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The Eighth Report of the Congressional Oversight Commission
December 31, 2020
Commission Members
U.S. Representative French Hill
U.S. Representative Donna E. Shalala
U.S. Senator Pat Toomey
TABLE OF CONTENTS
Introduction
Executive Summary
Discussion of Treasury’s National Security Loan Program
Treasury and Federal Reserve Recent Developments
Appendix A: Answers to Follow-Up Questions Submitted to the Honorable Ellen Lord at the
Department of Defense
Appendix B: Preliminary Transcript of National Security Loan Program Hearing on December
10, 2020
Appendix C: National Security Loan Program Transactions Summary
Appendix D: Sample Application to Treasury
Appendix E: Questions for the Record Submitted to Treasury by Rep. Hill
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INTRODUCTION
This is the eighth report of the Congressional Oversight Commission (“Commission”)
created by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).1 The
Commission’s role is to conduct oversight of the implementation of Division A, Title IV,
Subtitle A of the CARES Act (“Subtitle A”) by the U.S. Department of the Treasury
(“Treasury”) and the Board of Governors of the Federal Reserve System (“Federal Reserve”).
Subtitle A provides $500 billion to the Treasury for lending and other investments “to provide
liquidity to eligible businesses, States, and municipalities related to losses incurred as a result of
coronavirus.”2
Of this amount, $46 billion is set aside for the Treasury itself to provide loans or loan
guarantees to certain types of companies. Up to $25 billion is available for passenger air carriers,
eligible businesses certified to inspect, repair, replace, or overhaul services, and ticket agents. Up
to $4 billion is available for cargo air carriers, and up to $17 billion is available for businesses
“critical to maintaining national security.”3 Any unused portions of this $46 billion, and the
remaining $454 billion, may be used to support emergency lending facilities established by the
Federal Reserve.
The CARES Act charges the Commission with submitting regular reports to Congress on:
• The Federal Reserve’s use of its authority under Subtitle A, including the use of
contracting authority and administration of the provisions of Subtitle A.
• The impact of loans, loan guarantees, and investments made under Subtitle A on the
financial well-being of the U.S. economy.
• The extent to which the information made available on transactions under Subtitle A has
contributed to market transparency.
• The effectiveness of loans, loan guarantees, and investments made under Subtitle A in
minimizing long-term costs to the taxpayers and maximizing the benefits for taxpayers.4
In its first report to Congress on May 18, 2020, the Commission stated that it is
responsible for answering two basic questions:
• What are the Treasury and the Federal Reserve doing with $500 billion of taxpayer
money?
1 CARES Act, Pub. L. No. 116-136, § 4020, 134 Stat. 281 (2020).
2 Id. § 4003(a).
3 Id. § 4003(b). In addition, Division A, Title IV, Subtitle B of the CARES Act (“Subtitle B”) authorized the
Treasury to provide up to $32 billion in financial assistance to passenger air carriers, cargo air carriers, and certain
airline industry contractors that must be exclusively used for the continuation of payment of employee wages,
salaries, and benefits. Of this amount, up to $25 billion is available for passenger air carriers; up to $4 billion is
available for cargo air carriers; and up to $3 billion is available for certain airline industry contractors. Subtitle B is
not within the jurisdiction of the Commission.
4 Id. § 4020.
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• Who is that money helping?5
At this time, the emergency lending facilities established by the Federal Reserve that are
receiving CARES Act funds are:
Primary Market Corporate Credit Facility (“PMCCF”) and Secondary Market Corporate
Credit Facility (“SMCCF”): Through a special purpose vehicle (“SPV”), the PMCCF
enables the Federal Reserve to purchase newly issued corporate bonds and portions of
syndicated loans, and the SMCCF enables the Federal Reserve to purchase previously
issued corporate bonds and exchange-traded funds (“ETFs”) that invest in corporate
bonds.6 The Treasury initially announced it intended to make a total equity investment of
$75 billion in the SPV, which can collectively support up to $750 billion in purchases.7
As of December 23, 2020, the Treasury had invested $37.5 billion.8 As of the last
disclosure, there had been no purchases by the PMCCF.9 As of December 23, the
SMCCF had an outstanding amount of bond ETFs and individual corporate bond
purchases of $14.2 billion.10 Upon the Treasury’s request, the Federal Reserve agreed to
return the Treasury’s excess unused capital in the PMCCF and SMCCF in connection
with the facilities’ December 31, 2020 expiration.11
Main Street Lending Program (“MSLP”): The MSLP is comprised of five facilities—
three dedicated to for-profit businesses and two dedicated to non-profit organizations.
The Federal Reserve, through an SPV, acquires loans issued by lenders to small and
medium-sized businesses and non-profit organizations with up to 15,000 employees or
5 Congressional Oversight Commission, Questions About the CARES Act’s $500 Billion Emergency Economic
Stabilization Funds, May 18, 2020, at 5, https://coc.senate.gov/sites/default/files/2020-
08/20200518_Congressional_Oversight_Committee_1st_Report.pdf.
6 Board of Governors of the Federal Reserve System, Primary Market Corporate Credit Facility Term Sheet, July
28, 2020, https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200728a9.pdf; Board of
Governors of the Federal Reserve System, Secondary Market Corporate Credit Facility Term Sheet, July 28, 2020,
https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200728a1.pdf.
7 Board of Governors of the Federal Reserve System, Secondary Market Corporate Credit Facility Term Sheet, July
28, 2020, https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200728a1.pdf.
8 Board of Governors of the Federal Reserve System, Statistical Release H.4.1, Factors Affecting Reserve Balances
of the Depository Institutions and Condition Statement of Federal Reserve Banks, Dec. 28, 2020, at n.14,
https://www.federalreserve.gov/releases/h41/. The SPV for the PMCCF and the SMCCF is Corporate Credit
Facilities LLC.
9 Board of Governors of the Federal Reserve System, Periodic Report: Update on Outstanding Lending Facilities
Authorized by the Board under Section 13(3) of the Federal Reserve Act, Dec. 11, 2020,
https://www.federalreserve.gov/monetarypolicy/files/pdcf-mmlf-cpff-pmccf-smccf-talf-mlf-ppplf-msnlf-mself-
msplf-nonlf-noelf-12-11-20.pdf#page=7.
10 Board of Governors of the Federal Reserve System, Statistical Release H.4.1, Factors Affecting Reserve Balances
of the Depository Institutions and Condition Statement of Federal Reserve Banks, Dec. 28, 2020, at n.4,
https://www.federalreserve.gov/releases/h41/. The SPV is the Corporate Credit Facilities LLC.
11 U.S. Department of the Treasury, Letter from Treasury Secretary Steven T. Mnuchin to Chair Jerome Powell,
Nov. 19, 2020, https://home.treasury.gov/system/files/136/letter11192020.pdf; Board of Governors of the Federal
Reserve System, Letter from Chair Jerome Powell to Treasury Secretary Steven T. Mnuchin, Nov. 20, 2020,
https://www.federalreserve.gov/foia/files/mnuchin-letter-20201120.pdf
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2019 revenues of $5 billion or less. The Treasury initially announced it intended to make
an equity investment of $75 billion in this program, which can support up to $600 billion
in lending.12 All MSLP facilities are operational and are able to purchase eligible loans
submitted by lenders registered to participate in the program. As of December 14, 2020,
644 lenders had registered to participate in the program which has not received new
submissions.13 As of December 23, 2020, the Treasury had invested $37.5 billion.14 As of
December 23, 2020, the Federal Reserve held $14.5 billion in loan participations
purchased under the MSLP.15 Upon the Treasury’s request, the Federal Reserve agreed to
return the Treasury’s excess unused capital in the MSLP in connection with the facility’s
initial December 31, 2020 expiration.16 However, the Federal Reserve announced on
December 29, 2020 that the program would be extended until January 8, 2021 to have
enough time to process all loans received.
Municipal Liquidity Facility (“MLF”): Announced on April 9, 2020, the MLF enables the
Federal Reserve, through a SPV, to purchase short-term notes issued by state and local
governments. The Treasury initially announced it intended to make an equity investment
of $35 billion in the SPV, which can support up to $500 billion in lending.17 As of
December 23, 2020, the Treasury invested $17.5 billion.18 As of December 23, 2020, the
MLF has purchased $6.4 billion in municipal notes.19 Upon the Treasury’s request, the
Federal Reserve agreed to return the Treasury’s excess unused capital in the MLF in
connection with the facility’s December 31, 2020 expiration.20
12 Federal Reserve Bank of Boston, Main Street Lending Program For-Profit Businesses Frequently Asked
Questions, July 31, 2020, https://www.bostonfed.org/mslp-faqs; Federal Reserve Bank of Boston, Aug. 6, 2020,
https://www.bostonfed.org/-/media/Documents/special-lending-facilities/mslp/legal/frequently-asked-questions-
faqs-nonprofit.pdf.
13 The lender registration summary data was provided by the Federal Reserve on November 28, 2020. Registered
lenders that are accepting new applicants are listed on a state-by-state basis at:
https://www.bostonfed.org/supervision-and-regulation/supervision/special-facilities/main-street-lending-
program/information-for-borrowers.aspx.
14 Board of Governors of the Federal Reserve System, Statistical Release H.4.1, Factors Affecting Reserve Balances
of the Depository Institutions and Condition Statement of Federal Reserve Banks, Dec. 28, 2020, at n.14,
https://www.federalreserve.gov/releases/h41/. The SPV for the MSLP is MS Facilities LLC.
15 Id. at table 4.
16 U.S. Department of the Treasury, Letter from Treasury Secretary Steven T. Mnuchin to Chair Jerome Powell,
Nov. 19, 2020, https://home.treasury.gov/system/files/136/letter11192020.pdf; Board of Governors of the Federal
Reserve System, Letter from Chair Jerome Powell to Treasury Secretary Steven T. Mnuchin, Nov. 20, 2020,
https://www.federalreserve.gov/foia/files/mnuchin-letter-20201120.pdf
17 Board of Governors of the Federal Reserve System, Municipal Liquidity Facility Term Sheet, Aug. 11, 2020,
https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200811a1.pdf; Federal Reserve Bank of
New York, FAQs: Municipal Liquidity Facility, Aug. 11, 2020, https://www.newyorkfed.org/markets/municipal-
liquidity-facility/municipal-liquidity-facility-faq.
18 Board of Governors of the Federal Reserve System, Statistical Release H.4.1, Factors Affecting Reserve Balances
of the Depository Institutions and Condition Statement of Federal Reserve Banks, Dec. 28, 2020, at n.14,
https://www.federalreserve.gov/releases/h41/. The SPV for the MLF is Municipal Liquidity Facility LLC.
19 Id. at table 4.
20 U.S. Department of the Treasury, Letter from Treasury Secretary Steven T. Mnuchin to Chair Jerome Powell,
Nov. 19, 2020, https://home.treasury.gov/system/files/136/letter11192020.pdf; Board of Governors of the Federal
6
Term Asset-Backed Securities Loan Facility (“TALF”): The TALF enables the Federal
Reserve, through an SPV, to make loans to U.S. companies secured by asset-backed
securities (“ABS”) backed by student loans, auto loans, credit card loans, commercial
mortgages, leveraged loans, loans guaranteed by the Small Business Administration, and
certain other assets.21 The Treasury’s $10 billion equity investment in this facility can
provide up to $100 billion in lending.22 TALF had a total outstanding amount of $3.7
billion in loans as of December 23, 2020.23 Upon the Treasury’s request, the Federal
Reserve agreed to return the Treasury’s excess unused capital in the TALF in connection
with the facility’s December 31, 2020 expiration.24
The Treasury’s Loans for National Security Businesses
The Treasury also has $17 billion available to make loans to businesses critical to
maintaining national security under Subtitle A. As of December 8, 2020, the Treasury reported
that it has provided national security loans to eleven businesses, totaling $735.9 million.25 One
business, YRC Worldwide, Inc., accounts for 95% of the total outstanding.26 This loan program
will expire on December 31, 2020.27 Secretary Mnuchin confirmed that, “everything is finished.
Treasury approved 11 loans, and there are no other loans.”28
The Treasury’s Loans for the Airline Industry
Reserve System, Letter from Chair Jerome Powell to Treasury Secretary Steven T. Mnuchin, Nov. 20, 2020,
https://www.federalreserve.gov/foia/files/mnuchin-letter-20201120.pdf.
21 Board of Governors of the Federal Reserve, Term Asset-Backed Securities Loan Facility Term Sheet, July 28,
2020, https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200728a6.pdf.
22 Board of Governors of the Federal Reserve System, Statistical Release H.4.1, Factors Affecting Reserve Balances
of the Depository Institutions and Condition Statement of Federal Reserve Banks, Dec. 28, 2020, at n.14,
https://www.federalreserve.gov/releases/h41/; Board of Governors of the Federal Reserve, Term Asset-Backed
Securities Loan Facility Term Sheet, July 28, 2020,
https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200728a6.pdf.
23 Board of Governors of the Federal Reserve System, Statistical Release H.4.1, Factors Affecting Reserve Balances
of the Depository Institutions and Condition Statement of Federal Reserve Banks, Dec. 28, 2020, at table 4,
https://www.federalreserve.gov/releases/h41/.
24 U.S. Department of the Treasury, Letter from Treasury Secretary Steven T. Mnuchin to Chair Jerome Powell,
Nov. 19, 2020, https://home.treasury.gov/system/files/136/letter11192020.pdf; Board of Governors of the Federal
Reserve System, Letter from Chair Jerome Powell to Treasury Secretary Steven T. Mnuchin, Nov. 20, 2020,
https://www.federalreserve.gov/foia/files/mnuchin-letter-20201120.pdf.
25 U.S. Department of the Treasury, Loans to Air Carriers, Eligible Businesses, and National Security Businesses,
last visited Dec. 24, 2020, https://home.treasury.gov/policy-issues/cares/preserving-jobs-for-american-
industry/loans-to-air-carriers-eligible-businesses-and-national-security-businesses.
26 U.S. Department of the Treasury, Loans to Air Carriers, Eligible Businesses, and National Security Businesses,
last visited Dec. 24, 2020, https://home.treasury.gov/policy-issues/cares/preserving-jobs-for-american-
industry/loans-to-air-carriers-eligible-businesses-and-national-security-businesses.
27 U.S. Department of the Treasury, Letter from Treasury Secretary Steven T. Mnuchin to Chair Jerome Powell,
Nov. 19, 2020, https://home.treasury.gov/system/files/136/letter11192020.pdf.
28 Congressional Oversight Commission hearing on the National Security Loan Program, 116th Cong. (Dec. 10,
2020) (Testimony of Secretary Steven Mnuchin, Treasury), at 33.
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In addition, the Treasury has available $29 billion to make loans to the airline industry
under Subtitle A, with $25 billion available to passenger air carriers, including related
businesses, and $4 billion available to cargo air carriers.29 As of November 30, 2020, the
Treasury reported that it has provided twenty-four such loans to companies the Treasury
characterizes as airlines, ticket agents, a repair station, and a cargo air carrier.30 Those loans total
$21.2 billion.31 This loan program will expire on December 31, 2020.32
Recent Hearing
On December 10, 2020, the Commission held a public hearing regarding the national
security loan program, at which Treasury Secretary Steven Mnuchin testified. The Commission
has also invited the Director of National Intelligence John Ratcliffe and Undersecretary Ellen
Lord of the Department of Defense (“DOD”) to testify. The Office of the Director of National
Intelligence (“ODNI”) has told the Commission that it has not designated any company as
“critical to maintaining national security” nor has it provided any input with respect to any DOD
company designations. While Undersecretary Lord declined to participate in the hearing on
December 10, 2020, she participated in a teleconference with the Commission on December 18,
2020 and the Commission subsequently submitted questions to Undersecretary Lord. Her
responses are attached as Appendix A.
The Commission’s December 10 hearing was livestreamed on the Commission’s website,
http://coc.senate.gov, and a preliminary transcript of the hearing is available in Appendix B.
Commissioner Bharat Ramamurti
Commissioner Ramamurti recently announced he would be joining President-Elect
Biden’s Administration as the Deputy Director of the National Economic Council and stepped
down from his role on the Commission. The Commission thanks Commissioner Ramamurti for
his public service and dedication to the Commission’s work and wishes him well in his new role.
***
In this report, we provide an in-depth analysis of the Treasury’s national security loan
program. We also provide updates regarding recent key actions taken by the Treasury and the
Federal Reserve regarding each of the above lending programs and facilities under Subtitle A, as
well as updates regarding the Commission’s oversight activities.
29 CARES Act § 4003. Related businesses are eligible businesses that are certified under part 145 of title 14, Code of
Federal Regulations, and approved to perform inspection, repair, replace, or overhaul services, and ticket agents (as
defined in Section 40102 of Title 49 of the United States Code).
30 U.S. Department of the Treasury, Loans to Air Carriers, Eligible Businesses, and National Security Businesses,
last visited Nov. 30, 2020, https://home.treasury.gov/policy-issues/cares/preserving-jobs-for-american-
industry/loans-to-air-carriers-eligible-businesses-and-national-security-businesses (see “Transaction Summary” of
each transaction for more details).
31 Id.
32 U.S. Department of the Treasury, Letter from Treasury Secretary Steven T. Mnuchin to Chair Jerome Powell,
Nov. 19, 2020, https://home.treasury.gov/system/files/136/letter11192020.pdf.
8
The Commission received the Treasury’s credit memoranda for the additional ten
national security loans and the DOD’s follow-up questions with relevant documents requested on
December 23, 2020. The Commission had previously only received the YRC credit
memorandum. The Commission continues to analyze these documents and may have additional
questions or provide additional reporting as warranted in future reports.
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EXECUTIVE SUMMARY
This eighth report of the Commission is a continuation of the seventh report which
focused on the Treasury and the DOD’s $700 million loan to YRC Worldwide, Inc. (“YRC”),
which was made under the loan program “for businesses critical to maintaining national
security.” This report also analyzes part of the additional ten smaller loans also executed as part
of this program.
Under the program, the Treasury determines the rates and conditions of the loans, while
the DOD or ODNI determine whether the business is critical to maintaining national security.
The seventh report highlighted how the DOD did not provide the Commission a
satisfactory explanation for how the companies who received these loans were critical to national
security. In response, the Commission invited the Treasury, the DOD and the ODNI to testify at
a hearing.
On December 10, 2020, the Commission held a public hearing regarding the national
security loan program with Treasury Secretary Steven Mnuchin testifying. DOD’s
Undersecretary Lord participated in a teleconference with the Commission on December 18,
2020 and submitted answers to the Commission’s questions for the record following the
teleconference. The ODNI told the Commission that it has not designated any company as
“critical to maintaining national security” nor has provided any input with respect to any DOD
company designations.
Through the Commission’s interactions with the Treasury and DOD, the Commission
was able to get better answers to the outstanding questions surrounding the terms and conditions
of the loans, how a company is determined to be critical to national security and the underlying
financial health and growth of the companies receiving the loans.
As outlined in the last report, the Commission is concerned the Treasury may have put
the taxpayers in a precarious position. Based on additional analysis, the Commission
recommends the Treasury and DOD evaluate their criteria related to their underwriting analysis
and national security designation. Specifically, the Commission believes that the DOD should
have used a more robust criteria and process for recommending and certifying that a business is
critical to maintaining national security and should apply those parameters consistently. The
Treasury should better understand the underlying collateral when underwriting a loan and better
measure the incurred losses caused by COVID.
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NATIONAL SECURITY LOAN PROGRAM
Background on Designating a National Security Business
The CARES Act authorized the Department of the Treasury (“Treasury”) to make up to
$17 billion in loans and loan guarantees in support of “businesses critical to maintaining national
security” related to “losses incurred as a result of coronavirus.”33 The statute does not define a
business critical to maintaining national security, so on April 10, 2020, the Treasury issued
guidance defining this term. At the Commission’s December 10, 2020 hearing, Treasury
Secretary Steven Mnuchin testified that the Treasury consulted with the Department of Defense
(“DOD”) and the Office of the Director of National Intelligence (“ODNI”) to develop this
guidance.34
Under the guidance, a business is critical to maintaining national security if:
1. it performs under a “DX”-priority rated contract or order under the Defense Priorities and
Allocations System regulations (15 CFR part 700);
2. it operates under a valid top secret facility security clearance under the National
Industrial Security Program regulations (32 CFR part 2004); or
3. the Secretary of the Treasury determines that the applicant is critical to maintaining
national security based on a recommendation and certification from the Secretary of
Defense or the Director of National Intelligence that the business is critical to
maintaining national security.35
Secretary Mnuchin testified at the Commission’s December 10, 2020 hearing that these
criteria were developed because “there would be small companies that had top secret clearances,
and we did not want them to go out of business and have all these people disappear.”36
The Treasury has made five national security loans to companies that were designated as
businesses critical to maintaining national security based on the first two criteria described above
and six based on the third criteria. All of these companies were designated as a result of a
recommendation and certification from DOD. ODNI has informed the Commission that it has
not provided the Treasury with any recommendation and certification to designate a business as
critical to maintaining national security and has not provided any input with respect to any DOD
recommendations and certifications. Overall, DOD recommended and certificated 20 companies
as critical to maintaining national security for the national security loan program. The Treasury
33 CARES Act, Pub. L. No. 116-136, § 4003, 134 Stat. 281 (2020).
34 Congressional Oversight Commission hearing on the National Security Loan Program, 116th Cong. (Dec. 10,
2020) (Prepared Testimony of Secretary Steven Mnuchin, Treasury), at 1.
35 Treasury, Q&A: Loans to Air Carriers and Eligible Businesses and National Security Businesses, Updated as of
April 10, 2020, https://home.treasury.gov/system/files/136/CARES-Airline-Loan-Support-Q-and-A-national-
security.pdf, see page 1, question 4.
36 Congressional Oversight Commission hearing on the National Security Loan Program, 116th Cong. (Dec. 10,
2020) (Testimony of Secretary Steven Mnuchin, Treasury), at 42.
11
ultimately made national security loans to six out of these 20 companies. See Appendix C for an
overview of the 11 loans the Treasury has made through the national security loan program.
During the Commission’s December 10, 2020 hearing, Rep. Donna Shalala asked
Secretary Mnuchin about the Treasury’s process for designating a business as critical to
maintaining national security based on a recommendation and certification by DOD. She asked
whether the Treasury qualifies the recommendations and certifications from DOD or accepts
them wholesale.37 In response, Secretary Mnuchin stated that “from a practical stand point, we
did not second-guess the ODNI or DOD, so we did not do additional diligence.” 38 Rep. Shalala
also asked whether the Treasury ever disagreed with DOD’s recommendations and
certifications.39 Secretary Mnuchin responded that Treasury did not. He stated: “We relied upon
it, and I have written certifications from DOD…We do not have the expertise at Treasury to
analyze that.”40
Further, when the Commission questioned the DOD about this, they stated in the follow-
up answers that DOD was “not involved in creating the guidance or definitions used by Treasury
for its application process.”41 Additionally, Undersecretary Lord referred the Commission to the
Treasury for additional analysis regarding the national security designation.42
The Commission finds something amiss as to which agency was ultimately responsible
for the national security designation. The Commission believes the Treasury should have worked
with DOD and ODNI to establish more specific criteria for determining what businesses were
critical to maintaining national security and/or Treasury should have required DOD and ODNI to
provide Treasury with more analysis than simply a statement that a business was critical to
maintaining national security.
DOD explained to the Commission in an October 22, 2020 letter that it used the
following criteria to evaluate whether a business is critical to maintaining national security:43
1. Does the company currently supply to DOD via a direct contract or through a sub-
contract?
2. Is the company owned in whole or in part by China or Russia?
3. Is the company participating in any other COVID-19 related loan or grant program?
37 Congressional Oversight Commission hearing on the National Security Loan Program, 116th Cong. (Dec. 10,
2020) (Statement of Representative Donna Shalala), at 39.
38 Congressional Oversight Commission hearing on the National Security Loan Program, 116th Cong. (Dec. 10,
2020) (Testimony of Secretary Steven Mnuchin, Treasury), at 39.
39 Congressional Oversight Commission hearing on the National Security Loan Program, 116th Cong. (Dec. 10,
2020) (Statement of Representative Donna Shalala), at 39.
40 Congressional Oversight Commission hearing on the National Security Loan Program, 116th Cong. (Dec. 10,
2020) (Testimony of Secretary Steven Mnuchin, Treasury), at 39 and 40.
41 Congressional Oversight Commission Follow-Up Questions Submitted to the Honorable Ellen Lord. (December
23, 2020) at Question 7.
42 Congressional Oversight Commission Follow-Up Questions Submitted to the Honorable Ellen Lord. (December
23, 2020) at Question 1.
43 Treasury, Letter from U.S. Department of the Treasury to Congressional Oversight Commission, July 30, 2020.
12
4. Are there alternate sources for the item a company supplies?
5. Is what the company supplies a commodity or commercially available item?
DOD stated that criterion 1 is a requirement, criterion 2 would preclude a company from
certification, and criteria 3, 4, and 5 inform DOD’s decision of whether to recommend and
certify that a company is critical to maintaining national security.
In the Commission’s view, DOD’s criteria and process for determining whether a
business is critical to maintaining national security is inadequate. Based on DOD’s criteria,
countless contractors and subcontractors connected to DOD’s $597 billion in annual spending
could qualify as a business critical to maintaining national security.44 If Congress had wanted the
national security loan program to apply to such a wide scope of businesses it would have used
statutory language referring to DOD contractors and subcontractors generally as it did in other
provisions in the CARES Act.45 But Congress did not do that in Section 4003(b)(3) of the
CARES Act. Rather it used more targeted language—“businesses critical to maintaining national
security”—that clearly has a more narrow meaning than DOD contractors and subcontractors
generally.
The Commission raised this point with Undersecretary Lord during their briefing on
December 18, 2020 and in the subsequent questions for the record. In her written response,
Undersecretary Lord simply stated that “DOD has visibility into some, but not all, sub-
contractors”46 which the Commission finds as an inadequate understanding of DOD’s
contracting services. Specifically, as it relates to YRC, Undersecretary Lord continually
emphasized the extensive amount of work DOD does to ensure effective and efficient oversight
of their prime contractors. However, all oversight of subcontractors is left to the prime
contractors, yet YRC, which is a subcontractor of Crowley Logistics, the prime contractor to the
DOD, was deemed as critical to national security even though the DOD did not even question
Crowley Logistics about the nature of YRC’s financial health, business or operations for DOD.
Furthermore, the Commission believes the DOD provides a very weak case for YRC as it
relates to questions four and five of the above criteria. For example, there are many other
companies that provide less-than-truckload (“LTL”) services aside from YRC and services, like
LTL trucking, could be considered a commodity. When questioned about this, the DOD stated,
44 Bloomberg Government, BGOV200 Federal Industry Leaders 2019,
https://data.bloomberglp.com/bna/sites/3/2020/06/2020-BGOV200-
Report.pdf?utm_campaign=BGOV_Confirmations_Report&utm_medium=email&utm_source=Eloqua, at 1.
45 CARES Act, Pub. L. No. 116-136, § 3610, 134 Stat. 281 (2020). This section, Federal Contractor Authority, is an
example of CARES Act language targeted to affected government contractors in general, and the section applies to
government contractors whose employees or subcontractors cannot perform work on a site that has been approved
by the federal government
46 Congressional Oversight Commission Follow-Up Questions Submitted to the Honorable Ellen Lord. (December
23, 2020) at Question 9
13
“DOD did not inquire with other LTL service providers to determine whether they could have
stepped in to satisfy DOD requirements should YRC cease operating.”47
Based on the analysis above, the Commission believes DOD should have used a more
robust criteria and process for recommending and certifying that a business is critical to
maintaining national security. Additionally, the Commission believes DOD applies their national
security designation inconsistently and encourages them to reevaluate their process in the future.
Loan Purpose: COVID-19-related Losses
The CARES Act authorized the Treasury to make loans “to provide liquidity to eligible
businesses . . . related to losses incurred as a result of the coronavirus.”48 The CARES Act also
provides that loans made to provide such liquidity “shall be made . . . in such form and on such
terms and conditions . . . as the Secretary determines appropriate.”49 The Treasury’s application
for national security loans contains a section entitled “Covered Losses” that requests information
about a company’s COVID-19-related losses. This section asks applicants to report 2019
revenues and expenses, and to list “each category of revenue loss or new unbudgeted expense
that the [company] has incurred or expects to incur directly or indirectly as a result of the
coronavirus through March 30, 2021, and the actual or expected revenue loss or new expense for
each category.”50 The categories of covered losses identified in the applications are:
1. Losses of revenue related to reductions in demand or delayed contracts; and
2. Increased expenses relating to higher fixed costs, unexpected expenses, or purchase of
work from home equipment.
At the Commission’s December 10, 2020 hearing, Secretary Mnuchin discussed how the
Treasury approached whether a company’s losses were incurred as a result of the coronavirus.
He stated “the intent was supposed to be COVID. When COVID impacted the entire business, it
was very difficult to figure out COVID versus non-COVID.” 51 While the Commission agrees
that reconciling covered losses is a difficult exercise, a review of the national security
applications showed that seven of the 11 national security loans were made to companies that
reported covered losses at, or exceeding, 2019 revenues. One company, SpinLaunch Inc.,
reported covered losses to be at levels 14,000% greater than 2019 revenues. Additionally, five
companies were granted loans in excess of 2019 revenues. In one instance, a company reported
COVID-19 losses higher than their 2019 revenues, yet Earnings Before Interest, Taxes,
Depreciation, and Amortization (“EBITDA”), and profitability was projected to increase steadily
47 Congressional Oversight Commission Follow-Up Questions Submitted to the Honorable Ellen Lord. (December
23, 2020) at Question 2a.
48 CARES Act, Pub. L. No. 116-136, § 4003(a), 134 Stat. 281 (2020).
49 CARES Act, Pub. L. No. 116-136, § 4003(c)(1)(a), 134 Stat. 281 (2020).
50 Treasury, Treasury Loan Application Form for Businesses Critical to Maintaining National Security, April 23,
2020, https://home.treasury.gov/system/files/136/Loan-Application-Form-for-Businesses-Critical-to-Maintaining-
National-Security.pdf.
51 Congressional Oversight Commission hearing on the National Security Loan Program, 116th Cong. (Dec. 10,
2020) (Testimony of Secretary Steven Mnuchin, Treasury), at 29.
14
from 2020 through 2022. In several loans, companies reported loan proceeds that were expected
to be used to finance unexpected increased demand for their products due to COVID-19.
As it relates to YRC, the Commission believes Tranche A made a good faith effort to
provide funding in response to offset losses incurred by COVID-19. However, Tranche B funds
are for the purchase of new tractors and trailers in accordance with the company’s capital
expenditures plan. The Commission believes this type of lending is beyond the scope of the
CARES Act funding as it is not being used to COVID-19 losses.
Overall, the Commission did not find a strong link between reported COVID-19 losses,
loan size, and other projections Treasury used in its underwriting process.
Credit Underwriting Process and Results
In addition to being designated as critical to maintaining national security and
demonstrating covered losses, companies also had to pass the Treasury’s credit underwriting
criteria to obtain a national security loan. At the Commission’s December 10, 2020 hearing,
Secretary Mnuchin explained the Treasury’s approach to credit underwriting for the national
security loan program. He stated: “What we tried to do was establish a process so that we were
not picking winners or losers. The criteria [that] was there had to be a designation or one of the
specific criteria for national security. When it did that, we put it through a credit underwriting,
and there was credit determinations both for some of the smaller ones on an unsecured loan and
some of the bigger ones…But we made sure that the loans fit our credit criteria and rejected
many that did not.”52
In a letter to the Commission dated July 30, 2020, the Treasury outlined the credit test it
used in reviewing applications for national security loans. According to the Treasury, a company
passed this credit test if it met any two of the following criteria:
Credit Criteria:
Required Level:
Leverage (existing debt / 2019 adjusted EBITDA53)
Must be < 6.0x
Debt service coverage (2019 adjusted EBITDA /
2020 existing debt service)
Must be > 1.5x
Collateral (secured debt / tangible assets)
Must be < 75%
52 Congressional Oversight Commission hearing on the National Security Loan Program, 116th Cong. (Dec. 10,
2020) (Testimony of Secretary Steven Mnuchin, Treasury), at 29 and 30.
53 CFA Institute, Financial Statements, https://www.cfainstitute.org/-
/media/documents/support/programs/investment-foundations/7-financial-
statements.ashx?la=en&hash=19AC47831720AC9675778BBB6C15BE6CFF4BAF75, see page 203, Earnings
before interest, taxes, depreciation, and amortization (EBITDA) is an important measure of income. EBITDA is
operating income before depreciation and amortization expenses are deducted. The amounts of depreciation and
amortization are not cash flows, and they are determined by the choice of accounting method rather than by
operating decisions. EBITDA is useful because it offers a closer approximation of operating cash flow than EBIT. It
is an indicator of the company’s operating performance and its management’s ability to generate revenues and
control expenses that are related to its operations.
15
The first criterion in the Treasury’s credit test—“leverage”—indicates how much debt a
business can prudently take on without endangering its operations. The second criterion in the
credit test —“debt service coverage”—measures the ability of a business to make principal and
interest payments based on its level of operating cash. The last criterion in the credit test—
“collateral,”—measures the value of a company’s assets available to the Treasury in the event of
its default on a loan.
Specifically for YRC, the documentation provided by Treasury related to the firm’s loan
application outlines how it meets these collateral tests. The Commission, however, upon careful
review of the collateral detail, debt service and cash obligations contained in the attachments
doubts the reliability and adequacy of the underlying assumptions of cash flow and tangible asset
values. In addition, as noted in the Commission’s Fourth Report, the terms of the YRC loan are
comparable to the terms required under the Main Street Lending Program and it is not clear why
these programs offer different credit underwriting criteria.54
Following a review of Treasury’s credit evaluation memoranda, the Commission
concludes that every loan, except for the YRC loan, was underwritten to growth stage
companies. The Commission believes the credit evaluation process Treasury created is not
suitable for these types of companies. Certain companies did not have positive EBITDA and
were not expected to be cash flow positive and thus the underwriting tests could not be utilized.
In those instances, loan size was based on expected collateral security. Six of the 11 loan
recipients had also received Paycheck Protection Program (PPP) loans and it is not clear to the
Commission that this program was intended for businesses of this size. Of note, securing a PPP
loan would satisfy DOD’s question 3, outlined above, asking about a company’s participation in
other COVID-19 related loan or grant programs – again further underscoring the DOD’s
inconsistent designation process.
In addition, downside revenue scenario analysis was not conducted on any of the 11 loan
recipients and the Commission does not find that the liquidity analysis conducted instead was
sufficient to determine if the loan would be repaid.
Background on National Security Loan Application Process
On April 23, 2020, the Treasury released an application for businesses seeking national
security loans.55 The application asks a business applying for a loan for contact information,
ownership structure, balance sheet composition, current restrictions on debt, available loan
security, available loan guarantees, credit ratings, a business plan, a financial plan, tax
information, and information relating to number of employees. The business then uploads the
54 Congressional Oversight Commission, the Fourth Report of the Congressional Oversight Commission, Aug. 21,
2020, https://coc.senate.gov/sites/default/files/2020-
08/COC%204th%20Report_08.21.2020%20with%20Appendix%208-27%20update.pdf, see 66.
55 Treasury, Treasury Loan Application Form for Businesses Critical to Maintaining National Security, April 23,
2020, https://home.treasury.gov/system/files/136/Loan-Application-Form-for-Businesses-Critical-to-Maintaining-
National-Security.pdf.
16
requested materials to a loan application portal created by the Treasury. See Appendix D for a
sample application.
During the application process, a business must provide the Treasury with appropriate
financial instruments that, in the sole determination of the Treasury Secretary, provide for a
reasonable participation in equity appreciation or a reasonable interest rate premium appropriate
for the benefit of taxpayers.56 In practice, a business that is publicly traded must provide
warrants or an equity interest. For a business that is not publicly traded, the Treasury Secretary
may accept senior debt instruments or other interests, including payment-in-kind interest.
Of note, Secretary Mnuchin recommended during the Commission’s December 10, 2020
hearing that “next year whoever is Treasury Secretary [should] seriously look at selling this loan,
recovering what I think will be a profit to taxpayers, because this [ YRC loan] was a success. But
we do not want to be in the long-term business of lending to this type of company or any of the
national security companies. But, fortunately, we have made a significant profit,57 and taxpayers
should get paid back.”58 The Commission echoes Secretary Mnuchin’s comments and
recommends the Treasury try to sell the loan to avoid any losses to taxpayers.
Per the “Financial Agency Agreement for Independent Financial Advice on Programs for
Businesses Critical to National Security under the CARES Act,” the Treasury retained Perella
Weinberg Partners LP as the Financial Advisor for the National Security Loans for a $500,000
fee for the initial term.59 Rep. Hill has followed up the hearing with a question for the record
inquiring if there were any additional fees provided based on analysis each application, whether
or not a loan was funded, etc. which is attached as Appendix E.
56 Treasury, Treasury Loan Application Form for Businesses Critical to Maintaining National Security, April 23,
2020, https://home.treasury.gov/system/files/136/Loan-Application-Form-for-Businesses-Critical-to-Maintaining-
National-Security.pdf, see page 9, Taxpayer Protection.
57 Due to the appreciation in the price of YRC’s common stock from the time of the Treasury’s equity participation
on July 8, 2020, when the loan was executed, at $2.55 per share versus the price of $5.55 per share on December 10,
2020.
58 Congressional Oversight Commission hearing on the National Security Loan Program, 116th Cong. (Dec. 10,
2020) (Testimony of Secretary Steven Mnuchin, Treasury), at 37.
59 https://home.treasury.gov/system/files/136/FAA-Financial-Advisor-Business-National-Security-FINAL-
Signed_0.pdf
17
TREASURY AND FEDERAL RESERVE RECENT DEVELOPMENTS
In December, the Treasury and the Federal Reserve took a number of actions under
Division A, Title IV, Subtitle A of the CARES Act. We describe the key recent developments
below. All of the Treasury and Federal Reserve’s Subtitle A programs are currently set to expire
on December 31, 2020.60
Primary Market Corporate Credit Facility (“PMCCF”)
There have been no new Federal Reserve announcements regarding the PMCCF. As of
the Federal Reserve’s last disclosure, the PMCCF has not made any purchases.61
Secondary Market Corporate Credit Facility (“SMCCF”)
As of November 27, 2020, the SMCCF had purchased corporate bonds from more than
530 different issuers.62 The amortized cost for these bonds was $5.15 billion.63 The chart below
lists the SMCCF’s 10 largest individual bond holdings by issuer as of November 27, 2020.64 The
bonds of these 10 issuers make up 15.6% of the SMCCF’s total individual bond holdings.
Issuer
Sector
Amortized
Cost
(U.S. $ Million)
Percentage of
SMCCF’s
Individual Bond
Holdings
AT&T Inc.
Communications
$91. 6
1.78%
Volkswagen Group of
America Finance LLC
Consumer Cyclical
89.8
1.74%
Daimler Finance North
America LLC
Consumer Cyclical
88.8
1.72%
Toyota Motor Credit Corp.
Consumer Cyclical
87.9
1.71%
60 U.S. Department of the Treasury, Letter from Treasury Secretary Steven T. Mnuchin to Chair Jerome Powell,
Nov. 19, 2020, https://home.treasury.gov/system/files/136/letter11192020.pdf; Board of Governors of the Federal
Reserve System, Letter from Chair Jerome Powell to Treasury Secretary Steven T. Mnuchin, Nov. 20, 2020,
https://www.federalreserve.gov/foia/files/mnuchin-letter-20201120.pdf. The Commission’s jurisdiction extends only
to Subtitle A programs and thus does not include the Commercial Paper Funding Facility, which is currently set to
expire on March 17, 2021. Board of Governors of the Federal Reserve, Commercial Paper Funding Facility:
Program Terms and Conditions, July 23, 2020,
https://www.federalreserve.gov/monetarypolicy/files/monetary20200723a1.pdf.
61 Board of Governors of the Federal Reserve System, Periodic Report: Update on Outstanding Lending Facilities
Authorized by the Board under Section 13(3) of the Federal Reserve Act, Dec. 11, 2020,
https://www.federalreserve.gov/monetarypolicy/files/mslp-transaction-specific-disclosures-12-11-20.xlsx.
62 Board of Governors of the Federal Reserve System, Periodic Report: Update on Outstanding Lending Facilities
Authorized by the Board under Section 13(3) of the Federal Reserve Act (Transaction-specific Disclosures), Dec.,
11 2020, https://www.federalreserve.gov/monetarypolicy/files/smccf-transaction-specific-disclosures-12-11-20.xlsx.
63 Id.
64 Id.
18
Issuer
Sector
Amortized
Cost
(U.S. $ Million)
Percentage of
SMCCF’s
Individual Bond
Holdings
Verizon Communications Inc.
Communications
86.3
1.67%
Apple Inc.
Technology
82.5
1.60%
Comcast Corp.
Communications
80.3
1.56%
BMW US Capital LLC
Consumer Cyclical
66.7
1.29%
General Electric Co.
Capital Goods
66.4
1.29%
Ford Motor Credit Co. LLC
Consumer Cyclical
64.2
1.24%
As of November 27, 2020, the SMCCF had purchased 112.8 million shares of bond
Exchange Traded Funds (“ETFs”).65 The facility made no bond ETF purchases since its July 30,
2020 disclosure.66 The SMCCF has purchased shares from 16 bond ETFs with a market value of
$8.8 billion as of November 27, 2020.67
Noting that primary market investment-grade corporate bond rates were below pre-
pandemic levels, the Commission recommended in its Fifth Report that the SMCCF cease
making purchases at that time.68 Notwithstanding that recommendation, the Federal Reserve has
continued to purchase approximately $20 million worth of corporate bonds per day, prompting
the Commission to reiterate its recommendation that the SMCCF cease making purchases in a
statement dated November 10, 2020.69
65 Id.
66 Id.
67 Id.
68 The Fifth Report of the Congressional Oversight Commission, Oct. 15, 2020, at 43,
https://coc.senate.gov/sites/default/files/2020-
10/15Oct2020_The%20Fifth%20Report%20FINAL%20Updated%20Appendix%2010-20%20update.pdf.
69 Congressional Oversight Commission, Oversight Commission Issues Statement on SMCCF, Nov. 10, 2020,
https://coc.senate.gov/oversight-commission-issues-statement-smccf.
19
Main Street Lending Program (“MSLP”)
On October 30, 2020, the Federal Reserve announced that it lowered the minimum loan
size from $250,000 to $100,000 for three of the five Main Street facilities available to for-profit
and non-profit borrowers—i.e., the Main Street New Loan Facility, Main Street Priority Loan
Facility, and Nonprofit Organization New Loan Facility.70 It also adjusted fees for loans less
than $250,000 made pursuant to these facilities “to encourage the provision of these smaller
loans.”71
As of November 30, 2020, eligible lenders made 646 loans through the MSLP.72 These
loans totaled $6.3 billion, with $6.0 billion in Federal Reserve participation.73 Businesses in 48
states participated in the program, led by Texas with 18.4%, followed by California with 14.8%,
Florida with 14.6%, and Georgia with 5.4% of the loan proceeds.74 Loan sizes ranged from
$232,690 to $300 million.75
70 Board of Governors of the Federal Reserve System, Federal Reserve Board adjusts terms of Main Street Lending
Program to better target support to smaller businesses that employ millions of workers and are facing continued
revenue shortfalls due to the pandemic, Oct. 30, 2020,
https://www.federalreserve.gov/newsevents/pressreleases/monetary20201030a.htm.
71 Id.
72 Board of Governors of the Federal Reserve System, Periodic Report: Update on Outstanding Lending Facilities
Authorized by the Board under Section 13(3) of the Federal Reserve Act (Transaction-specific Disclosures), Dec.
11, 2020, https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.
73 Id.
74 Id.
75 Id.
207
20
0
50
100
150
200
250
Jun-2020
Jul-2020
Aug-2020
Sep-2020
Oct-2020
Nov-2020
Daily purchases
(in $ million)
20
As of November 30, 2020, three nonprofit organizations have participated in the
program.76 These nonprofit loans totaled $8.0 million, with approximately $7.6 million in
Federal Reserve participation.77
As of December 23, 2020, the MSLP has loaned approximately $14.2 billion, which is
less than 2% of its lending capacity. 78
The Federal Reserve announced on December 29, 2020 that the termination date for the
program would be extended until to January 8, 2021 to be able to process all loans received by
December 14, 2020.
Municipal Liquidity Facility (“MLF”)
To date, the Federal Reserve has purchased notes from two borrowers through the
MLF—one from the state of Illinois, and the other from New York’s Metropolitan
Transportation Authority (“MTA”).79 On June 5, 2020, Illinois borrowed $1.2 billion from the
MLF through the sale of a one-year note, making it the facility’s first participant.80 On December
22, 2020, Illinois borrowed an additional $2 billion through the MLF.81 On August 18, 2020, the
MTA, which runs the largest transit system in the United States, borrowed $450.7 million from
the MLF through the sale of a three-year note.82 On November 18, 2020, the MTA authorized
borrowing of up to an additional $2.9 billion from the MLF.83
76 Board of Governors of the Federal Reserve System, Periodic Report: Update on Outstanding Lending Facilities
Authorized by the Board under Section 13(3) of the Federal Reserve Act (Transaction-specific Disclosures), Nov.
24, 2020, https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.
77 Id.
78 Board of Governors of the Federal Reserve System, Statistical Release H.4.1, Factors Affecting Reserve Balances
of the Depository Institutions and Condition Statement of Federal Reserve Banks, Dec. 28, 2020, at n.14,
https://www.federalreserve.gov/releases/h41/. The SPV for the PMCCF and the SMCCF is Corporate Credit
Facilities LLC.
79 Board of Governors of the Federal Reserve System, Periodic Report: Update on Outstanding Lending Facilities
Authorized by the Board under Section 13(3) of the Federal Reserve Act (Transaction-specific Disclosures), Dec.
11, 2020, https://www.federalreserve.gov/monetarypolicy/files/mlf-transaction-specific-disclosures-12-11-20.xlsx.
80 Shruti Singh & Amanda Albright, Illinois Becomes First to Tap Fed Loans After Yields Surge, Bloomberg, June 2,
2020, https://www.bloomberg.com/news/articles/2020-06-02/illinois-becomes-first-to-tap-fed-loans-after-bond-
yields-surge.
81 Fitch Ratings, Illinois' MLF Borrowing Reflects Deep Challenges, but Options Remain, Dec. 22, 2020,
https://www.fitchratings.com/research/us-public-finance/illinois-mlf-borrowing-reflects-deep-challenges-options-
remain-22-12-2020.
82 Karen Pierog & Jonnelle Marte, New York transit agency turns to Fed for $450 million borrowing, Reuters, Aug.
18, 2020, https://www.reuters.com/article/us-usa-newyork-fed-debt/new-york-transit-agency-turns-to-fed-for-450-
million-borrowing-idUSKCN25E2R3; Amanda Albright & Danielle Moran, New York’s MTA Becomes Second to
Tap Fed as Banks Demand Higher Yields, Bloomberg, Aug. 18, 2020,
https://www.bloomberg.com/news/articles/2020-08-18/ny-mta-becomes-second-to-tap-fed-as-banks-demand-
higher-yields?srnd=economics-vp&sref=hKSAni5g.
83 Reuters, New York transit agency to borrow a second time from Fed program, Nov. 18, 2020,
https://www.reuters.com/article/us-health-coronavirus-new-york-transit/new-york-transit-agency-to-borrow-a-
second-time-from-fed-program-idUSKBN27Y2TB.
21
Term Asset-Backed Securities Loan Facility (“TALF”)
On December 11, 2020, the Federal Reserve disclosed transaction-specific data about the
TALF’s activities through November 27, 2020.84 As of November 27, 2020, the TALF had made
208 loans totaling $3.9 billion to 20 different borrower funds.85 Several of these loans have been
repaid and 190 loans totaling $2.6 billion are currently outstanding.86 The funds use TALF loans
to purchase securities backed by certain types of consumer and business loans. The chart below
illustrates the current collateral sector breakdown of those underlying loans as of November 27,
2020.87
Collateral Sector
TALF Loan
Amount
(in $ million)
% of Total
TALF Loans
Small Business Administration Loans
$2,024.4
51.8
Commercial Mortgage
1,158.1
29.6
Leveraged Loan
327.6
8.4
Private Student Loans
289.2
7.4
Premium Finance
106.9
2.7
Total
3,906.0
100.0
The following chart shows the five funds to whom the TALF has lent the most money as
of November 27, 2020.88
TALF Borrower Fund
TALF Loan
Amount
(in $ million)
Alta Fundamental Advisers SP LLC - Belstar-Alta Series 1
$1,908.6
MacKay Shields TALF 2.0 Opportunities Master Fund LP
837.3
Palmer Square TALF Opportunity Sub LLC
221.6
Alta Fundamental Advisers SP LLC - Belstar-Alta Series 2
216.4
BlackRock Securitized Investors, LP
113.5
84 Board of Governors of the Federal Reserve System, TALF Transaction-specific Disclosures, Dec. 11, 2020,
https://www.federalreserve.gov/monetarypolicy/files/talf-transaction-specific-disclosures-12-11-20.xlsx.
85 Id.
86 Id.
87 Id.
88 Id.
22
The following chart shows the five asset-backed securities issuers that have received the
most TALF support as of November 27, 2020.89
Asset-backed Securities Issuer
TALF Loan
Amount
(in $ million)
Small Business Administration
$2,024.4
Golub Capital Partners TALF 2020-1 LLC
327.6
Navient Private Education Refi Loan Trust 2020-F
213.4
PFS Financing Corp
106.9
CSAIL 2019-C16 Commercial Mortgage Trust
72.9
Treasury Loans for National Security Businesses
On July 8, 2020, the Treasury finalized a $700 million loan to YRC. Beginning on
October 30, 2020, the Treasury announced an additional ten national security loans, totaling
$35.9 million.90 This report describes these eleven loans in-depth. A summary of the transactions
is provided in Appendix C.
Treasury Loans for the Airline Industry
As of December 8, 2020, the Treasury had made a total of twenty-four airline-industry
loans, totaling $21.2 billion. Of those loans, the Treasury has categorized one, a $1.8 million
loan to Legacy Airways, LLC, as a loan to a cargo air carrier pursuant to CARES Act
§ 4003(b)(2). The Treasury has classified the remaining twenty-three loans as § 4003(b)(1) loans
to passenger air carriers and related businesses.91 The table below summarizes the loan
transactions to date.92 On November 30, 2020, the Commission submitted questions to the
Treasury regarding these loans
Earlier this month the United States Government Accountability Office (“GAO”)
released a report on “Lessons Learned from CARES Act Loan Program for Aviation and other
Eligible Businesses” that included an analysis of the airline and national security loans. The
89 Id.
90 U.S. Department of the Treasury, Loans to Air Carriers, Eligible Businesses, and National Security Businesses,
last visited Nov. 30, 2020, https://home.treasury.gov/policy-issues/cares/preserving-jobs-for-american-
industry/loans-to-air-carriers-eligible-businesses-and-national-security-businesses.
91 Id.
92 Id.
23
report had three findings for the Treasury related to improving loan program and clearer
communication of the program goals and timelines.93
93 United States Government Accountability Office, FINANCIAL ASSISTANCE Lessons Learned from CARES Act
Loan Program for Aviation and Other Eligible Businesses, https://www.gao.gov/assets/720/711174.pdf at 2.
24
Borrower
City, State
U.S. empl.,
March 2020
Loan amount
Interest rate
(LIBOR+%)
Maturity
date
Compensation for
Treasury
Loan collateral
American Airlines
Fort Worth,
TX
157,000
$7,500,000,000
3.50%
6/30/2025
Warrants for common
stock equal to 10% of
loan amount.
Loyalty program.
United Airlines
Chicago, IL
93,000
$7,500,000,000
3.00%
9/26/2025
Warrants for common
stock equal to 10% of
loan amount.
European and South
American routes as well as
certain aircraft and
simulators.
JetBlue Airways
Long Island
City, NY
23,000
$1,948,000,000
2.75%
9/29/2025
Warrants for common
stock equal to 10% of
loan amount.
Loyalty program as well as
certain aircraft and engines.
Alaska Airlines
Seattle, WA
22,000
$1,928,000,000
2.50%
9/26/2025
Warrants for common
stock equal to 10% of
loan amount.
Loyalty program as well as
certain aircraft and engines.
Hawaiian Airlines
Honolulu, HI
7,400
$622,000,000
2.50%
6/30/2024
Warrants for common
stock equal to 10% of
loan amount.
Loyalty program as well as
certain aircraft.
Frontier Airlines
Denver, CO
5,000
$574,000,000
2.50%
9/26/2025
Warrants for common
stock equal to 10% of
loan amount.
Loyalty program.
SkyWest Airlines
St. George,
UT
15,000
$725,000,000
3.00%
9/29/2025
Warrants for common
stock equal to 10% of
loan amount.
Certain engines, airframes,
and rotable parts.
Mesa Airlines, Inc.
Phoenix, AZ
3,540
$200,000,000
3.50%
10/30/2025
Warrants for common
stock equal to 10% of
loan amount.
Aircraft, engines, accounts
receivables, and other
equipment.
Sun Country, Inc.
Minneapolis,
MN
1,630
$45,000,000
3.50%
10/26/2025
3% payment-in-kind
interest.
Loyalty program.
Ovation Travel
Group
New York,
NY
250
$20,000,000
5.50%
10/15/2025
3% payment-in-kind
interest.
Unsecured senior debt.
Eastern Airlines,
LLC
Wayne, PA
137
$15,000,000
3.50%
10/28/2025
3% payment-in-kind
interest.
Aircraft, engines, and
accounts receivables.
Caribbean Sun
Airlines, Inc.
Virginia
Garden, FL
173
$15,000,000
3.50%
11/5/2025
3% payment-in-kind
interest.
Aircraft, engines, and
rotable parts.
Timco Engine
Center, Inc.
Oscoda, MI
25
$8,390,240
3.50%
11/5/2025
3% payment-in-kind
interest.
Engines, parts, accounts
receivables, and other
equipment and inventory.
Allflight
Corporation
Kent, WA
35
$4,721,260
3.50%
11/5/2025
3% payment-in-kind
interest.
Inventory, engines,
equipment, and spare parts.
Aviation
Management &
Repairs, Inc.
Fort Pierce, FL
6
$4,026,705
3.50%
11/5/2025
3% payment-in-kind
interest.
Aircraft, accounts
receivable, engines, parts,
and other equipment.
25
Southern Airways
Express, LLC
Pompano
Beach, FL
458
$1,838,501
3.50%
10/28/2025
3% payment-in-kind
interest.
Aircraft, engines, parts, and
other equipment.
Legacy Airways,
LLC
Conroe, TX
19
$1,817,306
5.50%
10/20/2025
3% payment-in-kind
interest.
Unsecured senior debt.
American Jet
International Corp.
Houston, TX
44
$1,162,124
3.50%
11/5/2025
3% payment-in-kind
interest.
Secured by accounts
receivable.
Bristin Travel,
LLC
Fayetteville,
AR
12
$549,651
3.50%
10/26/2025
3% payment-in-kind
interest.
Accounts receivable.
Island Wings, Inc.
Ft. Lauderdale,
FL
not disclosed
$294,350
3.50%
11/5/2025
3% payment-in-kind
interest.
Aircraft.
Aero Hydraulics,
Inc.
Fayetteville,
GA
2
$450,000
5.50%
10/23/2025
3% payment-in-kind
interest.
Unsecured senior debt.
Republic Airlines,
Inc.
Indianapolis,
IN
6,700
$77,000,000
3.50%
11/6/2025
Warrants for common
stock equal to 10% of
loan amount.
Spare parts and tooling
inventory.
Thomas Global
Systems, LLC
Irvine, CA
20
$1,400,000
3.50%
11/7/2025
3% payment-in-kind
interest.
Accounts receivable.
Elite Airways,
LLC
Portland, ME
110
$2,630,274
3.50%
11/7/2025
3% payment-in-kind
interest.
Equipment and spare parts.
Total
335,561
$21,196,280,411
Appendix A:
Answers to Follow-Up Questions Submitted to the Honorable Ellen
Lord at the Department of Defense
CONGRESSIONAL OVERSIGHT COMMISSION
Briefing via Teleconference of December 18, 2020:
Examination of National Security Loans and Loan Guarantees Authorized by the CARES Act
Follow-Up Questions Submitted to the Honorable Ellen M. Lord
Under Secretary of Defense for Acquisition and Sustainment
U.S. Department of Defense
December 23, 2020
Question 1: On December 10, 2020, Secretary Mnuchin testified to the Congressional Oversight
Commission (“Commission”) that the U.S. Department of the Treasury (“Treasury”) deferred to the U.S.
Department of Defense (DOD) and that Treasury “relied upon” the DOD for the designations and “did
not second-guess the DNI or DOD.” In your opening statement you implied that you believe the CARES
Act contemplated that the Treasury Department should have had more involvement in the national
security determination. Do you believe the Treasury Department should have done additional analysis
regarding whether a company is critical to national security?
Answer: To be clear, I never stated that the Treasury Department should have had more involvement in
the national security determination. Treasury’s loan application states: “Applicants that do not satisfy
either of these two criteria [DX rated contract or Top Secret cleared facility] may be considered if, based
on a recommendation and certification by the Secretary of Defense or the Director of National
Intelligence that the applicant business is critical to maintaining national security, the Secretary of the
Treasury determines that the applicant business is critical to maintaining national security.” (emphasis
added). As such, I respectfully refer the Commission to the Treasury Department for further information
regarding what analysis it did or did not undertake.
Question 2: On October 22, 2020, you told the Commission that one of the criteria for whether a
business is critical to maintaining national security is whether “there [are] alternate sources for the item.”
You replied in the negative, and further stated that the DOD did not consider replacement services or
service providers for YRC Worldwide, Inc (“YRC”). Yet, you also stated that there are five other
companies that provide less-than-truckload (LTL) services for the DOD, including FedEx, UPS, and
others.
a. Did the DOD inquire whether any of those five other companies could have stepped in to
provide the services that YRC provides to the DOD and/or to DOD contractors?
Answer: DoD did not inquire with other LTL service providers to determine whether they
could have stepped in to satisfy DoD requirements should YRC cease operating. The
Department’s role was limited to determining whether a company was critical to maintaining
national security.
b. Is there any reason those five other companies could not perform the services that YRC
performs?
Answer: See the answer to a. DoD respectfully refers the Commission to other LTL
providers for further information.
c. Do you acknowledge that your stated designation criteria of whether “there [are] alternate
sources for the item” requires consideration of whether another company could step in and
provide the services YRC provides to the DOD and/or to DOD contractors?
Answer: That particular criterion does not preclude a company from certification, but
instead helps inform the Department's decision, along with a multitude of other
information. DoD was aware that there were other companies that provide the services
YRC provides, as our primes already use some of those other companies, in addition to
YRC.
d. Given that on October 22, 2020 you stated that you did not consider replacement services or
service providers for YRC, do you acknowledge that you did not follow your own
designation criteria of considering whether “there [are] alternate sources for the item”?
Answer: See the answer to c.
e. How can you determine whether a company is critical to national security without assessing
whether another company could provide the same services?
Answer: See the answer to c.
f. If the DOD could have found replacement services for YRC, would it still have designated
YRC as critical to national security?
Answer: Yes, see the answer to c. YRC's status as "critical to national security" is a function
of its providing services to DoD; it is not necessary that it be a unique provider of such
services.
g. In response to a question from the Commission regarding whether the DOD considered
replacement services when deciding whether YRC was critical to national security, you
responded “No. DOD does not contract with YRC directly.” Why do you believe YRC’s
status as a subcontractor is relevant to whether the DOD should have considered replacement
services?
Answer: Since YRC provides the predominance of its services to the Department as a
subcontractor, in those cases, the Department is not in the position of selecting YRC or any
other sources for subcontracted services. It is the business of the prime.
h. Similarly, you also stated that another criteria for companies being critical to national
security is “supplying a commodity.” While you cited a product such as “duct tape,”
commodities can also be in the form of services such as LTL trucking. Since LTL trucking
services are available from multiple providers and at very competitive prices, please provide
your rationale for approving YRC as critical to national security as well as any internal DOD
correspondence to that effect.
Answer: Similar to the alternate sources criterion, the commodity criterion does not
preclude a company from certification, but instead helps inform the Department's
decision, along with a multitude of other information.
Question 3: At the Commission’s hearing with Secretary Mnuchin on December 10, 2020, in response to
questions about the DOD’s designation of YRC as critical to maintaining national security, Secretary
Mnuchin responded, “I hope the Pentagon looks at all of their critical vendors and looks at [their]
financial condition and spreading risk. Had they not had this type of exposure, perhaps they would not
have certified it.” In your October 22, 2020 written responses to the Commission, you stated that the
DOD did not have any contingency plans if YRC went out of business – even though YRC had been in
financial trouble for years.
a. Did the DOD examine the financial health of national security loan applicants before
deeming them critical to national security?
Answer: Treasury performed financial screening of companies DoD recommended as part of
Treasury’s process to issue a loan.
b. Does the DOD consider the financial health of its contractors and their subcontractors to be
relevant to whether there is a risk to national security?
Answer: It is one of the many criteria DoD uses to assess companies in our supply chain.
c. What processes and safeguards do you recommend implementing to reduce risk to national
security stemming from financially unstable DOD contractors and subcontractors?
Answer: Enabling financial assistance for financially troubled suppliers, such as grants and
loans from DoD or other sources, is one of the mechanisms DoD uses. This should continue
going forward.
Question 4: Treasury provided the Commission a copy of a one-page letter from the DOD, dated June
26, 2020, that designated four companies as critical to national security, including YRC. That letter was
signed by Secretary Esper and offered to provide the Treasury “any additional information … to process
the applications” of the companies listed. Did the DOD provide Treasury with any additional
information, either in writing or through conversations? If so, what information was provided and by
whom?
Answer: No additional information was provided.
Question 5: Several national security loan recipients appear to provide products or services that are
merely in the start-up phase – i.e., companies that are either working on a prototype or are still in the
early stages of commercializing their products. Four companies (SpinLaunch, Channel Logistics, Ovio
Technologies, and Visual Semantics) have less than $1 million in revenues each. How do you square the
mere future possibility that a company will have a useful product or service with the statutory
requirement that a loan recipient be “critical to maintaining national security”? The CARES Act’s
language seems to require that the loan applicant be critical to national security already.
Answer: National security requires not just maintaining current capabilities, but also developing and
implementing new technologies that enable the United States to maintain a competitive edge against its
adversaries.
Question 6: The DOD certified 20 companies as critical to national security, but only 6 of those
companies received loans. Secretary Mnuchin testified last week that the other companies did not pass
Treasury’s underwriting standards. Has the inability of those companies to get loans impacted the DOD?
If not, do you still believe they are critical to national security?
Answer: We were only recently informed of Treasury’s final decisions for these loans, so the
Department will need to assess the impacts.
Question 7: At the Commission’s hearing with Secretary Mnuchin last week, he testified that “after
consulting with the DOD and the Office of Director of National Intelligence (DNI), Treasury issued
guidance” defining which “businesses were critical to maintaining national security.” Please explain the
process of creating that definition. Also, whose recommendation was it to include the third criteria –
designation based on a recommendation and certification by the DOD or DNI – and what was the
reasoning?
Answer: DoD was not involved in creating the guidance or definitions used by Treasury for its
application process.
Question 8: In written responses, the DOD informed the Commission that YRC provides services to the
DOD through its prime contractor, Crowley Logistics (“Crowley”). Did the DOD have discussions with
Crowley before designating YRC as critical? If so, what was discussed?
Answer: Yes, US Transportation Command contacted Crowley regarding the anticipated effect of YRC
ceasing LTL services.
Question 9: During the briefing, there was quite a bit of discussion about prime contractors versus
subcontractors. Under Secretary Lord emphasized the extensive amount of work the DOD does to ensure
effective and efficient oversight of their prime contractors. However, they have no oversight over their
subcontractors and leave that to the prime contractors. How then can the DOD justify a subcontractor as
critical to national security if they have no understanding of, oversight over or accountability mechanism
with respect to the company?
Answer: DoD does have visibility into some, but not all, sub-contractors, although we don’t dictate
which ones prime contractors must use. In this case, DoD used data TRANSCOM obtained on Crowley
and YRC usage as part of the decision process.
Question 10: In written responses, you previously said that “the Government is not privy to the amount
of cargo Crowley or other DOD prime contract shippers book with YRC or other subcontractors, as we
do not track this information on an ongoing basis. The 68 percent cited elsewhere represents a snapshot
in time provided after inquiries were made of USTRANSCOM, who did a one-time request for that data
when the YRC's loan request was received.”
a. If that’s the case, is it possible that the snapshot was taken at a time when YRC’s services were
unusually high?
Answer: TRANSCOM provided data from 2019 and 2020, which showed that YRC usage was,
and continues to remain, high.
b. Why does the DOD believe a one-time snapshot is sufficient to determine how critical a
vendor is to national security?
Answer: See the answer to a.
c. Did the Industrial Policy Team consult Crowley on whether YRC should be deemed critical
to national security?
Answer: A commercial company would not be able to make national security determinations.
Therefore, the Industrial Base Council (IBC) did not consult Crowley, relying instead on
TRANSCOM’s data.
Question 11: Please provide the following follow-up items:
a. Undersecretary Lord stated that, if possible, she would provide any industrial policy memo(s)
sent to Undersecretary Lord and Secretary Esper (including pre-decisional or final memos).
Answer: Please find memo of June 18, 2020, attached.
b. Under Secretary Lord stated that she would follow-up regarding how many former DOD
employees are currently employed by Crowley or YRC. Please provide us a copy of your
inquiry to Crowley and YRC. Please ask Crowley and YRC to include anyone not employed
directly, but retained on a contract basis or interfaces regularly with DOD.
Answer: Because DoD does not keep this data, we respectfully refer the Commission to Crowley
and YRC for such company specific employee data.
c. Please provide a copy of DOD’s contract with Crowley Logistics.
Answer: Please find FY2020 Crowley contracts attached.
d. On November 17, 2020, the Commission asked you to “produce to the Commission copies of
all communications and records of communication between the Treasury Department and
Department of Defense regarding the loan to YRC Worldwide, Inc.--whether electronic,
telephonic, or otherwise, and including any notes or logs of communications.” You have not
responded whether you will do so. Please state whether you intend to produce these
documents.
Answer: The Department has been completely transparent regarding this matter, and will
continue to address any follow-up questions the Commission may have. The attached June 18,
2020, memo is the primary DoD document that memorializes the Department’s decision making
regarding this matter. The Department’s certification letter to Secretary Mnuchin of June 26,
2020, is included attached.
Appendix B:
Preliminary Transcript of National Security Loan Program Hearing
on December 10, 2020
1
EXAMINATION OF CARES ACT FUNDING
- - -
THURSDAY, DECEMBER 10, 2020
Congressional Oversight Commission,
Washington, D.C.
The Commission met, pursuant to notice, at 10:01 a.m.,
in Room SD-215, Dirksen Senate Office Building, and via
Webex, Hon. Pat Toomey, Acting Chairman, presiding.
Present: Senator Toomey, Representative Hill,
Representative Shalala, and Mr. Ramamurti.
OPENING STATEMENT OF SENATOR TOOMEY
Senator Toomey. This hearing will come to order.
Welcome to the third hearing of the Congressional Oversight
Commission. I want to welcome the Treasury Secretary back.
Good to see you again, Mr. Secretary.
The Commission was created by the CARES Act to provide
oversight for temporary emergency lending authorized by
Section 4003 of the CARES Act. Section 4003 authorized the
Treasury to spend up to $500 billion on loans, loan
guarantees, and other investments, and, I quote, "to provide
liquidity to eligible businesses, States, and municipalities
related to losses incurred as a result of the coronavirus."
Today's hearing will focus on the Treasury's National
Security Loan Program. The CARES Act provided Treasury with
$17 billion, and I quote, "to make loans and loan guarantees
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for businesses critical to maintaining national security."
To date, Treasury has made $736 million in national
security loans to 11 companies; $700 million of that went to
a single trucking company, YRC Worldwide.
Our sole witness today is the Treasury Secretary,
Secretary Steven Mnuchin. Again, welcome, Secretary. Thank
you for joining us.
I should point out the Commission also invited the
Department of Defense and the Office of the Director of
National Intelligence to participate. The Defense
Department responded that it is unable to attend this
hearing. As a result, the Commission plans to host a
separate teleconference with DOD regarding the National
Security Loan Program. DOD is currently resisting making
public the official transcript record of that
teleconference. The Commission strongly urges DOD to
reconsider that position. The Commission and DOD have a
responsibility to inform the public how taxpayer funds are
being used, especially given the concerns that have been
raised about the YRC loan.
The Office of the Director of National Intelligence
also responded that it has been unable to attend this
hearing. That said, ODNI has told the Commission that it
has not designated any company as "critical to maintaining
national security" nor has provided any input with respect
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to any DOD company designations.
This Commission currently does not have a Chairman. In
the absence of a Chair, the Commissioners have agreed to
each give a 1-minute opening statement, followed by two 5-
minute rounds of questions. I will serve as Acting Chair
for this hearing, and I now recognize myself for my opening
statement.
In March, unprecedented turmoil in credit markets
threatened the ability of businesses, States, and
municipalities to obtain capital. Credit markets were on
the verge of shutting down, and without intervention,
private credit was very likely going to stop flowing to
businesses, States, and municipalities.
Congress did not want these economic disruptions to
result in gaps in our national security. There was a very
real concern that essential national defense firms could
even collapse.
The CARES Act program announcements succeeded in
stabilizing the markets and averted a crisis in the national
security sector. In fact, the top five national security
firms raised over $40 billion in bond sales since March.
So since creditworthy firms have generally been able to
access private markets, only those with lower-grade credit
or limited access to credit in the first place appear to
have applied for national security loans. Of the 11
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businesses that have used the national security loan
program, 5 had negative profits in 2019 before the
coronavirus struck. At least three are early-stage
companies, including SpinLaunch, Inc., an essentially pre-
revenue venture whose products are commercially unproven.
While I am glad that the national security sector is
now stable, I would like to understand better why the
Treasury made loans to what appear to be startups and what
may have been or close to a fundamentally insolvent company
like the YRC. The question in my mind is whether or not
these loans adhere to the criteria set out under the CARES
Act and whether or not they were a prudent use of taxpayer
funds.
I will now turn to Commissioner Ramamurti to give his
opening statement.
OPENING STATEMENT OF MR. RAMAMURTI
Mr. Ramamurti. Thank you, Mr. Chairman. My questions
today will focus on the National Security Loan Program, but
in my opening statement I want to address Secretary
Mnuchin's termination of the CARES Act lending programs.
Despite the Secretary's claims, the CARES Act did not
require him to end the programs this year. The Secretary
admits as much when he says he based his decision not on
what the law actually says, but on his interpretation of
Congress' intent.
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In quite the coincidence, the Secretary decided that
this is what Congress intended only after the election of
Joe Biden. Before the election, the Treasury's position was
that it could extend the programs if market conditions
required it. This was a political decision, one intended to
hamstring the incoming administration even as COVID deaths
are spiking and the economic recovery is slowing.
Let me put it this way: Does anyone think that
Treasury would have ended these programs if Donald Trump was
reelected?
Thankfully, the Biden administration is not bound by
the Secretary's decision. The new administration can and,
in my view, should restart the programs, reclaim the money
Congress has set aside in the CARES Act and use it to offer
more help to small businesses and State and local
governments.
Thank you, Mr. Chairman.
Senator Toomey. I will recognize Representative Hill.
OPENING STATEMENT OF MR. HILL
Mr. Hill. Thank you, Mr. Chairman, and, Mr. Secretary,
thank you and your staff for the extraordinary work during
this tragic year of 2020 and all your leadership.
Today we are going to explore the national security
lending process under the CARES Act, and I am particularly
concerned about the YRC Worldwide loan. YRC has been in
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poor financial condition for quite some time, and the
company has actually been shrinking since 2007. This
company has been rated speculative by Moody's and Standard &
Poor's for nearly 20 years and has been hanging on by a
thread since the global financial crisis.
The only way YRC has survived for the last 10 years is
through bailouts by the Government and the private equity
industry, which we will discuss more this morning. Based on
an analysis from your credit memorandum and publicly
available investment research, YRC is staying afloat by
providing the cheapest pricing, which also means typically
the worst service. For context, YRC charges about 18 cents
for every pound shipped across the country versus an average
of the mid-20s for the rest of the less-than-truckload
industry. Having analyzed this data, reviewed the
collateral, it makes me realize that, were I still in
finance, I would not have made this loan.
I look forward to our discussion this morning. I yield
back.
Senator Toomey. Thank you, Congressman Hill.
Representative Shalala.
OPENING STATEMENT OF MS. SHALALA
Ms. Shalala. Well, thank you. Secretary Mnuchin, I
want to start by thanking you for your service these past
four years to our country. I also want to add my deep
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disappointment in your recent decision to terminate these
emergency lending programs. I understand that you interpret
the statute to mean that Congress intended to terminate the
programs on December 31st. But certainly we did not intend
for you to prematurely claw back the funds.
Treasury has already committed to investing in the
programs at a time when American small businesses, cities,
States, and workers are still struggling desperately. If
the Main Street and Municipal Lending Programs are
underutilized, it is because the terms were too stringent,
not because there was not a need. Keeping these facilities
open was projected to cost taxpayers virtually nothing while
closing them puts up a roadblock for the next Treasury
Secretary to get our economy back on track. This decision
is especially concerning when contrasted with your
generosity in the National Security Loan Program, in
particular, the $700 million YRC loan, which does put
taxpayers at a real risk of loss.
I look forward to hearing from you.
Senator Toomey. Thank you, Representative Shalala.
All members' statements will be added to the hearing
record. We will now proceed to Secretary Mnuchin's
testimony. At the end of the testimony, we will begin the
first of two rounds of questions for Secretary Mnuchin.
Secretary Mnuchin, you may proceed.
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STATEMENT OF THE HONORABLE STEVEN T. MNUCHIN,
SECRETARY, U.S. DEPARTMENT OF THE TREASURY
Secretary Mnuchin. Thank you very much. Senator
Toomey, Representative Hill, Representative Shalala, and
Commissioner Ramamurti, I am pleased to join you today to
discuss the Treasury Department's work on executing the
National Security Loan Program established under the CARES
Act. Treasury has worked diligently to implement every
piece of the CARES Act, including the National Security Loan
Program.
The CARES Act provided up to $17 billion in loans to
businesses critical to maintaining national security related
to losses incurred as a result of COVID. The CARES Act
authorized Treasury to make loans and loan guarantees for
maintaining national security. The statute, however, does
not define that term. Therefore, after consulting with the
Department of Defense and the Office of the Director of
National Intelligence, Treasury issued guidance on April
10th providing that a company can fall within the definition
if it meets at least one of the three criteria:
Number one, the applicant business performs under the
"DX"-priority rated contract or order under the Defense
Priorities and Allocations System regulations (15 CFR part
700);
Number two, the applicant operates under a valid top
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secret facility security clearance under the National
Industrial Security Program regs (32 CFR part 2004);
Or, number three, based upon the recommendation and
certification by the Secretary of Defense or the Director of
National Intelligence that the applicant business is
critical to maintaining national security, the Secretary of
the Treasury determines that the applicant business is
critical to maintaining national security.
If a company met at least one of these, Treasury
conducted a detailed financial and legal review. To date,
we approved 11 loans, nearly $736 million. Information on
the companies and dollar amounts is on our website,
Treasury.gov. Many of the companies we initially expected
to take part in the program were able to raise funds in the
capital markets, leaving most of the funds unused. I urge
Congress to reallocate these funds to provide relief for
aviation industry workers who continue to struggle through
no fault of their own, small business, and other important
issues.
In conclusion, I would like to thank the Commission for
working with us to provide vital economic relief to American
workers, families, and businesses. I hope that the
extensive amount of information Treasury has provided and
will continue to provide will be helpful.
And let me just say although the topic of today's
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hearing is not the 13(3) facility, I would be more than
happy to answer any questions on the 13(3) facility, and let
me reiterate that Treasury's obligation is to manage these
programs under the law as the law is written and interpreted
by us and our legal department, and that is what we have
done. And I have never made comments that we would have
extended this and changed that view.
So thank you very much.
[The prepared statement of Secretary Mnuchin follows:]
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Senator Toomey. Thank you, Mr. Secretary.
I will recognize myself for my 5 minutes of questions,
and I want to give you a chance to explain in some detail
how you came to this decision with respect to the 13(3)
facilities. I have questions about the defense lending, but
since two of my colleagues have raised this, I feel a need
to address this.
First of all, let me be very unequivocal about this.
Mr. Secretary, you did exactly the right thing. You did
what the law required in both ending these programs and
requiring a return of the money. I was one of the small
number of Senators who were in the room with you as we
negotiated the specific terms of this. There is nothing
ambiguous about this. And had you done anything to the
contrary, it would have been outrageous and a violation of
the law and certainly the intent of Congress. This is not
speculative on my part. Every single Republican on the
Senate Banking Committee signed a letter affirming that you
did the right thing for the right reasons. And when you
think about what an extraordinary set of powers Congress
handed over to the Treasury and the Fed at a moment of
crisis, absolutely unprecedented ability to potentially make
literally trillions of dollars of credit available, had you
not followed the law and returned that money, canceled these
programs and asked for the return of that money, what future
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Congress would ever give flexibility to a Treasury Secretary
and a future Federal Reserve Chairman in a moment of crisis?
I want to remind my colleagues this legislation was
passed in March when we were in an unprecedented turmoil.
Credit markets were threatening to drive us into a
depression. The financial circumstances were worse than the
financial crisis of 2008. And so we decided to set up a
temporary facility to restore the normal functioning of the
markets. That was its purpose: stabilize the credit
markets, allow private credit to flow to businesses, States,
and municipalities.
Well, it turns out it worked even better than we had
hoped, at least better than I had. Markets did not just
restore their normal liquidity. They set new records. It
was remarkably successful.
Now, here is the important thing. We have some folks
who think that these facilities should be used as a way to
subsidize preferred borrowers, maybe municipalities that
have been irresponsible, may even be insolvent. Maybe it is
a way to subsidize certain preferred companies that are in
industries that are favorably looked upon. That is
absolutely not what these programs were for. They were for
restoring a functioning market, and that is why the statute
called for them to come to an end, and that is why the
Secretary did exactly the right thing by ending them. And,
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frankly, it would be outrageous for any future Secretary to
attempt to restart them.
I have 2 minutes left in my questioning, and so I am
going to turn this over to you, Mr. Secretary, to explain to
us how and why you came to the decision you did.
Secretary Mnuchin. Thank you very much. The decision
on the 13(3) facilities?
Senator Toomey. Yes.
Secretary Mnuchin. Okay. Thank you very much. Let me
refer you to the CARES Act, and there are three provisions
of the CARES Act that work together. And, Senator Toomey,
as you know--you recall this because you and I were in the
room, and we actually drafted this. Senator Crapo was with
me as well. I sat with Senator Crapo right outside Senator
Schumer's office with Senator Schumer's staff very late that
night going through line by line.
So the first part, Section 4029, which everybody can
look at, has a December 31, 2020, date. Obviously, there
was some relevance or there would not have been the point of
putting it in. It is very clear: "Except as provided in
(b), on December 31, 2020, the authority...to make new loans
shall terminate."
It also references 4027. So under 4027, what it says
is that if there are existing loans outstanding, we can
continue to make advances under existing loans. And then
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the final part I would just comment, there is a provision
that when the money comes back under waterfall, how it
works. I have made no judgment as to whether it goes into
the ESF or whether it goes into the general fund. As a
matter of fact, a lot of it will stay in the ESF as unused
funds.
For people who think there is another interpretation,
the only logical thing is that 4029 does not apply to
indirect commitments as well as direct commitments, and it
would imply that money I put in the Fed, if it were just
sitting there, could be used. That was not the intent that
you and I discussed. It is not in the law. And if Congress
wants to reallocate this money for the Fed instead of
reallocating it for unemployment and PPP loans and others,
Congress can do that now.
Thank you, Mr. Senator.
Senator Toomey. Thank you very much, Mr. Secretary.
Commissioner Ramamurti.
Mr. Ramamurti. Thanks. I have questions about the YRC
Loan, but just briefly to address this point, first, I have
heard in many different contexts from my Republican and
conservative friends that to interpret a statute, the thing
you do is look at the text of the statute, not at
congressional intent. And I think there is not an objective
lawyer in town, frankly, or in the country that I have heard
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from that reads the text of the law the way that the
Secretary has. And I will say respectfully I think that my
Republican colleagues here and in the Senate felt the same
way, because recall in the fall they offered an amendment to
the CARES Act that actually would have terminated the
lending programs in January, but that amendment did not
pass. And so I think I will just leave it there instead of
going back and forth on this.
So, Mr. Secretary, in the CARES Act, Congress gave you
the authority to make direct loans to companies critical to
national security. By far the biggest loan you have made
for $700 million, or 70 times larger than the next largest
loan, is to a trucking company called "YRC," which helps the
Defense Department ship basic supplies between military
bases. So I am glad that this loan has helped put off job
losses and health care cuts and retirement cuts for
truckers.
But it was not just the company's workers that
benefitted from this loan. The company's creditors on Wall
Street made out great, too, and so I want to dig into why
you chose to give such a big and generous loan to this
specific company, a company that this Commission has said
has a weak connection to national security.
So at the time that you made this loan to YRC in July,
were you aware that Apollo Global Management, a big private
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equity firm, was YRC's biggest creditor with as much as $600
million at stake?
Secretary Mnuchin. Yes, I was. But I just want to
state for the record, I have consulted with my General
Counsel. My General Counsel agrees with our reading of the
13(3), and if a future Treasury Department wants to break
the law and have a different interpretation, Congress will
deal with that.
Mr. Ramamurti. Just on that point, Secretary Mnuchin--
Secretary Mnuchin. In all due respect, you are not the
person who I am relying upon for legal advice. I have a
legal department that I relied upon, and we are following
the law.
Mr. Ramamurti. I appreciate that. And just to turn
back to this, but, quickly, is that a written memo that the
General Counsel provided to you on this topic?
Secretary Mnuchin. He has provided me verbal advice,
and we are going to follow it up with a memo. And if the
Commission would like it, once the memo is complete, we are
more than happy to--
Mr. Ramamurti. Yes, I think we would all agree that
that would be a useful thing to have.
Okay. So back to the question. You were aware that
Apollo was YRC's biggest creditor.
Secretary Mnuchin. Of course I was.
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Mr. Ramamurti. And you also knew, according to written
responses that Treasury has provided to this Commission,
that YRC was likely to file for bankruptcy if it did not
receive a loan from the Government.
Secretary Mnuchin. Yes, I was aware of that.
Mr. Ramamurti. And YRC going through bankruptcy would
have potentially cost Apollo hundreds of millions of
dollars. But--
Secretary Mnuchin. That I was not aware of. That is
subjective. I never did that analysis.
Mr. Ramamurti. Okay.
Secretary Mnuchin. I think it would not have cost
them, but I do think it would have been bankrupt and the
company would have fired lots of people.
Mr. Ramamurti. Sure. But Apollo got lucky because not
only did you give YRC a loan, you gave them a great deal, as
the Commission has concluded on a bipartisan basis. In
fact, even though taxpayers are ponying up $700 million,
Apollo, not American taxpayers, gets the first claim on
YRC's existing assets if it goes bankrupt. Is that right?
Secretary Mnuchin. So would you like me to give our
analysis on why we made the loan?
Mr. Ramamurti. No. I just simply want an answer to
the question about does Apollo retain first priority on
YRC's--
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Secretary Mnuchin. On certain assets it does, and on
certain assets we have a first priority lien.
Mr. Ramamurti. Only on assets that are purchased using
the Treasury--
Secretary Mnuchin. Again, there is Term A and there is
a Term B, and there is different collateral. We would be
happy to go through the detailed analysis with you.
Mr. Ramamurti. Okay.
Secretary Mnuchin. You can see I brought plenty of
information. I tried to--I did not realize Representative
Hill was going to have as much as well. I wanted to be
prepared.
Mr. Ramamurti. Okay. I appreciate that. So the
answer sounds like, yes, that on most of the assets that
exist now, Apollo retains first priority. And there are
other signs of special treatment. According to a GAO report
released this morning, Treasury "did not follow the standard
process established for evaluating applications for the YRC
loan." The GAO found that Treasury fast-tracked YRC's
application even though "Treasury did not fast-track any
other applications, though other businesses faced similar
circumstances." So, again, we have a fast-tracked,
extremely generous loan that just so happened to help the
private equity giant Apollo.
So, Mr. Secretary, were you aware before you made this
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loan that Apollo has close personal ties to Jared Kushner,
the President's son-in-law and senior adviser?
Secretary Mnuchin. So let me submit for the record a
letter from Peter DeFazio and Sam Graves. Let me also
submit for the record a letter from Ron Wyden and Pat
Roberts. I have many other letters that I would be more
than happy to submit afterwards, but let me just say we had
tremendous interest from Congress asking us to expedite
this. We also had a certification from the Department of
Defense that the loan qualified. So, of course, we were
going to prioritize this because, as you said, there was a
tremendous risk to the Department of Defense and a
tremendous risk to the number of jobs.
[The letters follow:]
/ COMMITTEE INSERT
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Mr. Ramamurti. So, Mr. Secretary, I understand all of
that, but my question was: Were you aware at the time you
made this loan that Apollo has close ties to Jared Kushner?
Secretary Mnuchin. When you say "close ties," what is
the definition of "close ties"?
Mr. Ramamurti. Were you aware that in 2017 Apollo
loaned the Kushner companies $184 million--
Secretary Mnuchin. I was not aware of that.
Mr. Ramamurti. You were not aware of that, which was
reported in the New York Times in--
Secretary Mnuchin. I may have read it in the press at
some point, but I am not involved nor did I take that into
consideration, nor prior to you asking me that would I have
known that.
Mr. Ramamurti. Sorry, Mr. Chairman. Briefly, to
finish up here, Mr. Secretary, can I just ask on the record,
did Mr. Kushner or anyone from his staff ever reach out to
you about providing a loan to YRC?
Secretary Mnuchin. He or nobody on his staff ever
reached out to me.
Mr. Ramamurti. And so--
Senator Toomey. Thank you. We will have another
round.
Representative Hill.
Mr. Hill. Thank you, Mr. Chairman.
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Mr. Secretary, when you received this request from YRC
and the DOD certified that it was essential to national
security, were you under an obligation to also determine
that the applicant's business was essential to national
security sort of independent of the certification?
Secretary Mnuchin. I was not. We relied upon the
certification. If you have questions about that, you should
ask DOD. We published regulations and we followed them.
Mr. Hill. Yes. And so in looking at the YRC loan
structure for Tranche A, which is the working capital
tranche, as Commissioner Ramamurti suggested, Treasury is in
a junior position there in the collateral pool, and you have
also asked for equity compensation in addition to the
payment-in-kind interest and the current pay interest on the
note. From my review of the collateral pool, it does not
look like it is at all adequately secured for covering both
Apollo and Tranche A plus the other obligations of the
company. And I just would ask your view. Did you look at
the collateral pool? And do you believe that the collateral
protected the American taxpayers?
Secretary Mnuchin. The answer to that is yes. We did
a thorough analysis of the collateral pool. We consulted
with Perella Weinberg, who was our financial adviser on this
loan and all the national security loans. And let me just
comment we did get equity, and our equity is currently worth
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$100 million.
Mr. Hill. That is because the stock has increased
because the Treasury now has made this loan, and I agree the
company was certainly near bankruptcy before the credit.
When I look at the collateral pool, it is stated in the
Wasserstein Perella material it is at $1.5 billion, securing
$1.3 billion in debt, so in that sense, on the face of it,
using book values that Wasserstein Perella had, it is
covered. But, of course, when you underwrite a loan, you do
not use book value and 100 cents on the dollar when you look
at collateral pools. You would discount it based on normal
business traditions and underwriting. And when I look at
the accounts receivable, they were given 100 cents on the
dollar instead of, say, 80 cents on the dollar. When I look
at the real estate value, it was given 100 cents on the
dollar valuation. And then in the existing fleet, which as
noted in Tranche B lending, the YRC fleet is old, and that
is what these collateral documents cover, all the tractors
and trailers. And when you look at that, there is no way
that it is worth the face value of $312 million.
So my point is when I look at that, I find a collateral
value of about $1.1 billion, so under the combined lending
amount. I just would urge Treasury to reassess that
collateral. I think you are vulnerable there, and if this
company does not hit its projections, then your equity
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value, which does have a positive gain now, will not in 4
years. What is your reaction to that analysis?
Secretary Mnuchin. Representative Hill, let me explain
to you that I was chairman of a bank, an OCC bank, and I am
the first one to say if my bank had been underwriting this
loan, we would not have made this loan. So let me be clear.
The purpose of these facilities--now, that does not mean I
do not think we are secured and will not get our money back.
But as you recall, both Congress and outsiders encouraged us
to take losses. So when we did the neutral analysis, we are
not in any way saying this was a market loan. As a matter
of fact, had it been a market loan, the Treasury would not
have been involved.
Now, I do believe that ultimately Treasury and the
taxpayers will be very well compensated because the economy
came back quicker than people thought and the businesses
come back quicker. We analyzed it, and in many scenarios we
thought we would lose money. And, again, I am happy to
submit letters for the record from both Republicans and
Democrats that encouraged us on Main Street that we should
lose money. This loan was priced at a premium to the Main
Street pricing. This loan--you know, I was not operating a
hedge fund at Treasury. I was not operating an OCC bank. I
would be more than happy to go through--
Mr. Hill. Let me reclaim my time. Thank you for that
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view.
When you look at this company, it has been bailed out
before under pressure from Jimmy Hoffa and the unions in
2008-2009. Banks were compelled by Government to
intervention in the Treasury then and Congress then to bail
this company out in a debt-for-equity swap in 2010. And
despite having all of its debt wiped out then, the same
important characteristics, this company finds itself exactly
in the same position before the pandemic.
So let me yield back, Mr. Chairman, but I still have
concerns about this credit.
Senator Toomey. Thank you, Representative Hill.
Representative Shalala.
Ms. Shalala. Thank you. I think I will slightly
change the subject.
The CARES Act requires borrowers under the National
Security Loan Program to maintain its March 2020 employment
levels until September 30, 2020. Treasury contractually
extended this requirement in the national security loan
documents. Why did Treasury extend unemployment level
requirements in this program but not in its Airline Loan
Program? And, also, why didn't it work with the Federal
Reserve to impose employment level requirements on the other
lending programs like Main Street? And why did Treasury
only extend the requirement through September 30, 2021, in
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most cases? Why not for the entire duration of the loan?
And how did Treasury ensure that none of the borrowers
reduced their employment level prior to getting a national
security loan? And how will Treasury monitor the borrower's
compliance with this requirement on a go-forward basis?
Secretary Mnuchin. I can answer all the questions, but
since there were a lot of them, I am not sure I--maybe I can
do them one at a time.
Ms. Shalala. Okay.
Secretary Mnuchin. I may ask you just to repeat them,
but let me do the last one, which I just recalled. How will
we monitor? We have hired a group of dedicated people at
Treasury who will be responsible for monitoring all the
direct loans. So whether it is a national security loan or
an aviation loan, those will be monitored and go through a
quarterly certification process with appropriate people.
If you just want to give me the rest of--
Ms. Shalala. Yes. The first question was about the
employment level requirements in the National Security
Program that were not extended in the Airline Loan Program?
Secretary Mnuchin. I do not want to defer the
question, but we are happy to follow up with you. It is a
highly technical issue. The intent of all these programs--
well, the intent of the direct programs clearly was that
companies should not terminate people if they were taking
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these programs. There was an unintended consequence in some
of the contractors' programs, which, again, is somewhat
technical, I am happy to follow up with your office on.
Ms. Shalala. I am happy to have your follow-up. I do
not see what is technical about you did it in the National
Security Program; you did not do it in the airline
employers--
Secretary Mnuchin. We did do it in the airline
employers. There is a difference between the contractors.
Again, in the case of the contractors, it took a longer
period of time. But once people entered into loans, there
was that commitment.
Ms. Shalala. Okay. And on the second question, why
did you only extend the requirement through September 30,
2021, in most cases? Why not for the entire duration of the
loan?
Secretary Mnuchin. I believe that was--yes, YRC was
extended a year beyond the legislation. But I believe what
you are referring to, there was a requirement in the
legislation. Other than YRC, I believe we just followed the
legislation.
Ms. Shalala. But you could have protected employment
through the duration of these loans.
Secretary Mnuchin. We could have, and had Congress
intended us to do that, it would have been written in. YRC
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was the one situation because it was such a big loan, we
felt a need to add it on. And I think you asked me a
question about Main Street, why that was not included.
Ms. Shalala. Yes.
Secretary Mnuchin. There were very specific
discussions in the crafting of this with the Finance
Committee, and there was a requirement, what I call kind of
the "Warner Provision" that was added. But, specifically,
the Main Street Program, because it was not a direct loan
program, there was a desire to get the money out without
that requirement. That was specifically discussed with both
Republicans and Democrats in the Senate.
Ms. Shalala. I yield back.
Senator Toomey. Thank you, Representative Shalala.
We will begin now our second round of questions, and I
will begin. Mr. Secretary, the CARES Act states that
Section 4003 loans are, and I quote, "to provide liquidity
to eligible businesses...related to losses incurred as a
result of coronavirus." So certainly we are familiar with
many businesses and many different industries where they
have had losses that result from lost revenue from the
revenue they would have otherwise had. And certainly it is
plausible that companies would have higher expenses in
dealing with this coronavirus.
But it appears that a majority of the firms that
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received these national security loans projected COVID-
related losses to be greater than their entire 2019
revenues. That just seems a little bit odd. And based on
the limited information that we have been able to see, it
appears that at least two of the companies that received
these loans are essentially startups and appear to be either
entirely or very nearly pre-revenue companies. SpinLaunch,
for instance, is a tech startup with, my understanding is,
thus far commercially unproven technologies still. oVio
Technologies is a software company, and the loan amounts for
both of those companies were substantially greater than
their entire 2019 revenues.
So could you shed some light on how these loan amounts
relate to the losses they incurred as a result of the
coronavirus if they were not forecast to have any revenue
anyway? Or perhaps suddenly in 2020 they were supposed to
be revenue positive. The information that we got does not
shed any light on this. So could you tell us how these
slightly counterintuitive circumstances make sense?
Secretary Mnuchin. Senator Toomey, let me just first
say, as you said in your opening comment, the good news is
that the markets recovered, and so many of the companies
that we thought we would have to make loans to were able to
borrow in the markets, companies like Boeing and GE that we
thought were going to be major military contractors.
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So the good news is we only ended up with 74
applicants. Of the 74 applicants, we only approved 11 of
them. So as you can see, we rejected plenty of loans.
What we tried to do was establish a process so that we
were not picking winners or losers. The criteria was there
had to be a designation or one of the specific criteria for
national security. When it did that, we put it through a
credit underwriting, and there was credit determinations
both for some of the smaller ones on an unsecured loan and
some of the bigger ones.
As you said, you know, the intent was supposed to be
COVID. When COVID impacted the entire business, it was very
difficult to figure out COVID versus non-COVID. But we made
sure that the loans fit our credit criteria and rejected
many that did not. But I understand your comment and, you
know, would be happy to follow up with you on it.
Senator Toomey. So my understanding is that there is
some backup information that would get into some of the
details such as whether a company that had zero revenue in
2019 was actually projecting revenue in 2020 that did not
arrive because maybe they are contractors with the
municipalities that canceled the contract. So it is
entirely plausible, but we cannot see what happened. So if
you can provide us with additional specifics on these
applications, that would be very helpful.
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Secretary Mnuchin. I would be happy to. There is a
credit memo on every loan. We are happy to provide it to
you. And, again, on the objective criteria, we provided to
do it. On some of the things that you are talking about, it
was a little bit harder to differentiate what was COVID-
related and was not COVID-related when the businesses were
highly impacted.
[The information follows:]
/ COMMITTEE INSERT
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Senator Toomey. Thank you.
Commissioner Ramamurti.
Mr. Ramamurti. Thank you, Mr. Chairman.
Just to pick up where we left off last time, Mr.
Secretary, you mentioned that there had been no
communications with the White House or Jared Kushner about
the YRC loan. So can you commit now to reviewing all of the
documents in your possession and turning over to this
Commission any correspondence, including phone call notes
and emails, with the White House relating to YRC? And if
there is none, that is fine. But can you commit to do that?
Secretary Mnuchin. Actually, I just want to correct
the record. You did not ask me about the entire White
House. You asked me if there was anybody on Jared Kushner's
staff or Jared Kushner that I spoke to, and the answer to
that was no. I did not respond to the entire White House.
Mr. Ramamurti. Okay. But in terms of the question I
just asked, are you willing to turn over any of the
correspondence you may have had with the White House on this
topic?
Secretary Mnuchin. You have to ask me--what is the
question? Because you are now asking me a different
question than you asked before. I just wanted to correct
it. But, yes, any correspondence that related to Jared
Kushner or his staff, which are none, I would be happy to
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turn over because that does not exist.
Mr. Ramamurti. Okay. The White House more broadly?
Secretary Mnuchin. I will consult with our legal
department.
Mr. Ramamurti. Thanks.
Secretary Mnuchin. I think as you know we have certain
privileged claims with the White House.
Mr. Ramamurti. I understand, but thank you for taking
a look at that, and we will follow up on that. Look, I
think at best this is a loan, as some of my colleagues have
said, that puts nearly $1 billion of public money at risk
with minimal protections, and that helps a private equity
giant that was sitting on billions of dollars of its own
money. And at worst, I think this generous loan was rushed
into place to benefit a firm with close personal ties to the
President's family, and I think that this warrants further
investigation by this Commission.
So I want to take a look at some of the national
security loans other than the YRC loan. Of course, none of
them are nearly as big as the $700 million loan to YRC, but
the GAO report that came out this morning raises some
concerns about the process.
So as you noted, the Defense Department has certified
20 companies as critical to national security, and you have
provided loans to 11 of those companies. And I just want to
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understand why you chose to support the companies that you
did. Those nine companies that have been certified as
critical to national security but that have not yet received
loans, are you currently negotiating with them on loan
terms? Or what is the status of those nine companies?
Secretary Mnuchin. So, first, I just want to say on
the first part, again, although I think because the economy
has recovered, taxpayers will do very well on this loan, I
want to acknowledge this was a risky loan. I also want to
say our intent was not to bail out any hedge funds. If we
want to be criticized, perhaps it is the influence from many
of the Democrats who wanted us to save union jobs. And,
again, we were very focused on saving jobs because this was
a national security loan, which was the intent of the
program.
I think your other question is the program is over, it
is done, there is nothing else left.
Mr. Ramamurti. So you are not currently in
negotiations with those nine companies?
Secretary Mnuchin. No. Everything is finished.
Treasury approved 11 loans, and there are no other loans,
and I encourage Congress to reallocate the money.
Mr. Ramamurti. So these companies that were found to
be critical for national security, what is the status of
them? Have they all gotten support from the private
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markets? Or what is the situation?
Secretary Mnuchin. I believe they did not pass our
underwriting. Again, it was very simple. Companies either
passed or did not pass the underwriting once they made it
through the criteria.
Mr. Ramamurti. Okay. So I want to go through some of
the weaknesses that the GAO has identified in the process
for providing these loan. The first weakness is that the
Treasury failed to focus on "providing assistance in a
timely fashion." So, for comparison, the YRC loan took you
70 days from application to execution. The next fastest
loan you made took nearly 2-1/2 times that long with
applicants having to wait 5 or 6 months for those loans. So
why did it take so long for you to get aid to those
companies that were deemed critical to our national
security?
Secretary Mnuchin. Well, I think that is a reasonable
criticism. I just want to put this into context. Treasury
had huge obligations as a result of the CARES Act. We had
to create a PPP program with SBA from scratch. We had to do
payroll support loans. We prioritized the aviation industry
over national security, again, given the number of jobs
there were in the aviation industry. So had we had more
resources--a lot of the people at Treasury could not come
into the building. So, yes, I feel badly that it took us as
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long as it did, but we executed a lot of programs in record
times. And, yes, obviously, as it related to the national
security, once we got to national security, we prioritized
the larger loan over the other ones.
Mr. Ramamurti. Thank you. One other question. The
GAO specifically notes that you approved the YRC loan while
your internal program guidance was "still in draft form and
subject to change," and that your incremental approach to
finalizing the program rules "may have weakened the
consistency with which Treasury reviewed and analyzed loan
applications." So did you use the same application review
process and criteria for these other loans that you applied
to YRC?
Secretary Mnuchin. I would say we are happy to respond
in writing to the GAO issue, and we will copy you on that.
[The information follows:]
/ COMMITTEE INSERT
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Mr. Ramamurti. Thank you, Mr. Secretary.
Senator Toomey. Thank you,
Commissioner Ramamurti.
Representative Hill.
Mr. Hill. Thank you, Chairman.
Mr. Secretary, I want to read you some quotes here from
a news article, Associated Press: "Publicly traded trucking
company YRC will ask for $1 billion in aid from the Federal
bailout fund." Shares of YRC have "plummeted." Those sound
familiar, and they might sound like they are from a post-
CARES Act headline, but they are actually from the
Associated Press May 15, 2009.
Later that year, banks and investment banks were
compelled to do a debt-for-equity swap with YRC led by their
union, Jimmy Hoffa speaking on behalf of organized labor,
pressing them, saying that he was successful in getting this
done in Washington.
When you were reviewing this credit application, were
you aware of this debt-for-equity swap and the trouble YRC
had at the end of the financial crisis?
Secretary Mnuchin. I believe the team was. I was not
specifically aware of that.
Mr. Hill. So in addition to the valuation questions on
the collateral pool I talked about, I wonder if the team had
had conversations with the other senior creditors for
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Tranche A on a different sharing arrangement before you
agreed to the terms.
Secretary Mnuchin. Well, I can tell you we obviously
had discussions with other creditors because we needed
inter-creditor agreements and other issues. I personally do
not recall any of those conversations. Adam Lerrick, who
led the team, was here and can follow up with your office.
And, again, let me just reiterate, Representative Hill and
others. This was a risky loan. We have been 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. But we do not want to be in the long-term
business of lending to this type of company or any of the
national security companies. But, fortunately, we have made
a significant profit, and taxpayers should get paid back.
Mr. Hill. Well, I appreciate that, and we will be
having a meeting, the Commission will, next week with the
Department of Defense because the whole issue, when you look
at this underwriting situation, you have to ask yourself:
Why did the Pentagon get dependent through its prime
contractor, Crowley, for 68 percent of its less-than-
truckload needs on a company that was essentially near
bankruptcy and has been in, as I say, junk financial
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condition for 20 years? I find that--not a Treasury
question here, and I respect that, but certainly a question
that this Commission will be interested in when we meet with
the Treasury Department on why the DOD would be so dependent
on such a weak company when there are many companies,
including union companies, for my friends on the other side
of the aisle, that have tremendous financial strength that
provide LTL services.
What recommendations would you make, now having gone
through this CARES Act, when it comes to drafting this kind
of language in the future for future Treasury Secretaries?
Would you have a different caveat than simply having the DOD
Secretary certify that a company is essential to national
security? And in your personal view, do you think an LTL
trucking company is essential to national security?
Secretary Mnuchin. Let me just say, if I had to do it
all over again, I would use the same criteria. Again, I
think the intent when we did this was there were going to be
some big companies, but, again, we set up the intent early
on. It is not my position to comment on the DOD
certification, although I will make a comment that I do
agree with. I hope that the Pentagon looks at all of their
critical vendors and looks at the financial condition and
spreading risk. Had they not had this type of exposure,
perhaps they would not have certified it.
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Mr. Hill. I think that is a fair point, and I yield
back, Mr. Chairman.
Senator Toomey. Thank you, Representative Hill.
Representative Shalala.
Ms. Shalala. Thank you. I want to follow up on that
definition. How did Treasury create its definition for
national security loans? Did you consult with the
Department of Defense and the Director of National
Intelligence or anyone else?
Secretary Mnuchin. We did. As I said in my opening
statement, we consulted with them before we put out the
regulations.
Ms. Shalala. The language of the definition that the
Treasury Secretary determines that the applicant is critical
to maintaining national security is based on a
recommendation and certification of the DOD or DNI implies
that Treasury has the final say in which businesses are
designated. Is that really the case?
Secretary Mnuchin. From a technical statement, it may
be the case. But from a practical statement, we did not
second-guess the DNI or DOD, so we did not do additional
diligence.
Ms. Shalala. So you did not ever disagree with the DOD
on designations?
Secretary Mnuchin. We did not. We relied upon it, and
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I have written certifications from the DOD. I would be
happy to put them in the record. But once we received them,
that was their expertise. We do not have the expertise at
Treasury to analyze that.
Ms. Shalala. Do you think that the definition or the
alternative process requiring certification by DOD or DNI
deterred business from applying?
Secretary Mnuchin. I do not.
Ms. Shalala. Finally, you have been actually quite
candid about what you would do in the future. While I have
serious questions along with my fellow Commissioners about
the National Security Loan Program and the YRC loan in
particular, clarify for us, looking back, would you do it
all again? Would you do something different with the YRC
loan or the lending program or really any of the other
emergency loan programs?
Secretary Mnuchin. So I just want to put this in
context. Congress allocated close to $3 trillion for CARES-
related items in the most difficult part of the economic
environment that this country has faced since the Great
Depression, not recession.
Of course, in a different environment we can look back,
and hopefully in future times Congress can do different
things. I would just say on the $500 billion that was
allocated to me, between direct and indirect, we could have
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made $5 trillion of loans. This was an enormous amount of
responsibility.
I have been criticized by the right; I have been
criticized by the left. There were people who said to me I
was not taking enough losses; there were people who have
said to me I have taken too many losses.
So, again, I think this has been a great success. The
good news is most of this money did not need to be used and
can go back for taxpayers. And, Acting Chair Toomey, I
would be happy, since it is such a small group today, to
take a third round of questions. I want to make sure that
the committee has as much time for oversight as is needed
for us to be able to answer whatever there is today.
Ms. Shalala. Well, reclaiming my time, I just want to
make sure that I understand, because we need to learn from
your experience with these loans. What would you do
differently in the National Security Program in particular
that you would recommend to us that should be included in
legislation, for example, so that we do not get a YRC in the
future?
Secretary Mnuchin. Well, again, you are assuming we
should not get a YRC in the future. You know, as I have
said, there are plenty of people who are very senior people
in Congress on both sides, Republicans and Democrats, that
encouraged me. I am actually quite proud of the fact that
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we did YRC. It saved lots and lots and lots of jobs. And I
can tell you I have received calls from the company, from
truckers, from other people who really appreciate this. So
I actually expect that taxpayers will get back their money,
will make money.
I can tell you the original concept of the national
security loans was for critical suppliers, and we thought--
we were worried about Boeing. I can tell you Senator Warner
came up with the idea, which I thought was a great idea, of
there would be small companies that had top secret
clearances, and we did not want them to go out of business
and have all these people disappear.
So I actually think the program has worked, and, again,
I am more than happy to stay here so nobody needs to worry
about reclaiming their time. I want to make sure you have
more than enough time to ask me questions.
Ms. Shalala. Thank you. I yield back.
Senator Toomey. Thank you, Representative Shalala.
So my understanding is the House has called a vote. I
do not have further questions, so I will pass on another
round for myself. But with the unanimous consent of the
four of us, I would suggest we give Representative Hill and
Representative Shalala additional time, if you would like to
take it now, so that you could use that time and still make
the vote. And then I would then recognize Commissioner
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Ramamurti. Is that okay?
Mr. Hill. I do not have any more questions.
Senator Toomey. Okay. Representative Shalala?
Ms. Shalala. Just a statement. I realize that you get
enormous pressure from Members of Congress, and as someone
that had to sit in one of those seats at one point and say
no to Members of Congress, sometimes we are right and
sometimes we are wrong, and we rely on the judgment of the
Secretaries to make those decisions. And sometimes moving
too fast under great pressure is dangerous, and so I just
want to put that on the record, that I think your answers to
the questions about how you managed this are fine. But I am
not impressed when Members of Congress are putting Cabinet
Secretaries under pressure, because I rely on all of you to
make a good judgment on whether you have the time to make
the right decision.
Thank you.
Secretary Mnuchin. And I would just agree with you,
and we do not make decisions solely based upon pressure, or
we would have made thousands of loans. I would merely again
just highlight, of the 74 loans, we only made 11. We turned
down lots of loans that had Congress write us letters, and,
again, I appreciate the opportunity to answer any more
questions you or others have.
Senator Toomey. So I will now recognize for an
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additional 5 minutes Commissioner Ramamurti.
Mr. Ramamurti. Thanks. This should not take the whole
5 minutes. But I just want to, since it came up today, talk
through the termination question again.
So the way that this program works, right, is that the
money that Congress authorizes goes to the Treasury
Department, the Treasury Department makes a loan or an
investment into a Special Purpose Vehicle created by the
Fed, and then that Special Purpose Vehicle in turn makes
loans to the public or to Main Street businesses? Is that
right, Mr. Secretary?
Secretary Mnuchin. As it relates to the Fed facility,
that is accurate.
Mr. Ramamurti. Okay. So basically there is a two-step
process here. There is a Treasury investment into an SPV
created by the Fed, and then there is a set of loans that
goes from the SPV to the public.
Now, what the CARES Act says is that after December
31st of this year, there can be no new investments with that
money by the Treasury Department. So how do you get from
that text to saying that there shall be no new loans by the
Fed, using money that has already been invested by the
Treasury Department?
Secretary Mnuchin. So, Mr. Commissioner--and, again, I
am happy to spend as much time as you want on this--the
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Treasury put up 100 percent of the equity in the SPV. Okay?
That SPV is owned by the Treasury Department. That SPV is
governed by a term sheet and an LLC agreement. So our view
is that the requirements are both direct and indirect, so
that, again--and let me just be clear. You have described
an alternative reading. So if one viewed that alternative
reading, that would have meant that I could make $500
billion of investment on day one, and if you believe that
reading, that would mean that there would be no December
31st date. I would say that is just a preposterous
interpretation. If that had been the case, Congress never
would have put in the December 31st. Your reading, which
certain people have read, is an obvious loophole.
Again, if someone else wants to take that reading,
which I think is not the legal interpretation, they can do
that. I am not going to do that. I was trusted by Congress
with $500 billion. Lots of Democrats came out and said,
"How could the Treasury Secretary have a slush fund?" I
will responsibly read the letter of the law as interpreted
by me and my General Counsel and fulfill the obligation.
And, by the way, if Congress wants to extend these programs,
Congress has every right to do that.
Now, I would also just add, because Senator Toomey was
the person who I believe asked for the amendment to be put
in, and, Senator Toomey, I will let you speak. But in our
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conversations, you were concerned that someone could somehow
or another interpret a loophole that was not intended of
what we negotiated. And I think it was a belt and
suspenders. It was not an acknowledgment that that was the
right reading, but, Senator Toomey, I will let you speak for
yourself.
Senator Toomey. Well, I want to let Commissioner
Ramamurti finish his time, if he would like.
Mr. Ramamurti. Thank you. I appreciate it.
Senator Toomey. And then I will respond.
Mr. Ramamurti. Sure. I mean, look, what you--number
one, it seems like what you are--you are saying that it is a
valid and credible reading of the statute to read as the
alternative--
Secretary Mnuchin. I am not. I want to correct that.
I have never said it is valid. What I am saying is if that
is your reading--okay?--which certain people have said--I am
not saying it is valid. As a matter of fact, I want to be
on the record. I think it is invalid. Our General Counsel
thinks it is invalid. Every single Republican on the Senate
Finance Committee that was involved in this thinks it is
invalid.
Again, it would be--if one takes that interpretation,
it would have to be an obvious loophole. That is what I am
saying.
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Mr. Ramamurti. So, look, I think what you call a
"loophole" I would call the plain reading of the statute,
and I think that--
Secretary Mnuchin. Commissioner, were you involved in
the drafting--
Mr. Ramamurti. No, but, look, the whole point of this-
-
Secretary Mnuchin. Have you got outside legal counsel
that advised you on the draft--
Mr. Ramamurti. Yes. Yes, I think there have been
several law professors who have looked at--
Secretary Mnuchin. Just as you have asked for us to
have a memo, we would be happy for you to get an outside
legal opinion, send it to us. I am happy to have my General
Counsel--
Mr. Ramamurti. Sure.
Secretary Mnuchin. --view it and respond to you.
Mr. Ramamurti. Okay. Look, my point is that there
have been several finance lawyers who have looked at this
language, not--look, they were not in the room, but that is
why we look at the text of statutes, not congressional
intent. I hear that from my Republican colleagues all the
time.
Secretary Mnuchin. Does that mean you acknowledge it
would be a loophole--
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Mr. Ramamurti. No, I do not. I hardly think it is a
loophole. I think it makes complete sense for Congress--
Secretary Mnuchin. Well, why would it make--
Mr. Ramamurti. --to create a program that says--
Secretary Mnuchin. Why, if there is a December--then
what was the intent of the December 31st--
Mr. Ramamurti. Sure, I will explain what I think is a
reasonable interpretation of the statute. As of December
31st, the Treasury Department cannot create new facilities
with this money that was allocated by Congress. Separately,
Congress said in the very same statute that the money
remains with the Treasury Department until 2026, at which
point it goes back to the general fund, which to me
indicates an intent of Congress that the money should remain
available to the Treasury Department up until 2026, which to
me contemplates this program existing well past 2021. That
is in the statute, and I think that if you look at the Fed's
response to your letter asking for the money back, it is
quite clear that they do not agree with your interpretation
with the statute either. They are deferring to it, but they
said that if it was up to them, they would extend these
facilities.
So I know I am over my time, but that is all I wanted
to say. Thank you.
Secretary Mnuchin. Senator Toomey, can I just make one
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comment?
Senator Toomey. Secretary Mnuchin.
Secretary Mnuchin. I just want to correct the record,
and you can speak to Chair Powell or the Fed, but since I
speak to him all the time, and we have spoken, what the Fed
has said--okay? The Fed has not said that is their
interpretation of the legal view. What the Fed has said is
that if there were no restriction, as a general matter, they
like to leave facilities outstanding. And that is why, as
deferential to the Fed, the facilities that use pre-CARES
Act money were extended. And, obviously, if this was
politically motivated, why would I have extended any
facilities?
Senator Toomey. Thank you, Mr. Secretary. Let me
comment on this discussion briefly.
First of all, I think the alternative interpretation of
the statute that Commissioner Ramamurti has articulated is
not the correct interpretation at all, and I do think it is
important to point out that it would necessarily lead to an
absurd outcome--absurd in the context of the clear fact that
the entire purpose of this facility was to solve an
immediate credit liquidity crisis, not to provide an ongoing
multiyear set of tools for the Fed to decide whom to
subsidize in the future. The latter never crossed anybody's
mind in the room. I can assure everybody of that. And in
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my interpretation, the letter of the law correctly calls for
this to end.
So Commissioner Ramamurti asked the question: Then why
the amendment that changes language in a recent piece of
legislation? That was my amendment, and the reason I wanted
it is precisely because this argument is taking place,
precisely because there are people out there who have this
other interpretation. And I would rather avoid the risk of
having to litigate, which is what would happen if somebody,
a future Treasury Secretary, for instance, decided that this
invalid interpretation was the one that was going to govern
their behavior. We would be mired in litigation for who
knows how long if someone were to go down that road.
So I thought the best and simplest solution is
eliminate even the possibility for this, which I believe to
be an invalid interpretation.
That said, Mr. Secretary, thank you for joining us. On
behalf of the Congressional Oversight Commission, we
appreciate your time and responsiveness. Members of the
Commission may submit any additional questions for the
record.
The hearing is adjourned.
[Whereupon, at 11:04 a.m., the Commission was
adjourned.]
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Appendix C:
National Security Loan Program Transactions Summary
Borrower
City, State
U.S. empl.,
March 2020
Loan amount
Interest rate
(LIBOR+%)
Compensation for
Treasury
Loan collateral
How qualified for
"critical to
maintaining
national security"
YRC Worldwide Inc.
Overland
Park, KS
30,000
$700,000,000
3.50%
29.6% of common
stock, on a fully
diluted basis.
Third lien and
certain equipment
purchased under
tranche B.
DoD designation
Map Large, Inc.
Atlanta, GA
37
$10,000,000
5.50%
3% payment-in-kind
interest.
Unsecured senior
debt.
Top secret
clearance
Meridian Rapid
Defense Group, LLC
Pasadena, CA
14
$7,100,000
5.50%
3% payment-in-kind
interest.
Unsecured senior
debt.
DoD designation
Core Avionics &
Industrial, Inc.
Tampa, FL
25
$6,000,000
5.50%
3% payment-in-kind
interest.
Unsecured senior
debt.
DX priority-rated
contract
Wiser Imagery
Services, LLC
Murfreesboro,
TN
135
$3,069,700
5.50%
3% payment-in-kind
interest.
Unsecured senior
debt.
Top secret
clearance
SpinLaunch, Inc.
Long Beach,
CA
66
$2,519,200
3.50%
3% payment-in-kind
interest.
All assets of the
company.
DoD designation
Channel Logistics,
LLC
Camden, NJ
6
$2,500,000
3.50%
3% payment-in-kind
interest.
All assets of the
company.
DoD designation
Semahtronix, LLC
Flippin, AR
172
$1,999,100
3.50%
3% payment-in-kind
interest.
All assets of the
company.
DX priority-rated
contract
Ovio Technologies,
Inc.
Newport
Beach, VA
6
$1,186,900
5.50%
3% payment-in-kind
interest.
Unsecured senior
debt.
DoD designation
Visual Semantics, Inc.
Austin, TX
9
$1,053,200
5.50%
3% payment-in-kind
interest.
Unsecured senior
debt.
DoD designation
Semantic AI, Inc.
San Diego
51
$506,300
3.50%
3% payment-in-kind
interest.
All assets of the
company.
TS clearance;
DX priority-rated
contract
Total
30,521
$735,934,400
3.58%
Appendix D:
Sample Application to Treasury
1
OMB Approved No. 1505-0263
Expiration Date: 09/30/2020
TREASURY LOAN APPLICATION FORM
for Businesses Critical to Maintaining National Security
April 23, 2020
This application form is for informational purposes only, to enable potential applicants to
begin preparing the required information. Treasury is not accepting applications at this time.
In the coming days, Treasury will provide a web-based form for application submissions.
This application is for loans from the U.S. Department of the Treasury to eligible businesses that
are critical to maintaining national security (“Borrowers”).
Borrowers are encouraged to submit their completed application materials by 3:00 p.m. EDT on
May 1, 2020, for expedited review. Applications received after 3:00 p.m. on May 1, 2020, may
not be considered, but the Treasury Department may, in its discretion and subject to the
availability of funds, consider such applications for approval.
The definitions of the terms contained in this application appear in Division A, Title IV, Subtitle
A of the Coronavirus Aid, Relief and Economic Security Act, Pub. L. 116-136 (Mar. 27, 2020)
(the “Act”), and in the Procedures and Minimum Requirements for Loans to Air Carriers and
Eligible Businesses and National Security Businesses under Division A, Title IV, Subtitle A of
the Act, as updated (the “Procedures”).
BORROWER INFORMATION
• Borrower’s Name
• Borrower’s Taxpayer ID Number
• Borrower’s DUNS Number
• Borrower’s Address
• Contact Person’s Name
• Contact Person’s Title
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• Contact Person’s Phone
• Contact Person’s E-mail
Provide a general description of the Borrower’s corporate structure, including type of business
entity (LLC, corporation, sole proprietorship, etc.) and tax classification (C Corporation, S
Corporation, partnership, etc.) and whether the Borrower is publicly or privately owned.
• Corporate Structure
• Ownership Structure (choose one)
o Public
o Private
• Borrower’s Jurisdiction of Organization or Formation
• Names and Jurisdiction of Organization or Formation of Parent Companies and Material
Affiliates (including companies that control, are controlled by, or are under common control
with the Borrower) (if applicable)
• Top-Level Parent’s Jurisdiction of Organization or Formation (if applicable)
Identify the primary and secondary North American Industry Classification System (NAICS)
codes for the Borrower.
Did the Borrower apply for or receive loans provided or guaranteed under the Act?
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BORROWER PROFILE
Does the Borrower perform under a DX priority rated contract or order under the Defense
Priorities and Allocations System regulations (15 CFR part 700)?
• If yes, please describe these contracts/orders.
Does the Borrower currently operate under a valid Top Secret facility security clearance pursuant
to the National Industrial Security Program regulations (32 CFR Part 2004)?
• If yes, please describe this Top Secret facility security clearance, provide the relevant CAGE
code(s), and attach the relevant form DD-254, Contract Security Classification Specification.
If the response to either of these criteria above is classified, please contact the Treasury
Department at CARESActNationalSecurity@Treasury.gov for more information.
Applicants that do not satisfy either of these two criteria may be considered if, based on a
recommendation and certification by the Secretary of Defense or the Director of National
Intelligence that the applicant business is critical to maintaining national security, the Secretary
of the Treasury determines that the applicant business is critical to maintaining national security.
The Treasury Department will process such applications upon receipt of such certification.
DEBT, ASSETS, AND EQUITY
Debt. Provide a description of the Borrower’s outstanding secured and unsecured debt,
including debt securities, notes, loans, and bank lines of credit.
• Debt
o Type
o Current Amount Outstanding
o Maximum Commitments Available
o Seniority [Secured/Senior Unsecured/Subordinated]
o Lien Ranking
o Maturity Date(s)
• Lines of Credit
o Current Amount Outstanding
o Maximum Commitments Available
o Maturity Date(s)
• Other Material Indebtedness
o Description
o Current Amount Outstanding
o Maximum Commitments Available
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o Maturity Date(s)
• Total Debt Currently Outstanding
• Total Debt Commitments Currently Available
Intercompany Debt and Guarantees. Provide a description of the existing intercompany debt
and guarantee arrangements of the Borrower and any of its subsidiaries, with current amounts
outstanding.
• Intercompany Debt and Guarantees
Restrictions on Indebtedness. Provide a description of any restrictions on the Borrower or any
of its subsidiaries incurring additional indebtedness.
• Restrictions on Indebtedness
Restrictions on Collateral. Provide a description of any restrictions on the Borrower or any of
its subsidiaries granting additional security interests in collateral.
• Restrictions on Collateral
• Does the Borrower have a judgment lien against the Borrower’s property for a debt owed
to the United States?
Debt Service. Provide, for the Borrower and its subsidiaries on a consolidated basis, the
amounts of principal and interest currently scheduled to be paid on outstanding debt for the
next 3 years.
• 2020
• 2021
• 2022
Assets. Provide the total assets in the Borrower’s 2019 financial statements.
• Total Assets
Available Security. Provide a brief description of the type and general value of all assets,
property, and revenue streams of the Borrower and its affiliates available to be pledged to
secure the loan to the Borrower.
• Type of Asset, Property, Revenue Streams
• General Value
• Available Payment Seniority / Lien Rank
• If Applicable, Debt Instruments Secured By Asset
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Available Guarantees. Provide a list of the parent companies, subsidiaries, and affiliates of
the Borrower that will provide guarantees and indicate whether such persons have other
material debt.
Equity. List each class of outstanding equity interests in the Borrower.
• Common Stock
• Preferred Stock
Ratings. Provide the Borrower’s issuer credit rating and issue level ratings for any senior
unsecured debt as of December 31, 2019, from any Nationally Recognized Statistical Ratings
Organizations (NRSROs).
• Issuer Credit Ratings
• Issue Ratings for Senior Unsecured Debt
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FINANCIAL INSTITUTION INFORMATION
(For electronic payment. The account listed below should be the same account used by the Borrower to make tax
payments to the IRS.)
Routing Transit Number
Borrower’s Account Number
Checking or savings
Financial Institution Name
Financial Institution Address
Financial Institution Telephone Number
Primary contact at financial institution for
payment process validation (name, title,
email, and phone number)
UNITED STATES OPERATIONS
Describe the operations of the Borrower in the United States.
List the number of employees of the Borrower based in the United States (including territories or
possessions) on March 24, 2020. For purposes of these calculations, include full-time, part-time,
temporary, and leased employees, but do not include independent contractors or corporate
officers.
• U.S. employees
List the number of employees of the Borrower on March 24, 2020.
• Worldwide employees
Describe any changes to the Borrower’s U.S. employment levels between March 24, 2020 and
the date of this application.
• Planned Employment Changes
Describe any changes that are planned in the Borrower’s U.S. employment levels between the
date of this application and December 31, 2020.
• Planned Employment Changes
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COVERED LOSSES
List the Borrower’s revenue and expenses in 2019 and in the first quarter of 2020.
• 2019 Revenue
• 2019 Expenses
• Q1 2020 Revenue
• Q1 2020 Expenses
List each category of revenue loss or new unbudgeted expense that the Borrower has incurred or
expects to incur directly or indirectly as a result of the coronavirus through March 30, 2021, and
the actual or expected revenue loss or new expense for each category. Categories of revenue
losses or new unbudgeted expenses may include, for example, reduced demand, unavailability of
credit, and new medical expenses.
Revenue Losses
• Category Description
• Amount
New, Unbudgeted Expenses
• Category Description
• Amount
FINANCIAL PLAN
Provide a separate document containing a financial plan that includes each of the following
components.
(1) Use of Proceeds – an itemized description of the purposes for which the Borrower will use
the loan proceeds.
(2) Financial Needs – quantitative information on the Borrower’s total financial needs for the
remainder of 2020, including expected revenues, expenses, and types and amounts of expected
borrowing, and how the loan fits within those needs.
(3) Operating Plan – a discussion of the Borrower’s (and any subsidiary’s) operating plan for the
remainder of 2020, if the loan is approved. Include a description of any changes to management,
employment, as well as any strategic focuses or significant ventures or transactions.
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(4) Cost Restructuring – a description of any plans the Borrower (and any subsidiary) has to
restructure its obligations or contracts with creditors, vendors, or employees to improve the
Borrower’s financial condition in 2020.
(5) Prudent Borrowing – a justification based on the Borrower’s financial needs and operating
plan demonstrating that the loan is prudently incurred.
(6) Stock Buybacks – a description of any contractual commitment in effect as of March 27,
2020, obligating the Borrower or any affiliate thereof to purchase, before January 1, 2026, an
equity security that is listed on a national securities exchange of the Borrower or any parent
company of the Borrower.
(7) Lack of Credit Elsewhere – evidence based on market conditions, the Borrower’s
circumstances, or relationships with existing or potential creditors that credit is not reasonably
available to the Borrower elsewhere.
ADDITIONAL INFORMATION TO UPLOAD
Borrowers must upload copies of the following information.
The Borrower’s most recently completed IRS Form 941 “Employers Quarterly Federal Tax
Return.”
The consolidated financial statements of the Borrower for the previous three years that (if
available) have been audited by an independent certified public accountant, including any
associated notes and auditor’s report.
The consolidated financial statements of the Borrower’s corporate parents, if any, for the
previous three years that (if available) have been audited by an independent certified public
accountant, including any associated notes and auditor’s report.
Any interim financial statements of the Borrower for the current fiscal year, including any
associated notes.
Please list any outstanding liens with the Federal Government.
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TAXPAYER PROTECTION
To receive a loan, each Borrower must provide the Treasury Department with appropriate
financial instruments that, in the sole determination of the Secretary, provide for a reasonable
participation in equity appreciation or a reasonable interest rate premium appropriate for the
benefit of taxpayers.
If the Borrower has issued securities that are traded on a national securities exchange, the
Borrower must provide a warrant or equity interest in the Borrower unless the Secretary
determines in his discretion that the Borrower cannot feasibly issue warrants or other equity
interests. For other Borrowers, the Secretary may, in his discretion, accept senior debt
instruments or warrants or other equity interests.
Each Borrower must provide information in the following table that describes in sufficient
detail its proposed financial instruments under this requirement. Each Borrower will be
notified whether the proposed financial instruments are acceptable prior to application
approval.
Borrower Name:
Type of Financial Instrument:
Amount, Value, or Price of the Financial Instrument, as Appropriate:
Seniority or Priority of the Financial Instrument Relative to Other Equity and Debt of the
Borrower:
Term or Duration of the Financial Instrument, if Applicable:
Other Terms and Conditions that Could Affect the Value of the Financial Instrument:
ADDITIONAL INFORMATION
Supplementary Information. In order to evaluate the Borrower’s application, the Treasury
Department may request additional information from the Borrower. Failure to provide any
information requested by the Treasury Department may result in a rejection of the Borrower’s
application.
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CERTIFICATION
I certify under penalty of perjury that the information and certifications provided in the
application and its attachments are true and correct. WARNING: Anyone who knowingly
submits a false claim or makes a false statement is subject to criminal and/or civil penalties,
including confinement for up to 5 years, fines, and civil penalties. (18 U.S.C. §§ 287, 1001; 31
U.S.C. §3729, 3802).
Name of First Certifying Official
Title of First Certifying Official
Signature of First Certifying Official
Phone Number of First Certifying
Official
E-mail of First Certifying Official
Name of Second Certifying Official
Title of Second Certifying Official
Phone Number of Second Certifying
Official
E-mail of Second Certifying Official
Signature of Second Certifying Official
Borrower Name
Date
PAPERWORK REDUCTION ACT NOTICE
The information collected will be used for the U.S. Government to process requests for support. The estimated
burden associated with this collection of information is two hours per response. Comments concerning the accuracy
of this burden estimate and suggestions for reducing this burden should be directed to the Office of Privacy,
Transparency and Records, Department of the Treasury, 1500 Pennsylvania Ave., N.W., Washington, D.C. 20220.
DO NOT send the form to this address. An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a valid control number assigned by OMB.
Appendix E:
Questions for the Record Submitted to Treasury by Rep. Hill
CONGRESSIONAL OVERSIGHT COMMISSION
Questions for the U.S. Treasury Regarding National Security Loans
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Questions for the Record Submitted to U.S. Treasury
from Congressman French Hill
Question 1:
Per the “Financial Agency Agreement for Independent Financial Advice on Programs for
Businesses Critical to National Security under the CARES Act,” the Treasury retained Perella Weinberg
Partners LP as the Financial Advisor for the National Security Loans for a $500,000 fee for the initial term.
How long was the term and were there any extensions of the periods? Were there any contingency fees
based on the amount of loans executed, or otherwise? Over the period of the program ending December 31,
2020, what was the total amount paid to Perella Weinberg Partners LP?
Question 2:
YRC Tranche B funds are to be used to finance the purchase of tractors and trailers in
accordance with the company’s capital expenditures plan. In my view, this type of lending should be left
to the private sector as this serves as business growth capital, not temporary emergency pandemic-related
funding. Thus, Tranche B appears beyond the scope for the intent of the CARES Act funding. Could you
please opine on the Treasury’s rationale for this type of loan?