WASHINGTON—The U.S. government plans to lend $700 million in coronavirus stimulus funds to trucking firm YRC 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 of the $2.2 trillion law Congress enacted in late March that authorized $17 billion for companies deemed essential to national security.
The loan is by far the biggest the government has extended to a U.S. business outside of the airline industry, and the first loan the government has awarded from a special fund for firms with ties to the Defense Department.
Overland Park, Kan.-based YRC is one of the largest U.S. trucking companies and does substantial business with the Defense Department, delivering food, electronics and other supplies to military locations around the country, as well as serving some 200,000 industrial, retail and commercial customers.
Congress authorized the Treasury to lend up to $46 billion directly to firms hard-hit by the pandemic, including $29 billion for passenger and cargo airlines, and $17 billion for firms deemed essential to maintaining national security. The program aims to help companies maintain staffing levels and is separate from other stimulus efforts directed at smaller businesses.
“This loan will enable a critical vendor to the Department of Defense to maintain significant employment while providing appropriate compensation to taxpayers,” Treasury Secretary Steven Mnuchin said.
YRC generated $4.87 billion in operating revenue last year but has also struggled for years under a heavy debt load. The company employs about 30,000 workers, including 24,000 members of the International Brotherhood of Teamsters. It is the fifth-largest U.S. trucker by 2019 revenue, according to transportation research provider SJ Consulting Group Inc.
The pandemic battered YRC’s business as lockdowns meant to curb the spread of the virus curtailed the flow of freight from YRC’s industrial and retail customers. The company slashed expenses, laying off and furloughing some workers, and striking a deal with lenders to improve liquidity.
“The hole created by the pandemic was our reason for pursuing the Cares Act loan,” YRC Chief Executive Darren Hawkins said in an interview. While shipping volumes have picked up as more states reopen, he said, “A lot of our exposure was to the heavy industrial side of the economy, which was the last piece to come online.”
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.
In afternoon trading, shares of YRC climbed 68% to $3.12 each.
YRC applied for the loan in late April, under the Cares Act provision for firms critical to national security, “because of our longstanding service in national defense,” Mr. Hawkins said.
In 2018, the Justice Department sued YRC for allegedly overcharging the Pentagon millions of dollars for shipping from 2005 to at least 2013. Mr. Hawkins called the lawsuit “a contractual dispute from over a decade ago” and said YRC has filed a motion to dismiss the case.
The national security funds were once widely believed to be aimed at supporting Boeing Co., but the company decided against applying for federal funds after raising $25 billion from private investors. One senior Pentagon official in May questioned whether the Treasury’s conditions for the loans aligned with the needs of Defense Department contractors.
—Colin Kellaher contributed to this article.
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