Date: Tuesday, October 20, 2020
Source: The Wall Street Journal
Trucking company YRC Worldwide Inc. has drawn down just over one-third of a promised $700 million loan in coronavirus-relief funds as it prepares a spending plan that will require U.S. government approval for more aid.
The cash infusion comes as a bipartisan congressional panel is raising questions about the Treasury Department’s decision to lend the money to YRC as a company critical to national security. One of the largest trucking companies in the U.S., the Overland Park, Kan.-based carrier has struggled financially for years and was trying to turn the business around when the coronavirus pandemic sparked what Treasury has called “a liquidity crisis.”
The Congressional Oversight Commission has questioned the national-security designation of YRC and pressed Treasury on whether the loan was appropriate given the company’s financial difficulties before the pandemic.
Treasury said it made the national-security decision based on a recommendation and guidance from the defense secretary. YRC carries 68% of the Defense Department’s less-than-truckload shipments, in which cargo from multiple shippers is combined in a single trailer, and it is the leading transportation provider to the Department of Homeland Security and U.S. Customs and Border Protection, Treasury said in a Sept. 4 letter included in the most recent commission report.
The letter said “the liquidity provided by Treasury” was related to losses incurred as a result of the coronavirus, because YRC’s sudden drop in revenue early in the pandemic prevented it from meeting health-care and pension obligations and “carrying out necessary capital expenditures.”
Treasury agreed in July to loan YRC the money in exchange for a 29.6% equity stake in the company, under a provision of the $2.2 trillion Cares Act enacted in March that authorized $17 billion for companies deemed essential to national security.
YRC has borrowed $245 million from a $300 million tranche designated for the payment of health, pension and other obligations, according to an August securities filing and a Treasury department spokeswoman. A YRC spokesman declined to comment further ahead of the company’s expected third-quarter earnings release in the coming weeks.
As of the third quarter, YRC hadn’t requested funds from a second tranche of $400 million earmarked for buying new trucks and trailers, the Treasury spokeswoman said. That portion of the loan is subject to a capital spending plan that must be approved by Treasury every quarter based on YRC’s most recent financial and operating results and updated performance projections.
“It’s going to take us probably the better part of four, maybe up to six quarters to put all $400 million to work,” YRC Chief Financial Officer Jamie Pierson said in an Aug. 3 earnings call.
The Treasury Department loan will over time nearly double YRC’s debt load to around $1.6 billion, Mr. Pierson has said. The company doesn’t plan to pay the debt down during the life of the loan, intending instead to either pay it off or refinance at maturity.
The federal loan “puts YRC on a much more stable footing here as we look out over the next three to four years,” Stephens Inc. analyst Jack Atkins said, as the company pushes to improve profitability and refresh its aging fleet. “I do feel like we should be seeing some improving trends for YRC as we look out over the next couple quarters, as long as the broader freight markets remain positive.”