Planet Gore

The Govt. as Venture Capitalist, Cont.

We posted about this on Solyndra on August 31:

In February of this year, Solyndra took on $75 million of new debt, with conditions:

The new financing also included the restructuring of the Company’s outstanding indebtedness. Solyndra’s existing convertible notes have been exchanged for new notes and the U.S. Department of Energy which provided a loan guarantee agreed to certain loan modifications including an extension of the amortization period. Together with the existing indebtedness, the new credit facility is secured by all assets of the Company.

The question is: How much of the now bankrupt Solyndra do taxpayers actually own? Whatever it is, it’s less than I thought. We need more details on this “investment.

Thankfully, that question is now being asked by others, and answered:

WASHINGTON (AP) — The Obama administration restructured a half-billion dollar federal loan to a troubled solar energy company in such a way that private investors — including a fundraiser for President Barack Obama — moved ahead of taxpayers for repayment in case of a default, government records show.

Administration officials defended the loan restructuring, saying that without an infusion of cash earlier this year, solar panel maker Solyndra Inc. would likely have faced immediate bankruptcy, putting more than 1,000 people out of work.

Even with the federal help, Solyndra filed for Chapter 11 bankruptcy protection earlier this month and laid off its 1,100 employees.

The Fremont, Calif.-based company was the first renewable-energy company to receive a loan guarantee under a stimulus-law program to encourage green energy and was frequently touted by the Obama administration as a model. Obama visited the company’s Silicon Valley headquarters last year, and Vice President Joe Biden spoke by satellite at its groundbreaking.

Since then, the implosion of the company and revelations that the administration hurried Office of Management and Budget officials to finish their review of the loan in time for the September 2009 groundbreaking has become an embarrassment for Obama as he sells his new job-creation program around the country.

An Associated Press review of regulatory filings shows that Solyndra was hemorrhaging hundreds of millions of dollars for years before the Obama administration signed off on the original $535 million loan guarantee in September 2009. The company eventually got $528 million.

Given the company’s shaky financial condition, Republican lawmakers say the decision to restructure the loan raises questions about whether the administration protected political supporters at taxpayers’ expense.

“You should have protected the taxpayers and made some forceful actions here after this analysis,” Rep. Cliff Stearns, R-Fla., told a top Energy Department official this week. “Because you should have seen the problems. And you should have said, ‘Taxpayers need to be protected and this has got to stop.’ “

The loan restructuring is one element congressional investigators are focusing on as they look into the federal loan guarantee Solyndra received under the economic stimulus law.

Under terms of the February loan restructuring, two private investors — Argonaut Ventures I LLC and Madrone Partners LP — stand to be repaid before the U.S. government if the solar company is liquidated. The two firms gave the company a total of $69 million in emergency loans. The loans are the only portion of their investments that have repayment priority above the U.S. government.

And this is why the government can’t be a venture capitalist. When a company is going under — like Solyndra — the money that comes in at that stage can dictate the terms. As the New York Times points out:

Experts said the decision made by the Energy Department in February is routine in the commercial world. “It happens all the time,” said Evan Flaschen, head of the financial restructuring group at Bracewell & Giuliani. But, he said, “A new lender coming in is going to want to be the first money out. The new money would want to be senior.”

But this is a little bit different. In this case, the creditors, this Obama fundraiser and the Walton Family (Madrone Partners), were already shareholders. In reality, if Solyndra doesn’t get the $69 million in February, the company goes out of business then with the government as the senior creditor. But with this restructuring, now the new money is senior. And depending on how much Solyndra is actually worth at this point, the new money will probably acquire anything that’s of any worth in this pile of garbage.

If the DOE were a real venture-capital firm, they would have loaned Solyndra the $69 million itself and taken control of the entire company if it thought the company still had some value. But they couldn’t or wouldn’t do that and that’s the problem with this entire program. You can’t be a VC unless you have the ability to act like a VC, which at times makes you look pretty mean and nasty.

Finally, here’s a question for our valued members of Congress. We’ve been posting on Solyndra since the date of its first loan in 2009. The fact that nobody on any oversight committee, of either party, raised any serious objection until now is a bigger problem than the Solyndra bankruptcy itself.

Dear Congrees: What you’re doing now isn’t oversight, it’s grandstanding. If you can’t find time to notice that a $535 million dollar loan doesn’t make any sense, then maybe the legislative branch of government isn’t for you.

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