Solyndra Exit Plan Should Disclose Tax Breaks, U.S. Says

Solyndra LLC, the bankrupt solar- panel maker that received a $535 million U.S. Energy Department loan guarantee, should disclose the amount of tax breaks the owners of Solyndra’s parent would get under a restructuring plan, the federal government said.

The Energy Department and the Internal Revenue Service objected to Solyndra’s proposed plan for exiting bankruptcy protection, according to documents filed Aug. 24 in U.S. Bankruptcy Court in Wilmington, Delaware.

Under the plan, Argonaut Ventures LLC and Madrone Partners LP would benefit from net operating losses that would allow them to avoid potentially “hundreds of millions” in future tax liabilities at a company completely unrelated to Solyndra, the government said in court papers.

Debra Grassgreen, a lawyer for Solyndra, didn’t immediately return a phone call seeking comment on the objection.

Solyndra’s collapse prompted congressional scrutiny of President Barack Obama, who praised the company during a May 2010 tour of its facilities. It was the first company to receive a loan guarantee under Obama’s stimulus.

Argonaut Ventures, the investment arm of billionaire and Obama fundraiser George Kaiser’s charitable organization, holds almost 39 percent of Solyndra’s parent, 360 Degree Solar Holdings Inc.

Retain NOLs

Solyndra is scheduled to seek court approval of its disclosure statement, which describes the bankruptcy exit plan, at a hearing Sept. 7.

Under the proposal, Solyndra would be liquidated while its parent would be reorganized and its owners would retain their equity interests, allowing them to keep the NOLs, according to court documents.

360 Degree would hold tax attributes “consisting of more than one-half-billion dollars in net operating losses,” the government argued. Argonaut and Madrone could then use them to reduce their tax liabilities “on income earned from other sources completely unrelated to Solyndra,” permitting the firms to avoid hundreds of millions of dollars in future income tax liabilities, the U.S. said.

Solyndra, based in Fremont, California, listed about $854.1 million in assets and about $867.1 million in debt in court papers filed Oct. 31. It was raided by the U.S. Federal Bureau of Investigation two days after seeking bankruptcy protection.

New Notes

The government is also seeking more information regarding notes that were issued as part of a February 2011 out-of-court restructuring. Solyndra issued $187 million in tranche E notes, which were exchanged for $175 million of its parent’s notes. The U.S. said in court papers that Solyndra’s plan doesn’t explain whether the notes “were canceled or voided or remain outstanding debt obligations.”

The U.S. Trustee, an arm of the Justice Department that monitors bankruptcies, also objected to the bankruptcy plan in court papers filed today, echoing the government’s demand for more information on the tax breaks. The plan doesn’t provide any information on the future operations, financial projections or officers of 360 Degree either, the U.S. Trustee said

Solyndra’s plan doesn’t explain how 360 Degree’s owners can keep their equity interest when its parent’s general unsecured creditors aren’t being paid in full, a requirement for equity holders to receive any recovery, according to the U.S. Trustee.

The proposal also violates bankruptcy rules by assuming creditor classes that aren’t being paid in full are viewed as having accepted the plan if they don’t vote on it, the U.S. Trustee said.

The case is In re Solyndra LLC, 11-12799, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporter on this story: Michael Bathon in Wilmington at mbathon@bloomberg.net

To contact the editor responsible for this story: Stephen Farr at sfarr@bloomberg.net

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