U.S. Treasury to loan $700 million to Overland Park company, gets equity in return
The U.S. Treasury’s money cannon continued shooting stimulus funds to businesses this week in an effort to stem the worst economic results of the coronavirus pandemic, this time directing a $700 million loan to Overland Park shipping firm YRC Worldwide.
The Treasury announced on Wednesday it intends to issue the loan to YRC, the country’s second-largest less-than-truckload shipping company. In return, the Treasury will receive 29.6% of YRC’s common stock.
There is some precedent for the federal government taking equity positions in private companies. After the 2008 economic crash, it owned shares in some companies, including General Motors, that received bailouts.
Treasury officials said YRC is a crucial vendor to the U.S. Department of Defense and that the loan will help keep 30,000 workers employed. They said it will also sustain military supply chains as well as those for commercial and retail goods for some 200,000 corporate customers.
The loan to YRC is under the CARES Act, the major multi-trillion dollar stimulus bill passed by Congress this year to keep the U.S. economy afloat as the coronavirus pandemic has gutted private businesses and resulted in historic unemployment.
“We are pleased for Treasury to make this loan pursuant to the CARES Act,” said Treasury Secretary Steven Mnuchin in a statement. “This loan will enable a critical vendor to the Department of Defense to maintain significant employment while providing appropriate compensation to taxpayers.”
YRC said the loan will help pay for deferred employee healthcare and pension costs, as well as supporting other contracts and capital investment.
The coronavirus has taken its toll on YRC. In a June 9 filing with the U.S. Securities and Exchange Commission, it reported a nearly 20% drop in shipments through April and May, compared to the same two months from a year ago.
In a quarterly report filed in May, the firm said the coronavirus figured to have an impact on consumer demand for products shipped by YRC and its operating companies, YRC Freight, New Penn, Holland and Reddaway.
That’s after YRC already endured a difficult year in 2019, which the company described as a recession for the freight industry. YRC believed the industry was beginning to stabilize in early 2020, but then the coronavirus spread to the United States, towing along with it a historic economic disruption.
“We would like to thank Congress for passing the CARES Act and the U.S. Department of the Treasury for providing this vital funding which recognizes the essential role YRCW plays in the nation’s supply chain,” said YRC chief executive Darren Hawkins in a statement.
The Treasury loan matures on Sept. 30, 2024. That’s the same year YRC’s $600 million term loan agreement with Apollo Global Management matures, according to an SEC filing. That loan had a $543 million book value as of March 31.
In May, Standard & Poor’s downgraded YRC’s credit rating, saying it doesn’t believe the company can meet requirements under the term loan.
Specifically, YRC has to maintain $200 million of earnings before interest, taxes, depreciation or amortization on a 12-month trailing basis. YRC got a break from that requirement for 2020 but Standard & Poor’s said it doubted YRC could meet that $200 million EBITDA requirement next year because of the effects of coronavirus.
YRC said Wednesday it expects to amend its existing credit facilities to allow the Treasury loan.
YRC’s stock jumped on the news on Wednesday, closing at $3.23 a share, up from $1.85 the day before.
