How much money would the government have to pay for a stake in your business?
You may remember from the Great Recession in 2008-2009 that large companies that were deemed “too big to fail” were given bailouts. It was not free money: companies participating in the Troubled Asset Relief Program (TARP) paid in the form of an ownership stake from the US government. When the government eventually sold its shares of the companies it bailed out, it overall made a hefty profit.
Keep this in mind with the current events happening in the world. The U.S. Treasury is bailing out YRC Worldwide.
The Government CARES
Like the TARP, the Coronavirus Aid, Relief, and Economic Security Act (CARES) gives loans to specific failing businesses at the cost of both interest payments and ownership stake.
YRC Worldwide is in a very tough spot right now. Its stock price peaked in 2004 with a price of approximately $433,000 per share. Almost sixteen years later, the stock is three dollars each.
The company has been struggling financially since the Great Recession and employs over 19,000 people. If the company were to go out of business, its effects would be felt on both the employees directly, and society indirectly as fewer trucking deliveries are made.
The loan consists of a 3.5% interest rate and 29.6% ownership in the company. The U.S. Treasury hopes that by having a direct stake in the company, it can better track how the loan is spent and is applied towards growing the company rather than frivolous spending.
The loan matures at the end of September 2024. Hopefully YRC Worldwide will have utilized the loan money wisely so that taxpayers can benefit from the loan transaction, or at the very least avoid losing money on it.
Is the Treasury right to loan out money in exchange for interest and a stake in the company for potential taxpayer gain, or is it not the government’s job to be owners in a business? Is a company “too big to fail”, and if they are, should they be allowed to become that big in the first place? Let us know your thoughts in the comments below.