Taxpayers Wonder Where the Yellow Went
After 99 years in business, Yellow, one of the nation’s biggest trucking companies, shut down Sunday. The company has more than 12,000 trucks, employing 30,000 with 22,000 of those jobs being held by Teamsters.
If you are a taxpayer reading this you know all this, your government being a 29.6% shareholder of Yellow and all. The Trump administration’s Coronavirus, Aid, Relief, and Economic Security Act (CARES Act”) dished out $500 billion to businesses, states and municipalities as a result of the coronavirus. Yellow Corporation received $700 million of the $735.9 million set aside for national security loans.
The loan had two tranches, tranche A was $300 million to cover union healthcare and pension liabilities, plus lease and interest payments. Tranche B was for tractors and trailers. Interest for Tranche A was LIBOR plus 3.5% (split between 1.5% cash interest and 2.0% payment-in-kind (“PIK”) interest) and interest for Tranche B was LIBOR plus 3.5% (all cash). These attractive terms are the reason the government required equity in the firm.
“Since the CARES Act did not define the term ‘business critical to maintaining national security,’ the Treasury had virtually unfettered discretion to define this term,” says a Special Report of the Congressional Oversight Commision that investigated the loan.
At the time (2020) the defense department figured other trucking companies could replace Yellow’s government work should the company go out of business. The defense department was going to recommend a “no” to the loan. But, “One day after Defense Department officials notified the Treasury that the Defense Department would likely not certify Yellow as critical to maintaining national security, the Treasury requested an urgent call with Secretary Esper, which took place on June 26, 2020.” After Treasury Secretary Steven Mnunchin called the Defense Secretary, ”Esper certified Yellow as critical to maintaining national security the same day as the call, June 26, 2020, and the Treasury finalized the loan to Yellow on July 7, 2020.”
According to the Wall Street Journal, “Esper declined to comment. He has previously said he made the certification at the recommendation of Pentagon staff.”
According to the special report Yellow spent $570,000 on lobbying in 2020 compared to zero the year before. The company had been in close touch with the White House and “had discussed how the company employs 24,000 drivers who are part of the International Brotherhood of Teamsters (“Teamsters”) union.”
Teamsters President Jimmy Hoffa “had reached out to the Trump administration and that Mr. Hoffa was seeking a meeting with the Secretary of Defense to advocate for Yellow’s national security loan application.”
Once the loan was funded, Yellow executive officers and directors received stock options and Yellow stock went up 10 times in price from the bailout to the end of 2021.
The Teamsters benefited by Yellow being able to pay millions in deferred pension and healthcare benefits. Also, the special report pointed out, “the Teamsters hold a direct interest in Yellow as a result of the Teamsters’ ownership of Series A Preferred Stock. Yellow issued one share of Yellow’s Series A Preferred stock on July 22, 2011 to the Teamsters ‘to confer certain board representation rights.’ This share is valuable to the Teamsters because as the holder of this share the Teamsters are permitted to appoint two directors to Yellow’s board of directors.”
Despite having two board seats, the Teamsters accept no blame in Yellow’s downfall. “Teamsters have kept this company afloat for more than a decade through billions of dollars in wage, pension and work-rule concessions,” a union spokesman said. “Yellow couldn’t manage itself, and it wasn’t up to Teamsters to do it for them.”
“I’m actually quite proud of the fact that we did YRC [Yellow’s previous name],” Mnuchin said in 2020. “It saved lots and lots and lots of jobs. I’ve received calls from the company, from truckers, from other people who appreciate this.”
Taxpayers don’t appreciate it at all.
