How a Politically Connected Private Equity Firm
Scored a Special Bailout for its Heavily Indebted Trucking Company
Anyone who has spent time on America’s vast highways has inevitably passed one of the thousands of trucks operated by YRC Worldwide. But the otherwise little-noticed trucking company has something more going for it than the taxpayer-finance interstate highway system: a private equity lender, Apollo Global Management, that lobbied President Trump’s adviser and son-in-law for help early in the pandemic. Before the year was out, YRC scored a $700 million loan, ostensibly for reasons of national security.
Road to Ruin
The trucking company’s troubles began back when it was still called Yellow Corp. In 2003, the company entered into a $1.1 billion merger with competitor Roadway Corp to form what is now Yellow Roadway Corporation.
YRC ended up taking on $675 million in debt to purchase Roadway, a decision that would weigh on the company for years to come. Following the financial crisis of 2008, YRC experienced its first brush with insolvency. The company, facing plummeting economic activity and struggling to pay the debt remaining from its merger, decided to wipe out most of its shareholders and slash the pay of its workers, many of them unionized by the International Brotherhood of the Teamsters, allowing it to barely get by without filing for bankruptcy.
As the economy recovered in the ensuing years, YRC took the opportunity to try and refinance all of the debt it had accumulated from its merger. In 2014, the company issued a new $700 million five-year bond, and took out a $450 million line of credit with Citizens Bank to refinance its prior debt. But given the trucking company’s woes, YRC had to pay a steep price, a rate of 7% on top of a daily reference rate, referred to as Libor, on the $700 million loan.
As the due date of YRC’s loan in 2019 drew closer, the company asked its investors to extend it for a few more years. The lenders agreed in July 2017 but now required YRC to pay 8.5% over the three-month Libor rate.
YRC sought to refinance yet again in September 2019 and ultimately found the private equity firm Apollo Global, which lent it $600 million for five years at a rate of 7.5% over the three-month Libor rate.
YRC quickly obtains special loan as hell breaks loose
Shortly thereafter came the historic disruption from the coronavirus pandemic.
Apollo – a giant private equity firm with $400 billion in assets under management and close ties to the White House – had a strong interest in the company being able to repay its high interest loan. As the pandemic spread uncontrolled across the United States and financial markets fell into turmoil Apollo’s executives got to work.
Apollo’s other co-founder Marc Rowan in April reached out to Jared Kushner as well as other senior officials in the Trump Administration seeking help for Apollo owned companies. There were emails to key decision-makers, and meetings at the highest level; Joshua Harris, a founder of Apollo met with Kushner himself.
Kushner and his family’s company have a history with Apollo. Earlier in 2017, Apollo had extended one of its larger commercial loans at the time to Kushner Companies to help refinance a Chicago skyscraper they had bought at the peak of the real estate bubble.
Apollo’s third co-founder Josh Harris, who also owns part of the Philadelphia 76ers basketball team, was rumored in 2018 to be serving as an outside adviser to the White House on infrastructure policy.
Millions of businesses lined up to access grants/loans under the Paycheck Protection Program (run by the Small Business Administration) or later from the Main Street Lending Facility (run by the Federal Reserve.)
But a completely separate loan program was created for airlines and other businesses “critical to maintaining national security.” YRC was the first to obtain a loan under this program, swiftly receiving a $700 million loan from the program in exchange for the Treasury taking a 29.6% stake in the company stock.
It was a much better deal than YRC had ever gotten before.
The company which had to pay rates above 10% just years earlier suddenly was able to borrow at half that rate – 3.5% above Libor.
Even more egregiously, of that 3.5%, most of it could actually be paid by YRC issuing new debt instead of with cash like the vast majority of debt, an arrangement often referred to as pay-in-kind.
When asked about the wisdom of extending the loan to YRC at a December 10th hearing by the Congressional Oversight Commission, Treasury Secretary Mnuchin admitted: “If my bank had been underwriting this loan, we would not have made this loan.”
In the event, however, the loan was made very quickly. A report from the Government Accountability Office (GAO) found that YRC received the $700 million on July 8, ahead of when the first round of criteria to evaluate applicants to the program was finalized later in the month. No other loans were made through the program until three months later.
YRC proved to be by far, the largest beneficiary of the program. The sum lent to the next 10 borrowers totaled only about $36 million. The GAO report noted that Treasury “did not follow the standard process established for evaluating applications for the YRC loan” and unlike other loans, had other Treasury staff not involved in creating the program negotiate and extend the loan to YRC.
YRC’s qualifications for receiving the loan for “national security” reasons are dubious at best.
Treasury argues YRC provides 68% of the Department of Defense’s shipping of food, electronics, and other supplies to military bases around the country.
This is almost certainly wrong. In a 2018 lawsuit from the Pentagon accusing YRC of overbilling the DoD from 2006 to 2013, YRC mentioned the Pentagon’s total contract only accounted for 1% of YRC’s annual revenue. Based on 2017 revenues, that would mean the Defense Department pays YRC $49 million a year. Put another way, if YRC’s numbers, written into a court filing, are correct, then the entire Defense Department would have spent $72 million on shipping food and supplies, a ridiculously low number for an agenda with a budget of over $700 billion.
The YRC number would also contradict a 2007 study from the RAND Corporation that shows that the Pentagon years earlier, in 2003 spent $510 million on its less-than-truckload (LTL) shipping, the type that YRC is contracted for.
There are other reasons to doubt YRC’s centrality to national security. A handful of other trucking companies could provide similar services to the Pentagon if YRC were unable to including UPS, FedEx, ABF Freight System, Central Transport, and Estes Express Lines, according to Ellen Lord, Under Secretary of Defense of Acquisition and Sustainment, in response to an October 22 letter from the Congressional Oversight Commission.
Apollo continues to deny that it had any involvement in helping YRC obtain this special loan. But it is clear that YRC, already in trouble before the pandemic, received a large loan, on generous terms, and at a speed of which other businesses not linked to a Wall Street private equity firm, could only dream.
 Dilanian, Ken and Ruhle, Stephanie. NBC News. “Seeking coronavirus relief, investment firm with ties to Kushner emails Kushner, Trump admin”. Apr 4, 2020. https://www.nbcnews.com/politics/white-house/seeking-coronavirus-relief-investment-firm-ties-kushner-emails-kushner-trump-n1176686
 Leoning, Carol et al. Washington Post. “Private equity angles for piece of stimulus windfall”. Apr 6, 2020. https://www.washingtonpost.com/politics/private-equity-angles-for-piece-of-stimulus-windfall/2020/04/06/ff814bd2-745a-11ea-85cb-8670579b863d_story.html
 Moore, Nancy et al. RAND National Defense Research Institute. 2007. “Estimating DoD Transportation Spending”. https://www.rand.org/content/dam/rand/pubs/documented_briefings/2007/RAND_DB516.pdf