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Treasury emails: DOE ignored warnings on Solyndra

Energy Dept. officials advised against refinancing of solar firm loan

As it scrambled to save the flagship company of the Obama administration's green energy program, the Energy Department ignored repeated warnings from top Treasury Department officials that it was not following guidelines in refinancing Solyndra's half-billion dollar federal loan, a Congressional hearing Friday revealed.

When the DOE refinanced the government's $535 million loan to the California solar panel manufacturer in February, it agreed to let investors, including a major Obama fundraiser, stand in line before the public to recoup the first $75 million of their investment should the company fail. Solyndra declared bankruptcy six weeks ago.

During a House Energy and Commerce hearing on the refinancing of the loan Friday, Rep. Cliff Stearns, R.-Fla., chairman of the Committee's Oversight and Investigations Subcommittee, asked Treasury Department CFO Gary Burner if he had ever seen another case where taxpayer money was subordinated to that of investors.

"No sir, I have not," said Burner, who has been with the department for 28 years, becoming chief financial officer five years ago.

Internal Treasury Department documents released by the committee also show that officials warned DOE and the White House about the refinancing.

The Office of Management and Budget also raised questions, emails show. In December 2010, as DOE moved to restructure the loan, an OMB official wrote: “There are some questions at the staff level about how DOE is going about the restructuring for Solyndra. At least one involves the legal question of what [the statute] means for their plan to make some of the debt “junior” to the new debt. … I think they have stretched this definition beyond its limits.”

The refinancing is one piece in a long string of favorable terms the government granted to Solyndra, a start-up solar panel firm that secured the Energy Department's first loan guarantee in March 2009 in what was touted as a signature project for the green energy movement. DOE pressed ahead with that financing — and everyone from Energy Secretary Steven Chu to President Obama made personal trips to the California plant — despite repeated red flags the loan was a risky bet.

Now the company has collapsed and Congress, the FBI and the inspectors general of the Energy and Treasury departments are all investigating the loan. The head of the Energy Department's loan program and Solyndra's CEO have both resigned in recent weeks.

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Some Energy and Commerce Committee members, including Stearns, contend the DOE violated the Energy Policy Act of 2005 during the refinancing by putting investors in line before taxpayers to recoup any recovered funds. Those investors — including a major fundraiser for President Obama, George Kaiser — provided $75 million to help prop up Solyndra in February at the time of the government's refinancing.

"This seems to me a clear violation of the Energy Policy Act of 2005, which says DOE shall consult with OMB and the Secretary of the Treasury before granting any deviation in the loan," said Fred Upton, R-Mich., chair of the committee. "Putting the taxpayers at the back of the line behind private investors in the event of liquidation is not only a deviation, it is apparently unprecedented."

Questions From Treasury About Loan

Records show Treasury raised questions from the start about DOE's plan. On February 10, 2011, CFO Burner sent an email to DOE officials after learning about the refinancing. "We understand that these adjustments may include subordination of Solyndra's $535 million reimbursement obligation to DOE and possibly the forgiveness of interest. Unless DOE has other authorities, these adjustments may require approval of the Department of Justice," he wrote.

Treasury's questions persisted. In one pointed memo shortly before Solyndra declared bankruptcy this summer, a top Treasury official wrote to the White House to make clear that the decision to restructure the deal did not have Treasury or Justice Department approval -- despite early suggestions that approval from both agencies may be required.

"To our knowledge, that has never happened," wrote Mary J. Miller, Treasury's assistant secretary for financial markets. "While I expect that DOE has a view about why loan subordination can occur without DOJ approval or Treasury consultation, I wanted to correct any impression that we have acquiesced in the steps to date."

In another email in August, a Treasury lawyer weighed in: “But I will bet a quarter that the DOE lawyers have some kind of theory on how whatever restructuring they have done and whatever they are considering doing does not violate these requirements. Can’t wait to hear it.” On Friday, Burner and a second witness, Gary Grippo, Treasury's Deputy Assistant Secretary for Fiscal Operations and Policy, said the department's role was to advise DOE and flag concerns. But they said Treasury could not legally reject the refinancing.

The Department of Energy said its refinancing was legal, and DOE has crafted a six-page memo outlining its justification. Officials say they conducted a "careful analysis" before moving and decided they had "broad authority in a distressed situation to take action that will protect the taxpayer." In the end, the Energy Department said, it decided to back a financially strapped company as an effort to save the project.

"As is typical in cases where distressed companies seek new debt financing, the new financing would have priority, in the event of liquidation, over the company's existing debt — including the DOE loan guarantee (the investors' almost $1 billion of original equity investment was, and remains, subordinated to the debt owed to the government)," the department said in the memo.
 
"DOE faced a choice: whether to (1) refuse to allow the restructuring, thereby ensuring that Solyndra would close its doors immediately, and that the U.S. taxpayer would recover only a modest amount of the loan; or (2) allow the company to accept the emergency financing, thereby giving it and its almost 1,000 workers a fighting chance at success, and the government a higher expected recovery on its loan," the department wrote.

Questions About Political Influence

In March, The Center for Public Integrity's iWatch News, in partnership with ABC News , began exposing questions about the role political influence may have played in Department of Energy loan projects, including Solyndra's selection as the Obama administration's first loan guarantee recipient. DOE said its recipients won awards on merit, and that it backs innovative and potentially risky projects as environmental game changers.

The House Energy and Commerce Committee has sought information from Solyndra's prime investors, including Oklahoma oil billionaire Kaiser, a "bundler" of campaign contributions to the president in 2008.

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Damien LaVera, an Energy Department spokesman, said politics never entered the decision to grant the loan or restructure it earlier this year. LaVera said the department decided it was worth trying to salvage the government's initial investment. "[P]olitical or optical considerations took a backseat to putting the company and its workers in a better position to succeed and repay the loan," he said.

Last week, Jonathan Silver, executive director of DOE's Loans Programs Office, resigned. Silver was not on board when the Solyndra loan was issued, but he was when it was refinanced earlier this year. Before his resignation, Silver staunchly defended the loan refinancing and had predicted Solyndra would succeed.

Solyndra CEO Brian Harrison also resigned last week. In papers filed with a bankruptcy court Wednesday, Solyndra said Harrison left his post on Friday, Oct. 7, "as contemplated even before these cases were commenced."

Solyndra filed the papers in a Delaware court in response to a motion by the Department of Justice to appoint a trustee to oversee the company's bankruptcy case. The Justice Department filed its motion after Harrison and Solyndra's CFO, W.G. Stover, invoked the Fifth Amendment and refused to answer questions from the House Energy and Commerce Committee during a Sept. 23 hearing. The company also refused to answer key questions in the bankruptcy proceeding.

A Solyndra attorney told U.S. officials the reason he would not identify the company's customers or talk about its contracts was because "the topic would likely be the subject of investigation and possibly litigation," according to a court filing.

Reprinted by permission of The Center for Public Integrity.

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Solyndra

Solyndra, a California-based solar-panel manufacturing firm, received the Energy Department's first energy guarantee loan for $532 million. The company filed for bankruptcy in August.

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Solyndra timeline

The government’s $535 million loan to Solyndra Inc., announced in March 2009, was the first Energy Department loan guarantee to an energy project under President Obama. The deal was pitched as a boon to the clean energy movement – and a job creator. But Solyndra went bankrupt, firing 1,100 workers – and renewing questions about how this upstart solar panel company from California landed the prized public financing. Records obtained by iWatch News show that, from the start, the government ignored warning signs about the company’s viability as it pressed ahead with the funding.

  • 2005 Solyndra Inc. is founded by Dr. Christian Gronet
  • 2006 The company opens its headquarters in Fremont, Calif.
  • December 2006 Solyndra files an application for an Energy Department loan guarantee just before the New Year.
  • 2007 Production begins on the company’s solar rooftop panels.
  • 2008 As Solyndra’s loan application proceeds, Fitch Ratings assigns the company a less than stellar B+ credit rating, and Dun & Bradstreet assesses its credit as “fair.”
  • March 2009  Secretary Steven Chu announces Solyndra will receive the Energy Department's first energy loan guarantee—a $535 million financing to expand the company’s solar rooftop production. From the release: “Secretary Chu initially set a target to have the first conditional commitments out by May—three months into his tenure—but today's announcement significantly outpaces that aggressive timeline. Secretary Chu credited the Department's loan team for their work accelerating the process to offer this conditional commitment in less than two months.”
  • September 2009 The loan closes and Solyndra begins construction of its "Fab 2" factory to expand its production line. Chu and then-Gov. Arnold Schwarzenegger attend the groundbreaking. "This announcement today is part of the unprecedented investment this Administration is making in renewable energy and exactly what the Recovery Act is all about," Vice President Joe Biden says via teleconference. U.S. Treasury’s Federal Financing Bank issues the loan.
  • December 2009 Solyndra files papers with the Securities and Exchange Commission as it plans to proceed with an Initial Public Offering.
  • March 2010 PricewaterhouseCoopers issues a report that raises serious doubts about Solyndra's future. From the audit: “The Company has suffered recurring losses from operations, negative cash flows since inception and has a net stockholders’ deficit that, among other factors, raise substantial doubt about its ability to continue as a going concern.”
  • May 2010 President Obama visits Solyndra, touting the company as a symbol of progress to cheers from workers and California leaders. “The true engine of economic growth will always be companies like Solyndra,” he said.
  • June 2010 Solyndra cancels its IPO. A month later, the company appoints Brian Harrison as its new CEO.
  • November 2010 The company announces it is laying off nearly 180 full and part-time employees. By year’s end, according to the Department of Energy, Solyndra is facing a “cash flow crisis that is very common for innovative start-up companies that are growing quickly.
  • Feb. 17 The House Energy and Commerce Committee and its subcommittee on Oversight and Investigations launch an investigation of Energy Department stimulus funding, with a focus on the Solyndra loan guarantee. Over the ensuing months, the House Committee and White House Office of Management and Budget engage in a scuffle over records, with the Committee subpoenaing OMB and the office turning over thousands of pages of files.
  • Feb. 28 Solyndra announces it has raised $75 million in financing led by the corporate entity of George Kaiser, Solyndra’s chief financial backer and a bundler of campaign donations for Obama. DOE refinances its loan to extend Solyndra’s payoff date – and agrees to put investors in line first in case of default. “The Department reached an agreement with Solyndra that gave the company and its 1,100 employees a fighting chance to go forward,” DOE said.
  • May 24 The Center for Public Integrity’s iWatch News and ABC News disclose that DOE announced its commitment to support Solyndra in March 2009 before receiving full marketing and legal reviews—a shortcut criticized by GAO auditors.
  • July Amid the House investigation, CEO Harrison travels to Washington to meet with members of Congress and journalists to tout Solyndra’s successes, presenting a slide show with the heading: “The real story about Solyndra.”
  • Aug. 1 OMB viewed the Solyndra loan as a riskier bet to taxpayers than DOE had, iWatch News reports.
  • Aug. 31 Solyndra shuts its doors, fires more than 1,100 full- and part-time workers and announces it is filing for Chapter 11 bankruptcy.
  • Sept. 6 Solyndra files for bankruptcy. Investors who infused the company with cash will be repaid before the government.
  • Sept. 7 iWatch News and ABC News report that Treasury’s loan to Solyndra carried an interest rate of 1 percent, another element in a long line of favorable treatment for the company. Energy officials say the bank set the loan and Solyndra was not given special treatment.
  • Sept. 8 The FBI and Energy Department’s inspector general conduct a surprise raid on Solyndra’s office, seizing records and signaling a likely criminal probe of the company. Agents also visit the homes of Harrison, Gronet and another company founder.
  • Sept. 13 ABC News and iWatch News disclose internal emails showing White House officials pressing to move ahead with the Solyndra loan – even as red flags are going up. “If you guys think this is a bad idea, I need to unwind the WW [West Wing] QUICKLY,” wrote Ronald A. Klain, then chief of staff to Vice President Joe Biden, in an email sent March 7, 2009. Three days later, an OMB analyst cautioned against moving too quickly. “This deal is NOT ready for prime time.” 10 days later, the Energy Department formally announced its commitment to guarantee the loan.
  • Sept. 14 The House Committee on Energy and Commerce holds a hearing on Solyndra, hearing from DOE and OMB officials. Members are not pleased with the answers. Cliff Stearns (R-Fla.), chair of the House subcommittee leading the investigation, tells Jonathan Silver, executive director of DOE’s Loans Programs Office: “You should have protected the taxpayers and made some forceful actions. … You should have seen the problems.” The Treasury Department’s inspector general confirms it has opened a new front in the investigation–focusing on the $535 million loan, arranged by the Energy Department, but processed by the Federal Financing Bank. “We’re going to look at everything the FFB had to do with its role in this thing,” said Rich Delmar, a spokesman for the Treasury Department’s inspector general.
  • Sept. 23 The House Committee on Energy and Commerce holds another hearing, this time to hear from Solyndra CEO Harrison and company CFO W.G. Stover Jr. The executives invoke their 5th Amendment rights in light of the federal investigation.
  • Sept. 29 Several of Barack Obama’s top campaign supporters went from soliciting political contributions to working from within the Energy Department as it showered billions in taxpayer-backed stimulus money on alternative energy firms.
  • Sept 30 Top executives at Solyndra have refused to tell U.S. officials whether they received executive bonuses after the company began to fail, and they have frustrated bankruptcy proceedings by refusing to provide any insight into the company’s sudden and dramatic shut-down.
  • Oct. 3 New White House emails show a top donor to Barack Obama was in direct contact with one of the president’s closest advisers about the federal energy loan program.
  • Oct. 6 The head of the Energy Department's embattled loan program, Jonathan Silver, resigned after a wave of scrutiny for his agency.
  • Oct. 7 An elite Obama fundraiser hired to help oversee the administration’s energy loan program pushed and prodded career Energy Department officials to move faster in approving a loan guarantee for Solyndra, even as his wife’s law firm was representing the California solar company, according to internal emails made public. Brian Harrison stepped down from his position as CEO.