The New York Times reported this week that Yellow Corporation, a freight shipping company previously known as YRC Worldwide, is heading toward bankruptcy. Worse yet, it received a $700 million loan from the federal government that it likely won't be able to pay back.
As both people and businesses struggled at the beginning of the COVID-19 pandemic, Congress apportioned trillions of dollars toward relief programs in bills like the Paycheck Protection Program (PPP) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. But while businesses applied for loans and people struggled to access unemployment benefits, the Treasury Department authorized a $700 million loan to YRC. In exchange, Treasury received a 29.6 percent share of the company "as appropriate taxpayer compensation."
The company's books should have been the first red flag. While the pandemic assistance programs were intended to help companies that would otherwise be profitable in the face of an unforeseeable market disruption, YRC lost $104 million in 2019 after posting a net income of $20.2 million the previous year.
The money for the loan came from a $17 billion fund established to assist companies deemed crucial to national security. In response to questions from the Congressional Oversight Committee, the Treasury Department stated in October 2020, "YRC carries 68 percent of the Department of Defense's less-than-truckload shipments and is the leading transportation provider to the Department of Homeland Security and U.S. Customs and Border Protection." But at the time YRC was also being sued by the Justice Department for allegedly defrauding the government by artificially inflating the weights of its shipments. (The company settled the case in March 2022 for $6.85 million.)
Last month, the Office of the Special Inspector General for Pandemic Recovery (SIGPR) released an audit on the loan to YRC, which has since renamed itself Yellow Corporation. The auditors "identified internal control weaknesses" in the approval process; for example, Treasury "did not have specific, measurable objectives" to assess the loan's effectiveness.
That lack of rigor shows in the details. The SIGPR audit notes that the loan is set to mature in September 2024. But as of March 15, "Yellow had an outstanding loan balance of $729.2 million, made $54.8 million in interest payments, and repaid $230 in principal."
That's not a typo: More than two years into a four-year loan, Yellow has only paid a total of $230 toward the principal balance, in one payment from June 2021.
For its part, Yellow claims it is being stymied by the International Brotherhood of Teamsters (IBT) trucking union. This week, the company sued IBT for $137 million for blocking its restructuring and modernization plans. It says the union's actions were "knowingly intended to cause Yellow's economic ruin."
Though that may seem like a typical spat between a company and its workers, it's made considerably worse by the fact that $700 million in taxpayer money is on the line due to a well-intended but poorly-vetted federal program.
As Reason's Eric Boehm noted yesterday, "more than one-sixth of the $1.2 trillion disbursed" through just two programs was "stolen." In some ways, the loan to Yellow Corporation might be worse: Even with no fraud on display, the government will be left holding $700 million in debt and 30 percent of a bankrupt company.