One of the many questions Republican lawmakers have sought to answer in their ongoing investigation into the Solyndra loan scandal is whether or not the Department of Energy broke the law when it approved a loan restructuring agreement giving private investors priority — over taxpayers — with respect to the first $75 million recovered in the even of Solyndra’s collapse.
As it turns out, the answer to that question depends in part (to borrow a phrase) on what the meaning of the words “is” is.
According to a memo made public for the first time today, DOE legal council determined that the decision to subordinate taxpayers to private investors in the Solyndra restructuring agreement was not in violation of the Energy Policy Act of 2005. Their reasoning, however, leaves much to be desired.
The relevant statute states that loan guarantees approved by DOE “shall be subject to the condition that the obligation is not subordinate to other financing.” In plain English, this means that taxpayers must be first in line to recoup funds in the event of a bankruptcy, as is the case with Solyndra. As Rep. Phil Gingrey (R., Ga.) said today at a hearing of the Energy and Commerce Subcommittee on Oversight and Investigations, even a child would come to that conclusion.
But that’s not the conclusion that Susan Richardson, chief counsel of the DOE loans program office, came to in January 2011, about a month before the restructuring agreement was finalized. She argued that the “condition” of subordination was “applicable only as a condition precedent to the issuance of a loan guarantee. It is not a continuing obligation or restriction…” This interpretation of the law, she wrote, “is reinforced by the use of the word ‘is,’ which we view as confirming that the condition be satisfied at a single point in time.” Or in other words, the statue only applies to the initial loan agreement, and therefore can be readily tossed aside in subsequent restructuring agreements.
Committee Republicans such as Rep. Brian Bilbray (R., Calif.) find this argument laughable. “How can you think that that is not a violation?” he told National Review Online. “If you take the definition and accept it, that means every time we pass a law that we have to add not just ‘Thou shalt not kill,’ but ‘Thou shalt not kill or ever kill.’”
But Richardson argued that a “continuing obligation” of subordination to the taxpayer would “preclude the use of a common restructuring strategy for a financially distressed borrower.” So, not only can the requirement be ignored during the restructuring process, but it almost by nature must be ignored.
“Investors are unlikely to make an equity investment in a distressed company on commercially acceptable terms,” Richardson wrote. This was essentially the argument that DOE officials made, according to e-mails uncovered by Republican investigators, to skeptics at the Office of Management in Budget, that they had to “restructure the loan to create a situation whereby investors felt there was a value in their investment.” Which, of course, meant giving private investors such as Argonaut Ventures, the investment firm connected to Oklahoma billionaire and top Democratic fundraiser George Kaiser, priority over taxpayers. From the text of the restructuring agreement:
Therefore, under Restructuring…the Borrower’s reimbursement obligations to DOE…will be subordinate in payment priority to the Borrower’s obligations to the Third-Party Lenders for…($75 million principle amount)…
Richardson concluded that the restructuring agreement was necessary to avoid bankruptcy and “offers the best prospect of eventual repayment in full of the Borrower’s obligations” in a way that was “demonstrably preferable to a liquidation.”
But OMB analysts came to exactly the opposite conclusion, determining that the immediate liquidation of Solyndra would be a far better deal — about $170 million better.
The final line of Richardson’s argument is the most revealing:
Moreover, by maximizing the prospect that the Borrower will complete the Project and continue as a going concern, the proposed Restructuring furthers the statutory policies of promoting the commercialization of innovative energy technologies and preserving jobs.
In other words, because the embarrassment of Solyndra’s failure could do substantial harm to the “green” agenda.
On the whole, as Rep. Morgan Griffith (R., Va.) pointed out during the hearing, Richardson’s argument hardly appears to be the product of reasoned, objective analysis, but more resembling the work of a law student assigned to draft a legal justification for a decision that had already been made.
Wow, they had their own legal council... "Quick, Abdul, is it desert or dessert?!"
This captcha is creepinlgy on-topic as usual - "walk the plank", "slush fund"
Reply to this commentLinkReport AbuseThe scandal is that the govt. loan was made in the first place. Subordinating an existing loan in an obviously insolvent company is standard operating procedure. No lender in its right mind (obviously excludes US govt.) would put money into an obviously insolvent company unless they stood first in line.
This whole subordination fetish is a distraction from the obvious outrage: a politically connected basket case was able to get US taxpayer funds when it was obviously not a "going concern".
Reply to this commentLinkReport AbuseThe department's "interpretation" is transparent sophistry. It is easy to see this - if accepted it makes the no subordination clause meaningless.
Just give the loan guarantee and make the senior investment 30 seconds later. The whole economic point of the requirement is to prevent outright theft of government money, which is all the department connived at. To see this, imagine I start a new green energy company that does nothing at all, but it lent $500 million by some bank A but "guaranteed" by the department, which is put in a bank account. The next day, I enter a new agreement with the company to buy new bonds with a $500 million face value, senior to the government's claim, at a "substantial discount" - 1 red cent. Now declare bankruptcy. My senior claim gets the bank account (bank A's money originally), and US treasury gets to pay bank A on its guarantee when the company can no longer cover it. Presto, I stole $500 million from the US treasury.
Disallowing subordination is meant precisely to prevent such a conveyance of assets. Which is exactly what they did here - the only differences being they lost a lot of the money in the meantime (which just means it was conveyed to employees and contractors), and the remaining asset includes physical plant instead of just a bank account. The economic substance is the same.
Reply to this commentLinkReport AbuseCan we relocate, for free, of course, the 'protestors' from Wall Street to DOE HQ? Send some to Barney Frank's office and to Chris Dodd's Irish digs and his 'Angelo-special' financed house. I'm sure they'll go if we provide free vegan pizza, weed and EBT cards ;)
Reply to this commentLinkReport AbuseIf someone should get sent to jail, it's Susan Richardson. How can her actions not be criminal?
Reply to this commentLinkReport AbuseDOE's opinion is embarrassing and would fail on a law school exam. It is well established that prior debts take precedence over later debts (which is why a first mortgage is superior to a second mortgage). The clear meaning of the provision of the law is that any existing debt must agree to be subordinated to the federal loan guarantees. It is not necessary to say that any later financing must be subordinate - that is standard, that is the law, that goes without saying; at least unless the government voluntarily subordinates itself to later financing, at the time that later financing is established. And if the government is asked to subordinate at that time... clearly the law dictates that the government can't subordinate the loan guarantee to the later financing.
Reply to this commentLinkReport AbuseRight, they got it approved.
All of them have cute little law school pets that wag their tails on cue. If they were not proficient at that single trick, there would be use for them.
Let me enlighten our readers with an historical anecdote in which a similar dilemma was posed and resolved.
Reply to this commentLinkReport AbuseCambyses II, the Great King of Persia (530-523 BC) conferred with his ministers, and asked if there were a legal basis for him to marry his sister Atossa.
Of course, they were discomfited since Persian law placed a sister "within the proscribed degree of consanguination", as do we.
Knowing full well that the King was known to deal harshly with bearers of ill tidings, they hit upon this response: "Oh Great King, we found no such basis. However, we found a law, that the king of the Persians might do whatever he pleased", and so were rewarded instead of executed.
And who is going to be held responsible for this obvious violation of federal law? Yep, that's right, nobody at all. The DOE hacks know it and Congress knows it. That's why it happened in the first place. Bet it doesn't even get mentioned in the MSM except maybe on Fox.
Reply to this commentLinkReport AbuseIm looking forward to the leaks from this bureaucrat showing that she was just following orders. Chu's days are numbered. I'm just waiting for the old, "The President has full confidence in Dr.Chu"...DC code for "He'll retire citing 'more time with family' in the next week."
This goes straight to Obama's office. As Andrew points out, there are a startling number of Obama donors tied to this deal. There needs to be a criminal probe.
Reply to this commentLinkReport AbuseWait...: “is reinforced by the use of the word ‘is,’.. "? Unbelievable! Really, quite literally unbelievable. Let's see, if we declare "It is illegal to step on a person's toe.", does that mean that subsequent to that declaration we may interpret that to mean that it WAS illegal, but is not now?
Reply to this commentLinkReport AbuseConservatives always get tons of "gotcha" moments but nothing ever comes of it. "Illegal" you say? Just who us going to prosecute? Conservatives are hopelessly impotent when it comes to the "fight". Good luck.
Reply to this commentLinkReport AbuseThis is why I get depressed to be a Republican. The "Thou Shalt Not Kill" comparison is transparently stupid: no act of Congress has ever made the 10 Commandments part of the U.S. Code. When civil codes define murder--itself an instantaneous act--they are very specific about it.
The fact of the matter is that this statute, like many, is very badly written. I guarantee you that if a corporate attorney drafted that passage in a non-governmental loan guarantee, it would unambiguously state that the loan "is not, and shall not be" subordinate to another loan.
This is one more reason that Congress shouldn't get into this kind of market intervention, but let's not let our legislators--Republican and Democratic--off the hook because they wrote a statute that would be handed back by a partner with red ink all over it if it had been drafted by a first year associate. The absurdity is with the law, not with DOE's reasoning.
Reply to this commentLinkReport AbusePerhaps the law is poorly written - but what kind of mental and ethical contortions have lawyers made of the law? In interpreting rulings and regulations using such dishonest intellectual gymnastics, lawyers have made a mockery of the majesty that once was Law.
Reply to this commentLinkReport AbusePerhaps Obama, Chu & Mayor Bunbury could send the now unemployed Solyndra executive down to Zuccotti Park to capture the methane and power the lights. Oh, forgot. Solyndra was solar and not much light there to power anything.
Reply to this commentLinkReport AbuseAs someone who works daily with government guaranteed loans (different department), subordination of basic security is not authorized [assuming consistency among departments] without an exception, and the overriding principal for granting such an exception is that the subordination be in the best interest of the government. Obviously, someone made that determination and signed off on the deal.
From a third-party investor's perspective (Kaiser), this was a no-risk investment. The taxpayer had already thrown in for half a billion dollars to construct a state-of-the-art facility on prime real estate, so liquidation would be kind to anyone ahead of the $535B. On the other hand, there were additional funds in the pipeline via proposed guarantees that never got approved. Mr. Kaiser was undoubtedly hoping Obama could ensure a ROI, and Obama was hoping to see some of that return back in his re-election coffers.
Reply to this commentLinkReport AbuseInvestors before Taxpayers.
Reply to this commentLinkReport AbuseSounds like something for OWS to be against...
if they paid any taxes that is.