SIGPR-A-23-004
- Document type
- report
- Date
- 2024-09-26
Summary
A review report, Report Number SIGPR-A-23-004, issued September 6, 2024 by the Special Inspector General for Pandemic Recovery to the Chief Program Officer of Treasury's Office of Capital Access, on Yellow Corporation's compliance with Section 12.05 of its loan and guarantee agreement, which limits certain compensation. The report explains that Treasury agreed to a $700 million National Security Loan Program loan to YRC Worldwide, Inc. (Yellow) on July 8, 2020, in a $300 million Tranche A and a $400 million Tranche B. It states that Treasury found that retention payments to one corporate officer violated Section 12.05 and that the officer repaid the payment. SIGPR's review of other corporate officers' compensation states it is not aware of any additional violations. Appendices describe the objective, scope and methodology and the report distribution.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
Review of Yellow’s Compliance with Section
12.05 of its Loan and Guarantee Agreement
Report Number: SIGPR-A-23-004
September 6, 2024
SIGPR-A-23-004
September 6, 2024
TO: Jessica Milano
Chief Program Officer, Office of Capital Access
U.S. Department of the Treasury
FROM: Kevin Gallagher
Acting Assistant Inspector General for Auditing
Special Inspector General for Pandemic Recovery (SIGPR)
SUBJECT: Review of Yellow Corporation’s Compliance with Section 12.05 of
its Loan and Guarantee Agreement
This report presents the results of our independent review of Yellow Corporation’s
(Yellow) compliance with Section 12.05, Limitations on Certain Compensation (Sect.
12.05). We performed this review because Treasury disclosed that Yellow had violated
Sect. 12.05 of its loan agreement by exceeding limits on corporate officer compensation
for one officer of the company. 1 Our review attempted to identify any other violations of
the clause.
Based on our review, we are not aware of any additional violations of Sect. 12.05
committed by Yellow.
Please address questions regarding this report to Michael Sinclair at (202) 923-8021 or
Michael.Sinclair@sigpr.gov.
1 Yellow remedied the violation as the officer repaid the full amount that caused the violation.
SIGPR-A-23-004 i
Introduction
Section 4003 of the CARES Act authorizes the Treasury to make loans, loan guarantees,
and other investments to provide liquidity to eligible businesses related to losses incurred
as a result of the coronavirus pandemic. Sections 4003(b)(1)-(3) appropriated $46 billion
to help stabilize the airline industry and businesses critical to maintaining national
security.
The breakdown of available funding was as follows:
1. Up to $25 billion for passenger air carriers; businesses certified to perform
inspection, repair, replace or overhaul services; and ticket agents;
2. Up to $4 billion for cargo air carriers; and
3. Up to $17 billion for businesses critical to maintaining national security.
Treasury provided loans to businesses critical to maintaining national security to eleven
businesses under the National Security Loan Program (NSLP), totaling over $735 million.
Yellow was one such business, and its loan of $700 million accounted for approximately
95 percent of the NSLP.
Background
On April 29, 2020, YRC Worldwide, Inc. (Yellow) applied for an NSLP loan under
Application Number NSL-200428000022. Treasury agreed to a $700 million loan on July
8, 2020, which was to be made in two tranches. Tranche A would provide $300 million to
meet Yellow’s near-term contractual obligations and non-vehicle capital expenditures.
Tranche B would provide $400 million for capital investments subject to Treasury’s
approval of capital plans developed by Yellow.
Section 12.05, Limitations of Certain Compensation (Sect. 12.05), in Yellow’s loan and
guarantee agreement, states:
(a) Beginning on the Effective Date and ending on the date that is one year after
the date on which the Loan is no longer outstanding, the Borrower and its Affiliates
shall not pay any of the Borrower’s Corporate Officers or Employees whose Total
Compensation exceeded $425,000 in calendar year 2019 or the Subsequent
Reference Period (other than an Employee whose compensation is determined
through an existing collective bargaining agreement entered into before March 1,
2020):
(i) Total Compensation which exceeds, during any 12 consecutive months
of the period beginning on the Effective Date, and ending on the date that
is one year after the date on which the Loan is no longer outstanding, the
Total Compensation the Corporate Officer or Employee received in
calendar year 2019 or the Subsequent Reference Period.
The clause also states:
(b) Beginning on the Effective Date, and ending on the date that is one year after
the date on which the Loan is no longer outstanding, the Borrower and its Affiliates
shall not pay any of the Borrower’s Corporate Officers or Employees whose Total
SIGPR-A-23-004 1
Compensation exceeded $3,000,000 in calendar year 2019 or the Subsequent
Reference Period Total Compensation in excess of the sum of:
(i) $3,000,000; and
(ii) 50 percent of the excess over $3,000,000 of the Total Compensation
received by such Corporate Officer or Employee in calendar year 2019 or
the Subsequent Reference Period.
Finally, the clause states that borrowers shall not pay severance pay, or other benefits
associated with a termination of employment, which exceeds twice the total compensation
received in 2019.
Results in Brief
On July 30 and August 1 of 2023, Yellow informed Treasury that it had made retention
payments to certain corporate officers. After confirming the payments, Treasury
determined that the payments made to one corporate officer violated limits on corporate
officer compensation in Section 12.05 of its loan agreement. On August 4, Treasury
provided a notice of the violation to Yellow’s legal advisors. Ultimately, Yellow’s corporate
officer repaid the retention payment that caused the violation. We conducted a review of
the compensation of Yellow’s other corporate officers to determine if there were any
additional violations of Section 12.05 of the loan and guarantee agreement.
Based on our review, we are not aware that Yellow committed any additional violations
of Section 12.05 of its loan and guarantee agreement with Treasury.
Compliance Statement
We conducted our review in accordance with generally accepted government auditing
standards. A review is substantially less in scope than an examination, the objective of
which is to obtain reasonable assurance and express an opinion on the subject matter.
We believe that our review provides a reasonable basis for our conclusion.
Audit Team
This review was conducted the individuals listed below:
Michael Sinclair Audit Manager
Kevin Gallagher Audit Manager
SIGPR-A-23-004 2
Appendix A – Objective, Scope, and Methodology
We have reviewed Yellow’s supporting documentation for employee compensation
relating to certain Yellow employees that were agreed upon between SIGPR and Yellow.
Our responsibility is to express a conclusion about whether any material modification
should come forth from Yellow regarding its compliance with Section 12.05 of its loan
agreement with Treasury.
The objective of this review was to determine whether Yellow violated Section 12.05 -
Limitations on Certain Compensation, of its loan agreement. Treasury previously
identified that it did violate Sect. 12.05 for one officer of the company. We performed this
review based on that information. We performed this review remotely relying on mostly
electronic records and discussions with Yellow’s legal representation.
To accomplish the review objective, our fieldwork included, but was not limited to, the
following procedures:
• Reviewed Yellow’s loan agreement focusing on Sect. 12.05;
• Reviewed Yellow’s self-disclosure submitted to Treasury;
• Reviewed Yellow’s submission of supporting documents as requested by SIGPR;
• Held discussions with Treasury officials when applicable;
• Requested additional documentation from Treasury officials when needed; and
• Held discussions with Yellow’s legal counsel;
The review was conducted in accordance with generally accepted government
auditing standards for attestation engagements.
SIGPR-A-23-004 A-1
Appendix B – Report Distribution
Chief Program Officer – U.S. Department of the Treasury
Office of General Counsel – U.S. Department of the Treasury
Inspector General – Special Inspector General for Pandemic Recovery
Asst. Inspector General for Auditing – Special Inspector General for Pandemic
Recovery
Office of General Counsel – Special Inspector General for Pandemic Recovery
SIGPR-A-23-004 B-1
File and source
- File
- REPORT_SIGPR_review-yellows-compliance-section-1205-its-loan-and-guarante_2024-09-26.pdf
- Size
- 493,927 bytes
- SHA-256
- 4bf8f13874259071809f6e5c51f4e8f87e57152fc27d0b9eb6e13eeb9e34ad0b
- Original
- www.sigpr.gov