A bipartisan congressional oversight body is raising questions about a $700 million emergency loan awarded by the Treasury Department to a U.S. trucking company.
Earlier this month, Treasury Secretary Steven Mnuchin announced that taxpayers would give a substantial loan to YRC Worldwide, one of the largest trucking companies in North America. In exchange, the U.S. government is acquiring a 30 percent stake in the company. The loan was awarded as part of a $17 billion fund created by Congress to help companies deemed “critical” to national security.
In its latest report, the Covid-19 Congressional Oversight Commission expressed concern that taxpayers were likely to lose money on the loan, noting concerns about YRC’s financial viability. The oversight commission includes Republicans such as Sen. Patrick J. Toomey (Pa.) and Rep. French Hill (Ark.), as well as Democrats such as Rep. Donna Shalala (Fla.) and Bharat Ramamurti, an aide to Sen. Elizabeth Warren (Mass.).
“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,” the oversight commission said in the report, released Monday. “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.”
On Twitter, Ramamurti also described the basis for the loan as “shaky.”
YRC Worldwide, based in Kansas, may have had little other recourse than accepting the Treasury Department loan. The commission’s report notes that it was “at risk of bankruptcy” and that the interest rate on the loan to YRC is 4 percent lower than that on its most recent debt financing, even though the coronavirus response legislation known as the Cares Act says the loan terms should reflect the risk of the loan. It also says the company “struggled financially for years” before the pandemic.
The report also points out that under the Cares Act, the Treasury Department’s loans are supposed to be made at interest rates comparable to pre-coronavirus market conditions.
YRC did not immediately return a request for comment.
The commission’s report highlights the challenge the Treasury Department faces in trying to swiftly disburse emergency federal aid to ailing businesses without providing bailout funding to undeserving companies. Some critics have argued the department has wasted money aiding large corporations, in line with the concerns raised by the commission about YRC. But many economists have argued that Mnuchin has proved too cautious in disbursing money approved by Congress in March, arguing taxpayers should be willing to lose money on emergency loans to prevent more businesses from having to shutter and lay off their workers.
The national unemployment rate remains high, and millions of small businesses are at risk of failing. And the commission’s report suggests that the Main Street Lending Program — one of the programs set up by the Treasury Department and the Federal Reserve to aid businesses — has done too little to get money out the door. That facility has given only one $12 million loan, the commission report states.
“Our initial reaction is that a purchase of one $12 million loan over a week and one-half seems like a small amount, given the economic challenges facing some small and medium-sized businesses,” the oversight report states.
Mnuchin has defended the Treasury Department’s implementation of the bailout and the loan for YRC. Congress gave the department the authority to approve more than $500 billion in emergency loans to companies and cities. Most of that money has not been disbursed. Mnuchin said that the Defense Department had certified YRC as important for national security.
“This loan will enable a critical vendor to the Department of Defense to maintain significant employment while providing appropriate compensation to taxpayers,” Mnuchin said in a statement at the time of the loan’s announcement.
The Washington Post previously reported that most defense contractors found the terms of the loans offered by the Treasury Department too onerous to apply for assistance.
The bipartisan oversight commission is supposed to have five members, but months after its creation via the Cares Act in March it still does not have a chair. The chair is supposed to be appointed jointly by House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Mitch McConnell (R-Ky.), but they have been unable to agree on who should take the position.