Solyndra Wins Court Approval of Bankruptcy Exit Plan

Solyndra LLC, the failed solar-panel maker that received a $535 million U.S. Energy Department loan guarantee before going bankrupt, won approval of its plan to exit court protection over government objections.

While Solyndra will be liquidated, its parent, 360 Degree Solar Holdings Inc., will exit court protection with so-called net operating loss carryforwards of as much as $975 million, which it may use against future income, according to court papers. The potential tax breaks may be as much as $341 million.

The U.S. Internal Revenue Service objected to Solyndra’s bankruptcy plan, arguing it couldn’t be approved because its principal purpose was to allow 360 Degree investors Argonaut Ventures I LLC and Madrone Partners LP to avoid taxes.

U.S. Bankruptcy Judge Mary Walrath rejected the IRS’s challenge yesterday at a hearing in Wilmington, Delaware, saying tax avoidance “has to be the primary, most important part of the plan, and I just don’t see that here.”

“It is clear in this case that the bankruptcy and plan of reorganization deal with more than just the preservation of” tax breaks for the company’s owners, she said, citing settlements reached with unsecured creditors and Solyndra’s former employees.

Investment Search

360 Degree has already begun the search for businesses to invest in once it leaves bankruptcy, according to Argonaut attorney, Robert B. Krakow. 360 Degree can only utilize and benefit from the NOLs if it can generate taxable future income to offset against.

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 program.

The company, based in Fremont, California, was forced to shut down operations and fire most of its 1,100 workers on Aug. 31, 2011. The solar-panel maker reached a $3.5 million settlement with ex-workers, who claimed they didn’t get adequate notice before being fired.

Solyndra listed $854.1 million in assets and $867.1 million in debt in court papers filed Oct. 31.

By early 2011, the fledgling solar startup began to face competition from foreign companies and plummeting prices for materials used in rivals’ products.

Payment Priority

In February 2011, Solyndra was forced to restructure its debt to obtain a fresh infusion of funds from existing investors, including Argonaut, the investment arm of billionaire and Obama fundraiser George Kaiser’s charitable organization, according to court papers.

The restructuring caused the government’s debt to be supplanted as the top priority of repayment by the investors’ new $75 million loan.

Under the restructuring plan, the U.S. government will probably get nothing for its $528 million claim from the loan guarantee. Argonaut and Madrone rank ahead of the government for repayment and won’t receive a full recovery on their claims, according to testimony from financial adviser Eric Carlson at a hearing last week.

Solyndra generated about $117 million from asset sales, including the proposed sale of its manufacturing plant. The company incurred about $46 million in costs to achieve those sales, leaving it with about $71 million in distributable assets, or about $6 million short of a full recovery for Argonaut and Madrone.

IRS Claims

The IRS claimed as far back as December 2010 that Argonaut was devising a way to preserve the NOLs if Solyndra had to seek bankruptcy protection, citing a 2010 e-mail from Kaiser saying that he would go to great lengths to protect the NOLs.

Lawyers for Solyndra and Argonaut argued that the government was taking e-mails out of context and that Argonaut was just preserving its asset. Steve Mitchell, managing director of Argonaut Private Equity, said under questioning last week that the primary objective in the bankruptcy was to maximize assets to recover as much of the firm’s loan to Solyndra as possible.

The reorganized company may potentially have an additional $11 million to $12 million in tax credits for research and development, according to court documents.

The government is projected to recoup at most 19 percent on $142.8 million of the loan and probably nothing on the remaining $385 million, according to the disclosure statement, a description of the plan.

Secured Debt

Holders of $186.6 million in secured debt, which is subordinate to the government’s debt, will probably see no recovery, according to the disclosure statement.

Unsecured creditors of 360 Degree are projected to recoup 3 percent on $27 million in claims, according to court documents. Solyndra’s unsecured creditors, owed $90 million to $135 million, will get an estimated recovery of as much as 3.3 percent.

All creditors, including the government, could see a full recovery from a $1.5 billion lawsuit the company filed against Chinese solar-panel makers Oct. 11, said Debra Grassgreen, a Solyndra attorney. Solyndra claimed the Chinese manufacturers conspired to fix prices and flood the U.S. market with solar panels at below-cost prices, forcing it out of business. The defendants have said the allegations are “baseless.”

Solyndra has sold most of its assets and is in the process of selling its plant, built partly using the government funds, after failing to get any acceptable offers to buy the company as a whole and restart operations.

The company has agreed to sell the building to a unit of Dublin-based Seagate Technology Plc (STX) for $90.3 million, subject to competing offers at a Nov. 14 auction and court approval at a hearing the next day, according to court papers. Solyndra generated about $14.1 million from sales of other assets such as solar-panel tubes, manufacturing equipment, appliances and memorabilia and apparel emblazoned with its logo.

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: John Pickering at jpickering@bloomberg.net

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