Solyndra’s funny money flow
Solyndra is the bankrupt solar company that received the first Department of Energy loan under the 2009 American Recovery and Reinvestment Act. It also is notorious in that its largest financial backer, George Kaiser, was a substantial supporter of President Barack Obama in 2008 and regularly visited the White House following the election.
Many media outlets have been covering the contacts between George Kaiser, Solyndra officials, administration officials and members of Congress. A rich paper trail will no doubt yield the facts of SolyndraGate. But my interest has always been in following the money trail and trying to understand how the United States, contrary to law, became subordinate to George Kaiser’s Argonaut in bankruptcy court. I previously quoted the applicible law:
US law 10 C.F.R. §609.10(d)(13), the government should have become first in line for repayment (page 2):
Any Guaranteed Obligation may not be subordinate to any other debt and must have a first lien position on all assets of the project and all additional collateral pledged as security for any project debt.
Reuters reported today that the Deputy Secretary of the Department of Energy believed that the subordination of U.S. financial interests to private investors was within the law. From Reuters:
“The statute is quite clear when you are issuing a loan: you have to have priority and we did. The statute is also equally clear that the Secretary of Energy has a responsibility to maximize taxpayer interest,” he added.
When faced with the opportunity to restructure the deal the first time around [February, 2011], Poneman said the department had to make “hard choices” about whether taxpayers would get more return from attempting to keep the company afloat or whether it would be better to let the company go into liquidation.
The decision was made at that time to revise the deal, which Poneman said was “entirely legal.”
The DOE may feel confident that they had legal justification in February 2011, but a private round of $175 million was raised eight months before the February DOE subordination which did not have precedence over the DOE loan. It’s also hard to understand when looking at the funding chart below that DOE officials thought this company could survive in the face of falling solar prices and impossibly high burn rate. The start-up raised and blasted through $1,400,000,000 in about five years. It feels like the DOE made a desperate political decision to keep the company afloat in February, 2011 when they allowed Argonaut step in front of US interests.
The New York Times dismissed the subordination of U.S. government interests with a quote from a restructuring attorney:
Experts said the decision made by the Energy Department in February is routine in the commercial world. “It happens all the time,” said Evan Flaschen, head of the financial restructuring group at Bracewell & Giuliani. But, he said, “A new lender coming in is going to want to be the first money out. The new money would want to be senior.”
This may be true for commercial transactions without government investors but why didn’t the June 2010 private round (line 11 above) have precedence over the DOE loan? I’ve also read many commentators asking where all the money went. The bankruptcy filing lists the top 35 unsecured creditors along with the numerous mechanic liens filed against Solyndra. The company was a financial mess for years and it’s still not clear how the DOE saw a way out for the company in February 2011.
The House Energy Committee’s Subcommittee on Oversight and Investigations is holding a hearing tomorrow to question Solyndra executives. I hope they are able to shed some light on these issues. There are still a lot of unanswered questions in the tale of Solydra.
Solyndra: Full spreedsheet of fundraising
Media Matters: What The Press Is Getting Wrong About Solyndra
SEC: Solyndra S-1 filing
Fremont County Records Office: Solyndra Mechanic Lien filings