Oct. 11 (Bloomberg) -- Republicans led by Representative Darrell Issa are turning their attention from the $535 million in U.S. loan guarantees that went to Solyndra LLC to the Obama administration’s failed effort to rescue the company.
A refinancing in February that put taxpayers behind new investors providing $75 million attracted renewed attention with the release on Oct. 7 of administration e-mails showing Treasury Department officials expressed concern that the change violated the law.
“Why did we do something that is strictly prohibited?” Issa, chairman of the House Oversight and Government Reform Committee, said on Fox News Sunday on Oct. 9. Representative Cliff Stearns, who heads a panel investigating Solyndra, said he wants to question Energy Secretary Steven Chu about the decision.
Solyndra received its federal loan guarantee in September 2009. The Fremont, California-based company closed its doors on Aug. 31 of this year, dismissing almost 1,100 workers. The company filed for bankruptcy protection on Sept. 6, and the Federal Bureau of Investigation raided its headquarters two days later as part of an effort to determine whether the company provided false financial information.
The department’s “decision to subordinate existing creditors, in other words taxpayers, to new investors is not going to play well in Congress or the court of public opinion, even if it might have made sense at the time,” Tim VandenBerg, senior vice president at Washington Analysis LLC, a political and economic advisory firm, said in an e-mail today.
Republicans say the 2005 law on U.S. loan guarantees for clean-energy companies couldn’t be clearer: It says such a taxpayer obligation “is not subordinate to other financing.”
The Energy Department says the law isn’t that clearcut once a company gets in trouble. Department lawyers determined the restructuring was legal “based on a careful analysis of the statute,” department spokesman Damien LaVera said in an e-mail Oct. 7.
In a provision under “default” concerning subrogation -- the substitution of one creditor for another -- the law says a borrower can continue “to pursue the purposes of the project” if the Energy secretary “determines this to be in the public interest.”
“Clearly they put a lot of wiggle room in the law,” said Steve Ellis, vice president of Taxpayers for Common Sense, a Washington-based group that says on its website that it works to increase transparency and eliminate wasteful subsidies.
While the restructuring may be legal, Ellis said Energy officials should be criticized for backing Solyndra as its financial troubles grew.
In December 2010, the company violated the terms of its loan by failing to set aside the first of six $5 million installments for a reserve fund. Solyndra had received $460 million in government loans by February. It would get another $67 million before closing Aug. 31.
“They doubled down when they should have stepped away,” Ellis said in an interview today.
Treasury Department doubts about the Solyndra financing were disclosed in a stack of documents that the administration sent to Congress on Oct. 7.
Mary J. Miller, assistant secretary for financial markets at the Treasury, raised the matter in an Aug. 17 e-mail to Office of Management and Budget Deputy Director Jeffrey Zients.
Federal Financing Bank
“Our legal counsel believes that the statute and the DoE regulations both require that the guaranteed loan should not be subordinate to any loan or other debt obligation,” Miller said.
In an earlier e-mail exchange obtained separately, Gary Burner, chief financial officer of the Treasury’s Federal Financing Bank, wrote an e-mail to the Energy Department’s loan program on February 10 indicating Justice Department officials should be consulted on the Solyndra refinancing agreement. The Federal Financing Bank provided $527 million in funds to Solyndra under the federal guarantee.
Frances Nwachuki, an official in the Energy office, wrote back saying there may be a “gross misunderstanding of the outcome” of the restructuring negotiations.
The e-mails indicate the issue was discussed on a subsequent phone call, without saying how the matter was resolved. The Treasury Department’s inspector general is investigating the Federal Financing Bank’s role in supporting Solyndra.
The approval of the restructuring was a “terrible decision,” Stearns, a Florida Republican who is chairman of the House Energy and Commerce Committee’s investigations panel, said in an interview Oct 5.
Chu is “going to have to explain it, and he’s going to have to name the counsel who signed the documents,” Stearns said. “The long and short of it is there’s no explanation, except that he got bad advice.”
Jonathan Silver, who was executive director of the loan guarantee program when the Solyndra refinancing was approved, told the Stearns panel on Sept. 14 that Energy Department lawyers found the 2005 law required U.S. taxpayer debt to be ahead of other financing when a guarantee was first awarded.
“We had the authority to figure out other solutions” if a project struggled later, said Silver, who resigned last week to join the Third Way, a Washington-based group that says it advocates for moderate public policies.
“Absent the ability to do this, this company would have closed then, with the 1,100 jobs lost then,” and prospects for taxpayers to recover funds small because its new factory wasn’t yet “fitted out,” Silver said.
$733 Million Factory
Solyndra built a $733 million glass-and-metal factory the size of five American football fields with robots that whistled Disney tunes to alert workers to their presence. It was designed to increase the production of Solyndra’s cylindrical solar collectors for demand that never materialized in the face of cheaper flat panels from China.
The loan-guarantee program for clean-energy companies expired on Sept. 30. Issa wrote Chu, in a letter released yesterday, requesting documents related to $4.75 billion in awards made on the final day for four projects.
Three of the projects were immediately sold by their solar-power developers to companies including Exelon Corp., General Electric Co. and NRG Energy Inc.
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