The commission that oversees the distribution of federal money provided to companies adversely affected by the pandemic said it has not yet heard from the Department of Defense regarding a request for more information about its YRC Worldwide (LTL) cargo carrier designation (LTL) (NASDAQ: YRCW) as a “business critical to maintaining national security.”
In a report on Thursday, the commission said the Defense Department letter of September 2 stated that it hoped to have a response ready by September 18. As of Thursday, the commission had not received an answer to its initial or follow-up questions.
On July 1, YRC announced that it would receive a $ 700 million Aid, Aid and Economic Security (CARES) loan Treasury Department to pay short-term obligations and finance capital expenditure (capex) on tractors and trailers. The department used the national defense designation provided under a subtitle in the loan program, which requires the secretary of defense or the director of national intelligence to recommend and certify that a company meets the standard.
It was Defense Secretary Mark Esper who gave the OK.
The commission is seeking to understand the Defense Department’s “national security” designation for a carrier that carries 68% of the department’s LTL freight, which consists of items such as food, electronics and domestic military supplies. In addition, they want to know if replacement service with another operator was sought.
A July 20 report from the commission questioned the decision-making of the Treasury also. The group is trying to determine whether the use of the national defense provision department was used properly and whether the “precarious financial situation of the YRC at the time of the loan” represented an undue risk burden for taxpayers. Other concerns include the commission’s perception that the interest rate on the new loan was too low and that the deal may be under-guaranteed.
A response from the Treasury Department on July 30 said that the lending program contained vague guidelines on which companies would qualify and that it established an orientation for qualified companies in April, which YRC later learned about. The department pointed to a 30% decline in YRC remittances from mid-March to mid-April, creating a “liquidity crisis” and that a bankruptcy filing would be imminent, leaving 30,000 unemployed and “undermining the economic recovery” if the relief was not provided.
The Treasury Department said the company passed all underwriting criteria and that the interest rate was modestly higher than those issued in other pandemic relief loans. The Treasury appointed $ 1.6 billion in promised assets and the government received a 30% equity stake in the company as an adequate guarantee.
However, the Treasury first explanation did not pass the committee, requesting additional requests for information from the Treasury and Defense departments.
The Treasury Department appears to be working with the commission. “The Treasury and the commission are in the process of coordinating the transmission of additional confidential material in response to the commission’s questions,” said the commission’s latest report.
The department made only a loan of the $ 17 billion available under the “national security” exemption. YRC CEO Darren Hawkins was appointed to the task force of President Great American Economic Revival in April and former YRC president and CEO Bill Zollars was appointed by the president and confirmed by the Senate to the board of governors of the US postal service in June.
The YRC reported in its second quarter filing with the United States Securities and Exchange Commission that it used $ 245 million of the $ 300 million allocated in the first tranche of the loan for the repayment of deferred health, welfare and pension payments. At the time of the August 3 protocol, the carrier had not withdrawn any of the funds from the second tranche of $ 400 million, which is allocated to equipment investments.