Defense officials decline to testify on trucker loan

Hill raises concern on $700M

U.S. Rep. French Hill, R-Ark., takes part in a Congressional Oversight Commission hearing Thursday on Capitol Hill about a $700 million loan the Pentagon fast-tracked to a Kansas trucking company. Defense officials refused to testify about the loan, which has been questioned by Hill and other panel members.
(AP/The Washington Post/Sarah Silbiger)
U.S. Rep. French Hill, R-Ark., takes part in a Congressional Oversight Commission hearing Thursday on Capitol Hill about a $700 million loan the Pentagon fast-tracked to a Kansas trucking company. Defense officials refused to testify about the loan, which has been questioned by Hill and other panel members. (AP/The Washington Post/Sarah Silbiger)

WASHINGTON -- Department of Defense officials declined to testify Thursday about a $700 million loan to a Kansas trucking company they favored.

The Pentagon has offered to speak with members of the Congressional Oversight Commission about the fast-track assistance to YRC Worldwide, a business it deemed "critical to maintaining national security," but does not want a transcript of the proposed teleconference call to be made public.

The bipartisan panel, tasked with overseeing covid-19-related Treasury Department loans, "strongly urges [the Defense Department] to reconsider that position," one of its members, U.S. Sen. Pat Toomey, R-Pa., said. "The commission and [the Defense Department] have a responsibility to inform the public how taxpayer funds are being used, especially given the concerns that have been raised about the YRC loan."

The Office of the Director of National Intelligence also declined an invitation to appear. But the office told the commission, in writing, that it "has not designated any company as critical to maintaining national security," Toomey noted.

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U.S. Rep. French Hill, R-Ark., and other commission members have questioned the wisdom of the loan, noting the company's history of financial difficulties. The former Little Rock banker wants to know why, given the amount of competition in the industry, the military has leaned so heavily on a single outfit for less-than-truckload shipments.

The company did not respond to a request for comment Thursday.

A new U.S. Government Accountability Office report, at https://www.gao.gov/assets/720/711174.pdf, found that the Treasury Department "did not follow the standard process established for evaluating applications."

The Treasury Department executed the YRC Worldwide loan "almost 3 months before it executed any other loans," the report stated.

"According to Treasury, it accelerated evaluating YRC's application due to the urgency of the business's financial circumstances, including the possibility of YRC filing for bankruptcy if it did not receive aid. Treasury did not fast track any other applications from specific businesses based on financial need, though other businesses faced similar circumstances," the report stated.

Treasury Secretary Steven Mnuchin, who appeared at Thursday's hearing, portrayed the bailout of YRC Worldwide as "risky," acknowledging he would not have approved it in his previous role as an investment banker.

[DOCUMENT: Read the Government Accountability Office report critical of the Treasury Department » arkansasonline.com/1211gaoreport/]

But the loan met the government's established criteria and saved key jobs, Mnuchin added.

It also was backed by lawmakers from both parties, he added.

The Treasury secretary said he was aware that YRC Worldwide would likely have declared bankruptcy, had it not received the federal help.

Democrats have noted that YRC Worldwide had received $600 million in loans from Apollo Global Management before the covid-19 downturn. Apollo also loaned $184 million, in 2017, to Jared Kushner's family real estate firm, The New York Times has reported; Kushner is President Donald Trump's son-in-law.

A bankruptcy, Democratic commissioner Bharat Ramamurti said, would potentially have subjected Apollo Global Management to substantial losses.

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Mnuchin said he had not discussed the YRC Worldwide loan with Kushner or Kushner's staff.

The Coronavirus Aid, Relief, and Economic Security Act, signed into law on March 27, "provided up to $17 billion in loans to business critical to maintaining national security related to losses incurred as a result of covid," Mnuchin noted.

Only 20 companies were certified as critical to national security. Of those, only 11 received loans. Of the nearly $736 million in security-related loans, roughly 95% went to YRC Worldwide.

YRC Worldwide had reported losses of more than $100 million in 2019.

In his opening statement, Hill said he had questions about the national security lending process but was "particularly concerned" about the YRC Worldwide loan.

"YRC has been in poor financial condition for quite some time and the company's actually been shrinking since 2007. This company has been rated speculatively by Moody's and Standard & Poor's for nearly 20 years and has been hanging on by a thread since the global financial crisis."

"The only way YRC has survived for the last 10 years is through bailouts by the government and the private equity industry," he said.

"Having analyzed this data, reviewed the collateral, it makes me realize that were I still in finance, I would not have made this loan," he said.

In his testimony, Mnuchin said that U.S. Sen. Ron Wyden, D-Ore.; U.S. Rep. Peter DeFazio, D-Ore.; and U.S. Sen. Pat Roberts, R-Kan., were among those urging the Trump administration to approve the loan.

A YRC Worldwide subsidiary, Reddaway, is based in Tualatin, Ore., a suburb of Portland.

"Our intent was not to bail out any hedge funds. If we want to be criticized, perhaps it's the influence from many of the Democrats who wanted us to save union jobs. And, again, we were very focused on saving jobs because this was a national security loan, which was the intent of the program," Mnuchin told the commissioners.

Mnuchin portrayed the loan as a success, arguing that the federal government stood to make money on the transaction; taxpayers now own a nearly 30% stake in the company.

"This was a risky loan. We've been fortunate that the economy recovered and that the equity is doing well, and I am going to recommend that next year, whoever is Treasury Secretary seriously look at selling this loan," he said.

Hill, on the other hand, has questioned whether the valuations of the company's assets are realistic. If YRC Worldwide faltered, by the time creditors were paid, there would likely be insufficient funds left to cover what taxpayers are owed, he has said.

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