Mnuchin Questioned on Treasury Loan to Apollo-Backed Firm

(Bloomberg) -- Treasury Secretary Steven Mnuchin faced questions on Thursday from a congressional oversight panel over his department’s decision to extend a $700 million loan to a trucking company backed by private equity firm Apollo Global Management Inc.

The Treasury Department approved a loan to YRC Worldwide Inc., a Kansas-based shipping company, drawing on funds from the March Cares Act that were intended to help bolster companies critical to national security. The watchdog has raised concerns that the loan could put taxpayer money at risk and that YRC, which ships supplies between military bases, isn’t critical to national security.

Congress and outsiders “encouraged us to take losses” on the program, Mnuchin said Thursday at a Congressional Oversight Commission hearing about the national-security loans. “We are not saying this is a market loan. Had it been a market loan, Treasury would not have been involved.”

“Fortunately, we’ve made a significant profit” on the YRC deal, Mnuchin said. “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.”

Representative French Hill, an Arkansas Republican on the panel, said that taxpayer money is at risk because he didn’t believe that the collateral pool backing the loan was worth as much as Treasury estimates.

Apollo Question

“I think you’re vulnerable there,” Hill said.

The Treasury doesn’t want to be in the business of making long term loans to YRC or any national-security companies, Mnuchin said.

Bharat Ramamurti, a Democratic appointee on the panel, said that loan raised questions about who would get paid back first: the U.S. government or the creditor Apollo Global Management.

Joanna Rose, a spokeswoman for Apollo, said in an email that the company was not involved in YRC’s decision to seek the Treasury funds.

“We are a capital provider for thousands of companies. We are one of many lenders to YRC. Importantly, this is not a company controlled by Apollo funds,” she said.

Ramamurti also pointed to a General Accountability Office report released Thursday that suggested YRC got special, fast-tracked treatment for its loan approval that other companies did not get.

GAO Report

The Treasury “accelerated evaluating YRC’s application due to the urgency of the business’s financial circumstances, including the possibility of YRC filing for bankruptcy if it did not receive aid,” the GAO report said. “Treasury did not fast-track any other applications from specific businesses based on financial need, though other businesses faced similar circumstances.”

Ramamurti asked Mnuchin to turn over any correspondence that the Treasury had with the White House over the YRC loan. The Treasury chief said he’d consult with legal staff, but emphasized there was no communication specifically with Jared Kushner or Kushner’s staff. The family business of Kushner, Trump’s son-in-law, was reported in 2018 by the New York Times to have received credit from Apollo.

The congressional panel has been questioning the YRC loan for months. In July, it said the company was at risk of bankruptcy because of a heavy pension burden and has been rated non-investment grade for more than a decade.

The money for the $700 million YRC loan came from a pot of $17 billion for national security companies. YRC received the largest loan by far from that fund -- the 10 other companies that qualified for loans received $35.9 million combined. The more than $16 billion of the pot that remains should now be reallocated by Congress, Mnuchin said.

He noted that the expectation had originally been that the Treasury might have had to help the likes of Boeing Co. or General Electric Co., but the rebound in the economy and markets proved better than anticipated and the money wasn’t needed.

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