Here Come The Corona Capitalists, Part 3
Congratulations taxpayer! You just bought a trucking company. Well, not an entire trucking company but you did get 30% of the equity in a trucking company. Via the WSJ:
U.S. Treasury to Lend $700 Million to Trucking Firm YRC Worldwide
Government will take a 29.6% equity stake in the company, Treasury says
WASHINGTON—The U.S. government plans to lend $700 million in coronavirus stimulus funds to trucking firmYRC Worldwide Inc.,in exchange for a 29.6% equity stake in the company, the Treasury Department said Wednesday.
The Treasury said publicly traded YRC qualified for the loan under a provision ofthe $2.2 trillion lawCongress enacted in late March that authorized$17 billion for companiesdeemed essential to national security. (emphasis added)
Let's ignore for a minute that bit about "essential to national security" because we know that wasn't the real reason for this loan. There is no way this trucking company is essential to national security. This thing was headed for zero even before the virus hit and if the Treasury didn't have CARES Act money burning a hole in its pocket, it would have been reorganized in bankruptcy court. This company has been operating with a heavy debt load for years and a re-org is exactly what it needed to shed some obligations - read pension liability - so it could compete. Service to the government would have likely continued uninterrupted through bankruptcy. Even if it was liquidated, there are plenty of trucking companies out there that do less than truckload hauling all the time. Here's one right here, a little smaller but consistently profitable with less debt.
So, why did we lend $700 million to a company that already had $1.1 billion in debt it couldn't pay? Why did we only get 30% of the equity when we could have bought all the equity yesterday for less than $100 million? Why didn't we let this thing go bankrupt and buy it then? It could have come out the other side with less debt and at least a chance of succeeding and taxpayers being made whole.
The loan to YRC will mature on Sept. 30, 2024, and consists of two $350 million tranches. The funds will allow the company to cover obligations including three months of missed pension and health-care payments at “roughly $40 million a month,” Mr. Hawkins said. The company will also use the money for equipment and property lease payments, and to make capital investments in its fleet.
Is this just a backdoor bailout of the pension plan? Why would the Treasury do that?
(WASHINGTON) – A $700 million loan provided by the United States Treasury under the CARES Act will help YRC Worldwide, Inc.’s operating companies pay its employees’ health care and other benefits and get through this pandemic while protecting the livelihoods of about 24,000 Teamsters and their families, Teamsters General President James P. Hoffa said today.
“I want to thank Congress for passing the CARES Act, and the President and the Treasury Secretary for their help in making this essential bridge loan possible,” Hoffa said. “They recognized the urgency and acted swiftly to avoid our members’ health benefits from being cut and, in the long term, to protect 24,000 Teamster jobs at YRC Freight, Holland, Reddaway and New Penn.”
The CARES Act assistance will be used to pay for employee health care and pension costs and other obligations. YRCW employs 30,000 freight workers, including 24,000 Teamsters.
It is an election year so I don't think that really requires a comment.
It is also interesting that Darren Hawkins, the CEO of YRC, was recently tapped to serve on something called the Great American Economic Revival Industry Groups, which was formed to advise the government on its economic recovery efforts. Hawkins was named CEO in 2018 but served as President at least back to 2014 so he has overseen this wreck of a company for at least six years. Since the President and Treasury Secretary both seem to think that stock prices are a measure of effectiveness, let's see how Mr. Hawkins has done:
Yeah, this is the guy I want advising the government on its economic recovery plan.
I'll say this, Mr. Hawkins apparently didn't know he was going to get a bailout. He sold YRCW stock in May for about $1.50 and it closed today at $3.23. But, hey, he's still got his pension, right?
So, anyone want to put odds on YRC Worldwide ever paying back this loan? I'd put them just slightly better than a snowball's chances in hell.
Are there any capitalists left in either political party?
Update: I didn't see this before but YRC is actually being sued by the Defense Department (via CNN):
The suit, filed in December of 2018, alleges YRC overcharged the Defense Department as well as failing to comply with the contract terms and related government procurement rules, along with unjust enrichment and breach of contract, according to YRC's filing. YRC has filed a motion seeking to dismiss the complaint and it said in intends to vigorously defend itself.The civil complaint charges that YRC "reweighed thousands of shipments and suppressed the results whenever they indicated that a shipment was actually lighter than its original estimated weight." The suit said the practice went on for seven years and cost the Defense Department millions of dollars.