Politically-connected solar firm secured low interest government loan before collapsing

Introduction

A politically connected solar company that pocketed a half billion dollar government loan, only to shutter its doors, fire workers and file for bankruptcy, secured an interest rate lower than other green energy projects, iWatch News and ABC News found — one in a string of benefits the Obama administration doled out in bankrolling the project.

Now, the government’s agreement with the company compels taxpayers to take a back seat to a venture fund associated with a key Obama fundraiser in trying to collect on the debt. Investors who put in $75 million would be repaid first; some $150 million of the government’s $535 million would be next in line, according to the Energy Department’s agreement with the company.

The $535 million loan to Solyndra Inc., issued by the Treasury Department’s Federal Financing Bank as part of the Obama administration’s stimulus to create jobs and spur development of green energy, included a quarterly interest rate of 1.025 percent, the government bank reported in July. Of 18 Energy Department stimulus loans cited in the bank’s report, Solyndra’s rate was lowest. Eight other Energy Department projects, each also backed by the Federal Financing Bank, came with rates three or four times higher, the report shows.

That treatment is in keeping with the history of the loan to the California solar panel maker, an arrangement inked in September 2009 with great fanfare – and touted, not long after, during a factory visit from the president. Monthly government bank reports filed since then reveal Solyndra’s rate as the lowest for any energy-related project in nearly every report; in every case its rate was well below most energy projects, ranging from cutting edge electric car makers to wind and solar ventures. Solyndra’s rate fluctuated from 1 to 2 percent, hovering at 1 percent of late.

Energy Department officials said the rates for all its green energy loans were set by the bank using a formula, and Solyndra’s favorable terms were not the result of special treatment.

“All borrowers under the [government loan guarantee] program receive the same treatment,” Energy Department spokesman Damien LaVera wrote to iWatch News and ABC News in response to questions.

Solyndra spokesman David Miller also said the interest rate was based on hard data – such as when the loan was granted and the length of the repayment period. Solyndra’s loan was for seven years, he noted, while other energy loans would have longer repayment periods. Miller pointed to a Treasury spreadsheet showing rates for 20- and 30-year loans are higher than those that are to be repaid in seven.

“It depends on the terms you negotiated,” Miller said. “You’d have to look at each one of those other companies and see what their term was and that would probably explain to you what the difference would be.”

But records show the advantageous terms came despite red flags about the risks of investing in Solyndra. In 2008, as the loan agreement was moving forward, an outside rating agency assessed the deal with a B+ grade – a less than optimum score, according to records obtained by iWatch News and ABC under the Freedom of Information Act. That same year, the records show, Dun & Bradstreet assigned the company’s credit appraisal as “fair.”

There were warning signs about the deal from the start, when Obama’s Department of Energy pitched its first energy loan guarantee as a symbol of the expanding green tech movement. Yet iWatch News and ABC News have found several instances in which the Obama administration took steps that would seem to benefit Solyndra: The Energy Department announced its loan commitment before all due diligence was completed — later raising concerns from auditors. The loan received fast-track approval. And the President made a personal visit to tout the company’s prospects.

The Energy Department, in a written response to questions from iWatch News and ABC News, noted that Solyndra faced a cash flow crisis in 2010 and that the government wanted to give the company “a fighting chance to go forward.” As part of that agreement, Solyndra obtained an additional $75 million from investors, placed the government’s debt next in line, and provided the Energy Department with “substantial additional collateral protection in the form of intellectual property, claims on the parent company and more,” the statement said.

“Ultimately, the choice was between imminent liquidation or giving the company and its workers a fighting chance to succeed.”

All borrowers, the Energy Department said, received the same treatment by the Federal Financing Bank, which uses a formula and bases its rates on the market pricing of comparable Treasury securities on the day loan funds are disbursed. Solyndra’s rate was lower “because of the duration of Solyndra’s loan,” the statement said.

The Federal Financing Bank, created by Congress in 1973 as a part of Treasury to centralize lending and reduce the cost of borrowing, referred questions about the Solyndra loan to Treasury. “We don’t talk to journalists,” a Bank employee said last week.Treasury officials, presented a series of written questions about the financing, referred questions to the Energy Department.

A former official with the federal bank said that typically, key details – such as the lending rate – are worked out as part of the negotiation between the borrower and Department of Energy. One part of the equation on setting such rates, the expert said, is how much private equity is coming to the table.

Solyndra’s most prolific financial backer is George B. Kaiser, an Oklahoma oil billionaire who was a bundler of campaign donations for Obama’s 2008 race. Kaiser’s Argonaut Ventures and its affiliates have been the single largest shareholder of Solyndra, according to SEC records. The company holds 39% of Solyndra’s parent company, bankruptcy records filed Tuesday show.

Under terms of the bankruptcy filing, investors including Argonaut – which led a $75 million round of financing for Solyndra earlier this year – will stand in line before the federal government and other creditors.

When Solyndra announced that round of fundraising this February, it noted that the Energy Department had refinanced terms of the $535 million loan to extend the payment period. Under an “intercreditor agreement” cited in the bankruptcy filing, the investors in the $75 million financing are considered first lien holders.

That leaves Obama officials to confront the prospect of waiting behind private companies.

Kaiser has declined interview requests for months. His Tulsa-based George Kaiser Family Foundation, which in 2009 cited a $342 million investment value in Solyndra, issued a statement after Solyndra’s collapse saying the solar firm faced “serious challenges in the marketplace, especially the drastic decline in solar panel prices during the past two years caused in part by subsidies provided by the government of China to Chinese solar panel manufacturers.”

Spokesman Miller confirmed that investors would be repaid before the government.

“Yes,” he said, the government loan “is subordinate to that $75 million.”

White House and Energy Department officials said they granted no special treatment to Solyndra or other green applicants, but picked projects they thought could work. “We have always recognized that not every one of the innovative companies supported by our loans and loan guarantees would succeed, but we can’t stop investing in game-changing technologies,” Energy Department spokesman Dan Leistikow wrote last week.

The Energy Department, in the statement from LaVera, said it had conducted “exhaustive reviews” of Solyndrda’s technology and business model before approving the loan guarantee application, and noted that “sophisticated, professional private investors” also had put in more than $1 billion of their money after coming to the same conclusion: “Solyndra was an extremely promising company with innovative technology and a very good investment.”

Though the suddenness of Solyndra’s shutdown surprised some, analysts have long questioned whether the firm’s pricing could compete on the global market. Countries such as China issue solar manufacturers interest-free loans.

Now, bankruptcy filings say, Solyndra is looking to sell its assets to a new buyer – and has been infused with a $4 million stop gap financing by its creditors to keep it afloat during that search.

Questions have long persisted about why Obama chose Solyndra to be the first green energy company to benefit from the federal loans program. In May, iWatch News and ABC reported that the Energy Department announced its commitment to back Solyndra without first receiving full marketing and legal reviews. That shortcut drew criticism from government auditors, who accused the Energy Department of favoring some applicants, like Solyndra, over others. Energy officials say all due diligence was in hand when the loan closed.

And, Obama’s Office of Budget and Management viewed the deal as riskier to taxpayers than DOE had, iWatch News found.

As a House committee escalates its investigation of the loan, the fallout from the doomed deal continues. Last week’s firings have left more than 1,000 without jobs in a project that was supposed to help stir the economy as well as the environment. On Tuesday, one of those former workers, Dan Braun, filed a class action complaint in the bankruptcy proceeding contending Solyndra illegally fired workers without giving 60 days’ notice.

Last Friday, Rep. Pete Stark (D-Calif.) sent a letter to Brian Harrison, President and chief executive of Solyndra, raising the same issue.

“The decision by Solyndra’s executives to terminate more than 1,000 of its hardworking employees without warning and to immediately cut off further payment and benefits was reckless, irresponsible and heartless,” Stark wrote. “It may also be illegal. I urge Solyndra’s leaders to quickly revisit their decision and do right by their employees.”