YRC’s debt will be sold at a profit to the American taxpayer, according to the US Treasury Secretary, Steven Mnuchin. Speaking to the ‘Congressional Oversight Commission’ on Thursday, Steven Mnuchin admitted that the decision to lend $700m to the major US trucking company, YRC Worldwide, earlier in the year was “risky” and that as a former CEO of a private bank he would have rejected the application on commercial terms. However, Mnuchin commented, “but as you recall both Congress and outsiders encouraged us to take losses”. He continued, observing the US Treasury and YRC were fortunate that “the economy recovered, and that the equity is doing well, and I am going to recommend that next year, whoever is Treasury secretary seriously look at selling this loan and recovering what I think will be a profit to taxpayers because this was a success.”
The loan was controversial as YRC was facing significant financial problems at the time and there were questions over the wisdom of a loan to what appeared to be a vulnerable company. As part of the ‘CARES’ act initiative, YRC received what might be called a ‘liquidity facility’ of $350m over four-years enabling the company to support pensions, healthcare and operational finance obligations. A further $350m was designated to support capital investment. The two loans were set at 3.5% above the base rate.
The deal attracted some controversy as, although the US Treasury assumed 29.6% of the equity of YRC, it seemed to have less control over the company’s debt than the existing private bondholders. Indeed, the deal was attractive to YRC’s large bondholders as it improved the level of security of YRC’s paper. It was also noted that at the time of the agreement the deal was justified on the grounds that YRC was a defence contractor although Steven Mnuchin on Thursday (December 10) advocated the loan on the basis that it “saved lots and lots of jobs” as well a supporting the economy in the time of crisis.
YRC now appears much more stable than earlier in the year and its stock is trading at a markedly higher price.
Source: Transport Intelligence, December 15, 2020.
Author: Thomas Cullen
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)