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Law360 (June 4, 2021, 9:01 PM EDT) -- A House COVID-19 panel opened an investigation into a shipping company's $700 million loan through the Coronavirus Aid, Relief and Economic Security Act, citing "troubling reports" from an oversight committee and a federal watchdog that the business may have been ineligible for the national security loan.
In July 2020, the U.S. Department of the Treasury, in conjunction with the U.S. Department of Defense, approved Yellow Corporation Inc.'s loan request under a program intended to support companies critical to national security during the COVID-19 pandemic.
But Rep. James Clyburn, D-S.C., the chairman of the House Select Subcommittee on the Coronavirus Crisis, raised doubts over Yellow Corp.'s national security value and demanded the departments turn over records detailing how the loan was approved.
"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," Clyburn wrote in letters addressed to Treasury and DOD leadership.
The congressman also sent out similar letters to Yellow Corp., which was previously known as YRC Worldwide Inc., and Crowley Logistics, the prime contractor for one of Yellow Corp.'s contracts with the DOD.
The departments and the companies have until June 17 to provide records supporting the DOD's decision to certify Yellow Corp. as supporting the national security and certain other relevant communications. Clyburn further requested staff briefings with the DOD and the Treasury Department.
Yellow Corp. said Thursday that its loan agreement with the government enabled it to keep U.S. workers employed and ensured delivery of essential goods throughout the pandemic.
"We are grateful for the support we have received from many Democrats and Republicans in Congress. We understand and respect the fact that the Select Subcommittee has an important job to do and intend to fully cooperate with its members while we continue moving the economy forward," Yellow Corp. said.
A Treasury spokesperson said in a Friday statement to Law360 that it is closely monitoring borrowers' compliance with loan requirements and would be responsive to all oversight bodies.
The CARES Act set aside $17 billion in assistance to companies "critical to maintaining national security." The Treasury Department, which approved loan requests from companies the DOD certified as vital to national security, wound up disbursing a total of nearly $740 million to 11 applicants.
In announcing Yellow Corp.'s loan — which accounted for 95% of the loans — the Treasury Department said the company provided 68% of less-than-truckload, or LTL, services to the DOD. Yellow Corp. explained it would use the money to cover workers' pension and health care payments and to make capital investments in trailers and tractors.
But the decision drew scrutiny from the Congressional Oversight Commission, whose members found it unclear whether the trucking company was critical to national defense. The commission additionally raised concerns with the loan's risks, noting that Yellow Corp. was nearing bankruptcy before the loan was approved.
The commission ultimately reported in April that it couldn't substantiate that Yellow Corp. provided the majority of the Pentagon's LTL services. Moreover, a DOD agency had informed the commission that, "in a downside scenario," other contractors could replace Yellow Corp.'s trucking services, according to the report.
"The commission continues to believe that Treasury and DOD made missteps in deeming Yellow as critical to national security and executing the loan," the commission said.
On Thursday, Yellow Corp. said it stood by its national security designation. "Both then and today, we handle a significant portion of the DOD's LTL shipments," it said.
The U.S. Government Accountability Office, which was also reviewing the national security loan program, separately reported that Treasury Department officials had fast-tracked Yellow Corp.'s loan application but didn't expedite requests from other companies in similar financial circumstances.
The DOD didn't immediately respond to requests for comment Friday.
--Additional reporting by Jennifer Doherty. Editing by Daniel King.
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