Mnuchin faces heat over coronavirus rescue loan to trucking company

The dedicated congressional coronavirus oversight panel grilled Treasury Secretary Steven Mnuchin on Thursday over a rescue loan issued to a shipping company through a program meant for businesses that are crucial to national security.

Members of the Congressional Oversight Commission (COC), created to oversee the implementation of the CARES Act, pressed Mnuchin during a hearing on why the Treasury and Defense departments deemed it necessary to lend $700 million to YRC Worldwide. 

The commission has been fiercely critical of Mnuchin and the Defense Department’s decision to issue the rescue loan, as well as with lending terms they fear are too generous to a company with longstanding financial issues. Members also questioned whether YRC is truly essential to national security and why the Pentagon has contracted YRC for a significant proportion of its shipping needs.

“At best, this is a loan that puts nearly a billion dollars at risk with minimal protections and helps a private equity giant sitting on billions of dollars of its own money,” said COC Commissioner Bharat Ramamurti, a former policy adviser to Sen. Elizabeth Warren (D-Mass.).

YRC Worldwide specializes in less-than-truckload (LTL) shipping, in which loads from multiple customers are combined into one trailer. The company performs 68 percent of the Defense Department’s LTL services and also has contracts with the departments of Energy and Homeland Security, according to the Treasury.

Treasury lent YRC Worldwide $700 million in July from a pool of $30 billion allocated by the CARES Act as aid to airlines, aircraft makers and other businesses deemed essential to national defense. In exchange, the Treasury Department took a 29.6 percent stake in YRC and has liens against a portion of its fleet as collateral.

Mnuchin touted the loan Thursday as a major success for the CARES Act, YRC and the U.S. taxpayer, citing the substantial rise in the company’s stock price after the department took a stake. 

“I’m proud of the fact that we did YRC. It saved lots and lots and lots of jobs,” Mnuchin said. He added that while he wouldn’t have extended the same loan if he ran a bank or hedge fund, he expects the government to turn a profit on it.

The members of the commission were less optimistic.

Rep. French Hill (R-Ark.), a former Treasury Department official and banker, told Mnuchin he didn’t think the federal government had taken enough collateral to back up the loan to YRC. 

He also expressed doubts that YRC’s financial trouble is driven by the pandemic, citing its history of bailouts and sub-investment grade debt offerings before COVID-19 hit the U.S.

“Despite having all of its debt wiped out then,” Hill said, “this company found itself exactly in the same position before the pandemic.”

Ramamurti also asked Mnuchin why it was necessary to lend to YRC when Apollo Global Management, a major investment firm, already had a $600 million stake in the company. He asked Mnuchin whether the decision was influenced by White House adviser Jared Kushner, whose family has received more than $100 million in loans from Apollo.

Mnuchin denied any connection between Kushner and the YRC loan and said he has never spoken about the matter with President Trump’s son-in-law. He also pointed to earlier requests from members of Congress from both parties to consider a loan to YRC.

The commission also posed several questions about how critical YRC is to U.S. national security and why the Department of Defense certified the company as a necessary recipient of rescue funding. Undersecretary of Defense Ellen Lord is set to testify before the panel during a Dec. 18 teleconference.

“Why would the [Pentagon] be so dependent on such a weak company when there are many companies — including union companies, for my friends on the other side of the aisle — that have tremendous financial strength that provide LTL services?” Hill asked.