Reply #54: Energy Dept. Offered to Put Private Investors Ahead of Taxpayers if Solyndra Went Bankrupt

[Demeter]

http://www.nationofchange.org/energy-dept-offered-put-private-investors-ahead-taxpayers-if-solyndra-went-bankrupt-1321540515

As solar panel maker Solyndra sunk deeper into debt last year, a top Department of Energy official pulled the company’s chief investor aside with a last-ditch pitch: If investors raised $75 million to help Solyndra stay afloat, they would be first to collect if the fledgling firm went bankrupt...Solyndra did shut its doors this year, and now those investors, including a bundler to President Obama, stand first in line in bankruptcy proceedings. The Energy Department, which supported Solyndra with a $535 million loan guarantee even as auditors, analysts and government bureaucrats raised bright red flags about the company’s prospects, placed U.S. taxpayers second in line. The roots of that arrangement are spelled out in a Dec. 7, 2010 email from Steve Mitchell, the managing director of Argonaut Private Equity, Solyndra’s top financial investor, and addressed to “George.” Argonaut’s founder is George Kaiser, an Oklahoma oil billionaire who bundled campaign contributions for Obama’s 2008 election.

With Solyndra buried in a cash flow crisis late last year, the company and its chief investors met with Energy Department officials in a search for solutions. Solyndra and its investors wanted more money from DOE, which had already bankrolled it with the low interest half billion dollar loan issued by the Federal Financing Bank. At the meeting, Mitchell wrote, DOE made clear that while it “should be increasing the loan” — it wouldn’t. “However, they also acknowledge that politically they had no will or ability to get this done,” Mitchell wrote. “The DOE really thinks politically before it thinks economically.” Jonathan Silver, a former venture capitalist tapped by the Obama administration to run the loan program in November 2009, was not at that late-year meeting but was cited in the email discussion about politics at DOE. The emails released Wednesday redact, or black out, the name of the person who mentioned him.

After DOE shot down its idea, Mitchell wrote, Argonaut “politely moved the conversation” toward the potential bankruptcy ahead. This, he said, caught the Energy Department by surprise. “To me it was clear that the DOE folks were somewhat caught off guard that we weren’t going to bail out the company.” As the meeting broke up, Mitchell wrote, he was approached by a top Energy official – pitching a new idea. “The lead decision maker for the DOE at this week’s negotiations… grabbed me and wanted to discuss one final proposal from the DOE,” Mitchell wrote. “She suggested that we (current investors) commit to fund $75 million now and in exchange DOE would fund the remaining $95 million...Under her new proposal, in a downside situation — i.e. a liquidation scenario — our $75 million would receive 100 percent of the liquidation proceeds until we were made whole and her $95 million would stand behind us,” Mitchell wrote.

Mitchell said he struggled with the idea of making another investment in a company losing millions and struggling to find a foothold in the market. But for the investors, Energy’s pitch carried favorable terms: If Solyndra went belly up, they’d have the first chance to recover. “This request does reduce our risk in the downside scenario,” Mitchell wrote. By last February, the deal was set. Investors, including Argonaut, raised $75 million. The Energy Department, in turn, refinanced Solyndra’s loan to give the company more time to pay its debt. And it agreed to keep investors in line first in bankruptcy. Energy Secretary Steven Chu signed off on the arrangement, records show. Chu, facing escalating criticism for his department’s handling of its first loan guarantee, is scheduled to testify Thursday before the House Energy and Commerce Committee investigating the loan...

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