secure a $700 million loan,” the report said. “The Treasury confirmed that several Senators and members of Congress sent letters to Treasury urging them to provide Yellow a loan.”
While the Defense Department was initially prepared to recommend Yellow’s certification as critical to maintaining national security, it changed its recommendation due to a Justice Department lawsuit alleging Yellow overbilled its services to Defense for years, according to the report.
One day after Treasury was notified of the plan to change the recommendation, the department “requested an urgent call with [then-Defense] Secretary [Mark] Esper, which took place on June 26, 2020.” Esper certified Yellow as critical to maintaing national security that same day, and Treasury finalized the loan less than two weeks later, according to the report.
Yellow has paid $56.8 million in interest on the loan, and its planned sale of 28 excess terminals and consolidation of its separate operating companies “will enable Yellow to refinance its debt and fully repay the CARES Act loan in September 2024, when due,” a spokesperson said in the statement Wednesday.
In his statement, Hill argued that the carrier had long-standing financial troubles before the pandemic and was not critical to maintaining national security, given it was not the sole provider of such services.
“Yellow's reckless actions to use taxpayer funds on expenditures unrelated to the purpose of the loan program is exactly why Congress needs to ensure that there are better guardrails as to where future Treasury loans are being distributed and how the loans are being used,” Hill said.
