Yellow Corp.'s $700M loan further scrutinized by commission - Land Line - Land Line Media

In its latest report, the Congressional Oversight Commission continues to criticize the government’s decision to award Yellow Corp. $700 million in COVID-19 relief funds, stating missteps were made.

On April 30, the Congressional Oversight Commission released its 12th report reviewing money sent out through the Coronavirus Aid, Relief, and Economic Security Act. The commission was established in the CARES Act to monitor and analyze loans given out through the relief package. As in previous reports, the commission had questions and concerns regarding the $700 million loan to Overland Park, Kan.-based Yellow Corp., formerly YRC Worldwide.

Last July, Yellow Corp. received the $700 million loan through the U.S. Treasury. The Treasury had $17 billion for loans to businesses critical to maintaining national security. The deal was announced after YRC failed to pay health insurance contributions, putting insurance for thousands of employees in jeopardy. At the time, the Treasury said it was giving YRC $700 million to catch up on those payments. In exchange, the Treasury received a 29.6% equity stake in the company.

A total of $735.9 million was given to 11 businesses for national security loans under the CARES Act. Yellow Corp.’s loan accounts for 95% of that total.

In previous reports, the commission has scrutinized Yellow Corp.’s loan. Specifically, the commission questioned the legitimacy of considering the less-than-truckload carrier critical to 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,’” the commission stated. “The commission intends to conduct further oversight of this decision.”

In the latest report, the commission details communications with the U.S. Transportation Command, also known as TRANSCOM. According to its website, TRANSCOM is a unified, functional combatant command that provides support to the ten other U.S. combatant commands, the military services, defense agencies, and other government organizations. TRANSCOM had contracted with Crowley Logistics as a prime contractor for the Department of Defense. Crowley hired Yellow Corp. as a subcontractor.

In communications with TRANSCOM, the commission determined it never asked Crowley whether Yellow Corp. should be designated as critical to national security.

Additionally, TRANSCOM told the commission that in the event Yellow Corp.’s services were terminated, any related losses in volume in the LTL space would be easily absorbed by the LTL market. That led the commission to consider the following:

If Crowley never asserted and confirmed that Yellow Corp. was critical to national security, who made the determination in the chain of command at the Defense Department that they were, in fact, critically important?
If Crowley thought that the services Yellow Corp. provided would be absorbed by another company, does this not further minimize its impact on national security?
The commission was unable to substantiate the assertion the Treasury and the Defense Department made indicating that Yellow Corp. provides 68% of LTL services to the department.

Regarding the latter concern, the commission’s review found that Yellow Corp.’s services accounted for 20-40% of the DOD’s LTL shipments. The commission found “these discrepancies concerning.” So far, the DOD has not provided information backing up the 68% claim.

The commission also scrutinized Yellow Corp.’s significant increase in lobbying spending in 2020.

Last year, the carrier spent $570,000 on lobbying efforts, compared with absolutely no lobbying spending the previous year, $80,000 in 2018 and $75,000 in 2017.

“The commission makes note of the correlation between lobbying the government and Yellow’s ability to secure a $700 million loan,” the report states. “The Treasury confirmed that several senators and members of Congress sent letters to Treasury urging them to underwrite Yellow’s loans.”

The report concludes that “the Treasury and DOD made missteps in deeming Yellow as critical to national security and executing the loan.”

“The commission hopes to get clarity regarding its questions surrounding the national security designation given to Yellow, as well as information substantiating the 68% figure discussed above,” the report states. “Further, the commission recommends close monitoring of the Treasury loan to Yellow and proper scrutiny with regard to loan repayment.” LL