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U.S. Knew Solyndra Violating Loan Before New Deal, Official Says

U.S. Knew Solyndra Violating Loan Before New Deal
Jonathan Silver, executive director of the Department of Energy Loans Programs Office, left, and Jeffrey Zients, deputy director of the Office of Management and Budget (OMB), swear in to testify during a House Energy and Commerce Committee hearing on Solyndra LLC in Washington on Sept. 14, 2011. Photographer: Andrew Harrer/Bloomberg

Sept. 29 (Bloomberg) -- The Energy Department knew Solyndra LLC was violating terms of its U.S. loan by December and agreed to keep providing taxpayer support for the solar-panel maker that filed for court protection nine months later.

Damien LaVera, a spokesman for the Department of Energy, said officials were aware that Solyndra had failed to set aside $5 million, due in December, as the first of six payments under the loan-guarantee agreement.

“In the fall of 2010, Solyndra informed DoE that it was having major cash flow problems and would face bankruptcy in early 2011 if new capital could not be raised,” LaVera said in an e-mail today.

Solyndra executives and the Energy Department negotiated new terms for the $535 million loan guarantee in January, more than a year after the U.S awarded the company the first loan package funded with economic stimulus money. The revised agreement didn’t require the $5 million payments, LaVera said.

“Based on the information we had available to us at the time, we concluded that this restructuring gave us the best chance to protect the government’s investment by putting the company in a better position to repay the loan,” LaVera said.

Documents released this month showed the company was a month away from running out of cash in December 2010, before the loan agreement was restructured.

The new terms placed government debt in a subordinate position to $75 million from investors in the event of a default. Solyndra filed for bankruptcy protection on Sept. 6. Two days later, its offices were raided by FBI agents.

A House subcommittee is investigating the restructuring as part of a broader investigation into the guarantee. An official at the White House Office of Management and Budget wrote in a Jan. 31 e-mail that while the company “may avoid default with a restructuring, there is also a good chance it will not.” The e-mail was released by the subcommittee.

The restructuring gave the company a “fighting chance” to survive, Jonathan Silver, executive director of the Energy Department’s loan programs office, said at a House Energy and Commerce Committee hearing this month.

Solyndra had received $460 million in government loans by the time of the restructuring. It would get another $67 million before closing on Aug. 31, according to the Energy Department.

The details were reported earlier today by the Washington Post.

To contact the reporter on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net

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