A House oversight committee says Trump administration appointees ignored objections from Defense Department career officials to approve a $700 million pandemic relief loan for trucker Yellow Corp.
The administration approved the loan in 2020 on terms that violated the Cares Act, the sweeping financial package Congress passed in March 2020 to help businesses weather the impact of the Covid-19 pandemic, said the Democratic-led House nominating subcommittee on the coronavirus crisis. in a report released Wednesday.
Subcommittee chairman James Clyburn (D., SC) planned to ask the Treasury Department’s inspector general to investigate whether Yellow, one of the nation’s largest trucking companies, violated federal law, such as by making false statements when applying for the loan, according to a statement accompanying the report.
“Political appointees risked hundreds of millions of dollars in public funds against the recommendations of DoD career officials and in clear disregard of Cares Act provisions designed to protect national security and American taxpayers,” said Mr. Clyburn in the release.
In a letter to Mr. Clyburn seen by The Wall Street Journal, Yellow’s attorneys called the report’s allegations unsubstantiated and patently untrue, and said his eligibility for Cares Act funds was and still is “appropriate to all respects”.
The findings likely wrap up the panel’s 11-month investigation into whether the loan was improperly granted to Yellow, which was saddled with heavy debt long before the pandemic sent the US economy into a tailspin.
The Overland Park, Kansas-based company was one of 11 recipients of Cares Act funds for defense contractors. Yellow’s loan represented 95% of $736 million in outstanding loans for companies deemed critical to national security, the Treasury Department said early last year. The US government took a 29.6% stake in the publicly traded company as part of the loan agreement.
The company said it is committed to repaying the loan in full.
The Special Inspector General for Pandemic Recovery, an office created under the Pandemic Relief Act, is reviewing direct loans, which include the loan to Yellow, according to a spokesperson for the office.
Federal officials said the pandemic loan to Yellow supported national security because of the company’s work for the Pentagon. The Pentagon sued Yellow in 2018, alleging the trucker overcharged the department. The suit was settled this year.
According to the subcommittee report, the Department of Defense career manager also said that the lawsuit and the availability of other trucking services to replace Yellow’s cargo transportation business in the United States for facilities military led the department to conclude that Yellow should not be considered essential to national security. . “However, there is some political pressure to do so,” the Defense Ministry official said, according to the report.
After Defense Department personnel informed the Treasury Department that Yellow would likely not be considered essential to national security, then-Treasury Secretary Steven Mnuchin requested a call with the Secretary of the Department. Defense at the time, Mark Esper, according to the subcommittee’s report. Following the appeal, the report continues, Mr. Esper certified Yellow as essential to national security, making him eligible for the loan.
On July 1, 2020, the Treasury announced that it had approved the loan based on Mr. Esper’s certification, while using an inflated percentage of Department of Defense truck-less shipments handled by Yellow, according to the report.
Yellow’s attorneys argued in their letter that the company is critical to national security because of its size and military supply chain expertise. A spokesperson said the percentage of shipments under one Department of Defense truck that the Treasury referred to in its announcement was accurate.
Mr. Mnuchin declined to comment through a spokesperson.
A spokesperson for Mr. Esper said the Department of Defense believes Yellow meets the criteria for the loan program, and he pointed to correspondence cited in the report, in which Pentagon staff said he ” was willing to recommend” that Yellow was eligible before finding out there was a federal lawsuit against the company.
Mr. Esper did not come to a conclusion on Yellow’s eligibility and the Treasury Department ultimately made the decision to issue the loan, the spokesman said.
Mark Meadows, who was the White House chief of staff at the time, also told yellow lobbyists that he planned to call Mr. Mnuchin to discuss the loan request in May 2020, and Mr. Meadows and other White House staff were in regular contact with the company and its representatives, the subcommittee said.
Mr. Mnuchin defended the loan to Yellow, then named YRC Worldwide Inc., at a hearing in December 2020 after a separate bipartisan group of lawmakers said the company failed to meet Treasury standards for crucial businesses. for national security and that its long-standing financial problems were putting taxpayers’ money at risk.
House investigators also found that the Trump administration was offering Yellow a “significantly lower” interest rate than the company was paying private lenders and allowing Yellow to spend $400 million of the loan to replace its fleet. tractors and trailers, even though the Cares Act loans were supposed to only compensate for losses resulting from the pandemic.
Yellow’s annual capital expenditures ranged from $66 million to $145 million from 2012 to 2020, but jumped to $497 million in 2021, according to FactSet.
“While we had our hands in the cookie jar, we thought we’d try to get some ‘catch-up’ investment while we were at it,” Yellow’s chief financial officer wrote to a creditor at the time, according to documents obtained by the subcommittee.
Yellow’s spokesperson cited public comments during 2020 and 2021 earnings calls and press releases in which executives expressed plans to increase capital spending with the help of Treasury funds . In their letter, company attorneys said the subcommittee’s assessment of the use of funds as improper was baseless and that the panel cited a former employee about it “for good political gain.” market”.
—Andrew Duehren contributed to this article.
Write to Lydia O’Neal at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8