The collapse of trucking giant Yellow casts doubt on whether the U.S. government will be able to fully recoup a controversial $700 million loan for an enterprise that was already in financial trouble before the Treasury threw it a Covid lifeline.

The Nashville-based company may be forced to file for bankruptcy soon, after having told workers on Monday that it was shutting down. The decision punctuates the company’s struggle to refinance more than $1 billion of debt maturing in 2024 – almost half of which is held by the government.

Now, it’s unclear how much the Treasury Department, which issued the loan in 2020 under the Trump administration, can expect to get back. The government and its agent for the loan, Bank of New York Mellon, may have to fight other creditors in court for whatever assets Yellow has left.

Among the other creditors: private equity titan Apollo Global Management Inc., which in 2019 was the lead lender on a $600 million term loan for the company, known at the time as YRC Worldwide Inc.

A spokesperson for Yellow – which says it has repaid $230 million of the principal balance and sent the Treasury another $68 million in cash interest – said the company expects to repay the government loan in full. The spokesperson cited collateral on all of the company’s real estate and vehicle stock.

The Treasury Department’s 30% equity stake, which it negotiated as part of the original deal, is at risk of complete loss, as bankruptcy typically wipes out any stock value. That’s because U.S. bankruptcy rules require all creditors to be repaid in full before stockholders get any recovery.

Questions over how to apportion losses could take months or years to settle as Yellow’s case works its way through bankruptcy court. The Treasury declined to comment about where it falls in the repayment line or whether it aims to sell off any of its equity stakes.

The fallout is likely to draw significant anger from Capitol Hill, where lawmakers have long scrutinized the decision to prop up a company with a history of financial problems. An investigation released last year found that top aides to former President Donald Trump pressured Treasury and Defense Department officials to approve the pandemic relief loan for Yellow even though it was deemed ineligible.

The loan came from a $17 billion program created by Congress to support firms critical to national security and was issued because Yellow’s freight-carrying services were essential to Defense operations – a claim that lawmakers repeatedly questioned. The government only lent $735.9 million of that fund, Treasury records show, with Yellow having received 95% of the benefit.

CONGRESSIONAL PROBES

The loan was the subject of multiple congressional probes, as part of a broader effort to scrutinize pandemic-era aid. Members raised concerns at the time about allegations that Yellow had defrauded the Pentagon by overcharging for those carrying services – a lawsuit the company settled last year – as well as whether the Treasury or private creditors would be paid back first. An audit by the Office of the Special Inspector General in May found that the loan was made without sufficient safeguards.

Then-Treasury Secretary Steven Mnuchin told lawmakers in December 2020 that the government had “made a significant profit” on the deal by then. He also said he planned to advise his successor to look at selling the loan, which he characterized as a “success.”

The Treasury on Wednesday declined to comment on whether it ever considered selling the loan.

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