Solyndra Lenders Ahead of Government Won’t Recover Fully

Solyndra LLC, the solar-panel maker that received a $535 million U.S. Energy Department loan guarantee before going bankrupt, won’t be able to provide lenders ranking ahead of the government with a full recovery, the company’s financial adviser Eric Carlson said today.

The failed solar-panel maker generated about $117 million from assets sales, including the proposed sale of its manufacturing facility to a unit of Dublin-based Seagate Technology Plc for $90.3 million, subject to competing offers at a Nov. 14 auction, Carlson testified under questioning from Solyndra lawyer Maxim Litvak.

The company incurred about $46 million in costs to achieve those sales, giving it about $71 million in net distributable assets. Lenders who rank ahead of the government, Argonaut Ventures I LLC and Madrone Partners LP, are owed about $77 million, about $6 million short of a full recovery, said Carlson of Imperial Capital. The company has maximized the value of its assets and the costs were necessary to do so, he said.

Solyndra will have to wait until Oct. 22 for its fate to be decided after U.S. Bankruptcy Judge Mary Walrath continued today’s hearing to consider approving its bankruptcy plan. Closing arguments will begin at 10 a.m. New York time in U.S. Bankruptcy Court in Wilmington, Delaware.

The U.S. Internal Revenue Service objected to Solyndra’s bankruptcy plan, arguing it can’t be approved because its principal purpose is to allow Argonaut and Madrone to avoid taxes.

Loss Carryforwards

While Solyndra will be liquidated under the plan, its parent, 360 Degree Solar Holdings Inc., will exit court protection with net operating loss carryforwards of as much as $975 million to use against future income, according to court papers.

The potential tax breaks of as much as $341 million could be used by Argonaut, the investment arm of billionaire and Obama fundraiser George Kaiser’s charitable organization, and Madrone.

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.

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

Debt Restructuring

In February 2011, Solyndra was forced to restructure its debt to obtain a fresh infusion of funds from existing investors, including Argonaut, 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 solar-panel maker’s restructuring plan, the government might get little to nothing for its $528 million claim from the loan guarantee. 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.

All creditors, including the government, could see a full recovery from a $1.5 billion lawsuit the company filed against Chinese solar-panel makers last week, said Solyndra attorney Debra Grassgreen. 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. Chinese solar-panel makers have said the allegations are “baseless.”

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

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