KC-area trucking company got $700M federal loan over Pentagon objections, House report says
Acting over the objections of the Defense Department, the Trump administration made sure cash-strapped Kansas trucking company Yellow Corp. received a $700 million loan from the federal government in 2020, according to a House subcommittee report released on Wednesday.
The House Select Subcommittee on the Coronavirus Crisis report said that in addition to meddling by Trump administration officials, lobbyists for Yellow Corp. leveraged its close ties to the administration to obtain a loan on terms so favorable that it violated guidelines of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Lawmakers earmarked a portion of the $2.2 trillion CARES Act, which was passed in 2020 to keep the economy afloat during the COVID-19 crisis, as financial assistance to companies deemed critical to maintaining national security.
Yellow Corp., formerly known as YRC Worldwide, received 95% of the funds spent for that purpose. Treasury officials at the time justified the loan by saying that Yellow provided shipments and logistics for the Defense Department.
In announcing the $700 million loan, then-U.S. Treasury Secretary Steven Mnuchin described YRC as a “critical vendor” to the Defense Department.
But the subcommittee report said career Defense Department officials doubted whether Yellow Corp. was indeed critical for national security.
The report said that Mnuchin requested an urgent call with then-Defense Department Secretary Mark Esper on June 25, 2020.
That was one day after Defense Department officials told the Treasury Department it would not certify Yellow Corp. to receive the loan. A Defense Department analysis said other trucking companies could replace Yellow’s work for the federal government and they were concerned about a Justice Department lawsuit alleging Yellow had overbilled its services to the Defense Department.
Yellow settled that case last month for $6.8 million without admitting wrongdoing.
The report said after his call with Mnuchin, Esper certified Yellow as critical to national security. On July 1, 2020, Yellow Corp. received the loan.
Rep. James Clyburn, a South Carolina Democrat who chairs the select subcommittee, said in a statement that Wednesday’s report was further evidence of the Trump administration’s failure to look after taxpayer money.
“Political appointees risked hundreds of millions of dollars in public funds against the recommendations of career DOD officials and in clear disregard of provisions of the CARES Act intended to protect national security and American taxpayers,” Clyburn said in a statement. “The Select Subcommittee is committed to accountability for government officials and other unscrupulous actors who sought to use a public health crisis as an opportunity for political gain and personal profit."
In response, Yellow produced a letter addressed by its attorney, Marc Kasowitz, to Clyburn on Tuesday, calling the report’s allegations “unsubstantiated” and “demonstrably false.”
“Despite Yellow’s voluntary and good faith efforts throughout to provide the Committee with the documentary evidence necessary for it to make a make [sic] a full and fair assessment, the Committee continues to call into question, without substantiation, Yellow’s eligibility for and use of its CARES Act loan funds,” Kasowitz said. “In truth and fact, and as this Committee now indisputably knows, Yellow’s eligibility for and use of its CARES Act funds is, was, and continues to be appropriate in every respect.”
Kasowitz, a New York lawyer, has also represented Trump personally in connection with various investigations of Russian interference in the 2016 presidential election.
The loan to Yellow Corp. during the summer of 2020 came at a precarious time for the company. For years burdened with debt, Yellow entered the pandemic on shaky financial ground with losses topping $100 million in 2019.
The company used the loan to meet payroll, health care, pension costs and capital investments. Yellow said the loan helped keep employees on the payroll. The company employed about 30,000 employees at the time, 24,000 of whom belonged to the Teamsters union.
In return for the loan, the Treasury received nearly 16 million shares of Yellow common stock, making it the company’s largest shareholder with nearly 30% of its outstanding shares.
The loan raised a number of questions, including concerns about the Trump administration’s close relationship to Apollo Global Management, a private equity firm that had made a significant loan of its own to Yellow.
The subcommittee report said that as early as April 3, 2020, during the onset of the coronavirus pandemic, White House officials forwarded Yellow’s loan application materials to Brian Morgenstern, Trump’s deputy assistant secretary of the Treasury, and requested that he call Yellow's chief executive.
“A few days later, Yellow’s lobbyists wrote that the White House Political Director was ‘almost giddy’ on a phone call with them about the prospect of working on Yellow’s application for a loan ‘considering the Teamsters angle,’ referring to the fact that Yellow employed Teamsters members as its drivers,” the report said.
Emails obtained by the subcommittee indicate that White House Chief of Staff Mark Meadows offered to call Mnuchin about Yellow’s loan application, and that Meadows had talked to Yellow's lobbyists several times by June 2020 about the company.
The report also said Trump personally spoke to union leaders about the loan, suggesting Trump had involvement in Yellow securing the loan, according to the subcommittee.
During its pursuit of the loan, Yellow officials said they provided 68% of Defense Department shipments. But the report said a Defense Department analysis found Yellow’s share of its shipments was about half that.
Defense officials were also displeased about the Defense Department complaint against Yellow alleging the company “systematically overcharged” for freight carrier services and hid the alleged misconduct for more than seven years.
That lawsuit, combined with the likelihood that the Defense Department could use other trucking companies for its shipments, caused senior Defense Department officials to conclude that Yellow didn’t qualify as a firm that played a critical role in national security. Yellow got the loan anyway after intervention by political appointees, the report said.
‘Hand in the cookie jar’
The subcommittee’s report takes Yellow to task for using funds meant to offset pandemic-related losses to invest in longer-term capital needs like trailers and trucks.
Before Yellow obtained the loan, its chief financial officer told the company’s creditors it was seeking some $365 million to invest in new trailers and technology.
“While we had our hand in the cookie jar, we thought we would try to get a little ‘catch up’ capex (capital expenditures) while we were at it,” wrote then-Yellow Corp. CFO Jamie Pierson in a May 1, 2020, note to creditors.
The subcommittee report notes that Yellow spent relatively little on capital expenditures before getting the Treasury loan. After receiving the loan, it increased its capital expenditures dramatically.
Terms of the Treasury loan required Yellow to maintain quarterly EBITDA (earnings before interest, taxes, depreciation and amortization) of $100 million. As of March 31, that amount increased to $150 million. In June it goes up to $200 million. In filings with the SEC, Yellow says it anticipates being able to comply with those terms.
As of the end of last year, Yellow had outstanding debt of $1.6 billion. The company has lost money for years, and more recently has been severely hurt by the COVID-19 pandemic and rising inflation. In 2020, it racked up a net loss of $53.5 million on operating revenue of $4.5 billion. Last year, it had a net loss in 2021 of $109.1 million on operating revenue of $5.1 billion.
For the last few years Yellow has been engaged in a broad-based restructuring plan that includes adding additional tractor-trailers to its fleet and moving its various subsidiaries onto one technology platform.
The company traces its history to 1924, when A.J. Harrell, an Oklahoma City businessman, founded a bus and taxi service he called Yellow Cab Transit Co. In 2003, the company acquired Roadway Corp. of Akron, Ohio, and became Yellow Roadway Corp. It later became YRC Worldwide before assuming its current moniker.
In a recent filing with the SEC, Yellow listed an office in Nashville, Tennessee, as its headquarters. Before that, the company was headquartered at 109th Street and Roe Avenue in Overland Park, where it occupied a 10-story building.
The company, which employs 32,000 people in North America, still maintains a large presence in the Kansas City area.