Congress is stepping up its scrutiny of Yellow Corp. (NASDAQ: YELL) and its $700 million CARES Act relief loan following reports alleging the company may have been ineligible for the funds and then misused them.
In letters to Treasury Secretary Janet Yellen, Department of Defense (DOD) Secretary Lloyd Austin, Yellow CEO Darren Hawkins and Crowley Logistics, Rep. James Clyburn, D-S.C., chairman of the Select Subcommittee on the Coronavirus Crisis, requested documents on whether Yellow’s loan was issued appropriately and used properly.
As a subcontractor to Crowley — a prime contractor for DOD — Yellow received the money in 2020 as part of the loan program run by the Treasury Department, which was intended to support companies that were critical to maintaining U.S. national security during the pandemic.
“In light of troubling reports regarding Yellow’s questionable eligibility for and use of the funds, I write to seek documents and information to determine whether funds were diverted to waste, fraud, or abuse through the previous administration’s process for approving this substantial loan,” Clyburn wrote. “The Select Subcommittee is concerned that the previous Administration may have mismanaged the national security loan program and squandered taxpayer funds in a manner not authorized by law.”
A bipartisan Congressional Oversight Commission began checking into the circumstances surrounding the loan shortly after it was announced. A report from the commission released in April showed that Yellow was likely not as “critical to maintaining national security” as had been suggested by DOD and Treasury.
The report noted that the carrier likely provided only 20% to 40% of the DOD’s less-than-truckload services, not the 68% stated by DOD and Treasury, when providing the rationale for the loan.
Clyburn’s subcommittee is also looking into whether Yellow is spending the money for purposes unrelated to losses caused by the coronavirus crisis, noting in its letter to Hawkins that a substantial share of the funds have been used to replace tractors and trailers in its fleet, “which appears to be at odds with the CARES Act.”
In reporting a $63.3 million first-quarter loss in May, the company revealed it had used $251 million of the loan to take delivery of new equipment during the fourth and first quarters. Management said it has received the next $130 million from the Treasury, which will allow it to continue buying equipment in the second quarter.
“Other circumstances add to concerns about how Yellow obtained such a significant national security loan,” Clyburn wrote, citing a September 2019 FreightWaves article reporting that the company had received a $600 million lifeline loan from a group led by Apollo Global Management LLC.
“In April 2020, Apollo reportedly lobbied White House Senior Advisor Jared Kushner and other Trump administration officials to relax risk requirements for other CARES Act loan programs, suggesting the company may have applied similar pressure in this instance.”
Clyburn and his committee requested that Yellow produce a list of types of documents by June 17, including its CARES Act loan application and “all communications with Apollo Global Management LLC or the White House related to Yellow’s efforts to obtain any loan or other means of financial support from the federal government.”