Solyndra and the Failure of a $535 Million Federal Loan

Written by Zak Weinberg

Agents from the Federal Bureau of Investigation and the Department of Energy Office of Inspector General searched Solyndra’s headquarters in Fremont, California early last month. After receiving a 535 million dollar loan from the federal government in 2009 and filing for chapter 11 bankruptcy in August, the investigation will likely raise concerns about federal loan guarantee programs, and whether or not government officials and the solar panel manufacturing company knowingly made a poor investment with taxpayer money.

Solyndra filed a pre-application for the government loan in 2006, in accordance with the Energy Policy Act of 2005, which secured roughly 10 billion dollars in tax incentives and loan guarantees for green-technology companies. In 2007, the Department of Energy invited the company to submit a full loan application, and in 2009, Solyndra received conditional government commitment for the $535 million loan.

According to bankruptcy documents, the money was used to fund a second fabrication facility. The total cost for the facility was $753 million and the company secured private investment to secure the difference.

After securing the loan both President Obama and Vice President Biden championed the company as the “true engine of economic growth.”

Earlier this month a republican led comittee released emails that suggest the government was warned about the risk associated with Solyndra.

One email, dated March 10, 2009, states the deal “is not ready for primetime,” citing the fact that the company still needed to raise 200 million dollars in private equity and that there are “serious issues with the DOE subsidy cost model which we need to address very quickly.”

solyndra emails

To raise that private equity, Solyndra filed a Form S-1 with the United States Security and Exchange Commission on March 16th 2010, a process that could have resulted in more private investors for the company. However, some audits suggest the company was not ready to go public, and Solyndra pulled its application June 18th, 2010, due to “adverse market conditions.”

According to the original S-1 application, Solyndra started shipping their photovoltaic systems in July 2008  and increased their revenue through the date the S-1 was filed, March 16th 2010. But the S-1 also reports Solyndra’s economic woes, stating, “we had an accumulated deficit of 557.7 million at January 2, 2010.”

A major private investor was the George Kaiser Foundation who owns 35.7% of Solyndra. The foundation is also responsible for donating $50,000 to $100,000 to Barack Obama’s president campaign in 2008. Kaiser donated $2,300 personally.

White house visitor logs indicate Kaiser visited Obama aids several times since 2007. His first meeting was March 12th, when he met with Austan Goolsbee, Senior Economic Adviser to Obama, and Heather Higginbottom, Deputy Assistant to Obama for Domestic Policy. On March 13th Kaiser met with Jason Furman, member of Obama’s National Economic Council.

An email statement released by the Kaiser Foundation on September 1st stated, “Kaiser is not an investor in Solyndra and did not participate in any discussion with the US government  regarding the loan.” Kaiser, Goolsbee or Higginbottom were not contacted before the time of publication.

House members Henry Waxman of California and Diane DeGette of Colorado said Brian Harrison, Solyndra Chief Executive Officer, reported three months ago that the company was fiscally sound.

“He did not convey to us the perilous condition of the company, and the committee should know why,” wrote Waxman and DeGette in a letter to Cliff Sterns, the Florida Republican who heads the House Energy and Commerce Committee oversight panel.

“Regulatory and policy uncertainties in recent months created significant near-term excess supply and price erosion,” said Harrison in a statement on the company website. “Rasing incremental capital in this environment was not possible.”

Now, Solyndra, who specializes in light-weight rooftop solar panels, has a four-week period to sell the company or begin liquidation. “The debtors intend to pursue all potential turnkey buyers, specifically interested parties in both the US and overseas,” stated the bankruptcy document. “The debtors believe that this process would yield a far greater return to the debtors creditors than a piece-meal liquidation.”

On August 31st, Solyndra terminated 900 full time employees, leaving 113 core employees. Gross bi-weekly payroll was cut from $3.5 million to $650,000 dollars. Terminations were executed without warning employees.

Solyndra still has several accounts open with Wells Fargo bank and said disruption of these accounts would harm both current business operations as well as “a sale of their assets for the benefit of the creditors.”

On September 8th, the same day as the FBI raid on Solyndra, solar company 1366 Technologies Inc. secured 150 million dollars from the government.

“Every project that receives financing through the Energy Department goes through a rigorous financial, legal and technical review process,” White House spokesperson Eric Schultz said.

It is important to note that despite the Solyndra scandal, the Department of Energy’s renewable energy loan guarantee program has had many more successes than failures. It plays an important role in expanding renewable energy in the US and helps move solar, wind, geothermal, etc. towards economies of scale where they will be able to compete with traditional energy sources. We will cover some of the program’s successes in upcoming pieces.

Works Cited

“Solyndra Bankruptcy Document.” Web. <http://www.globalcorporateventuring.com/data/files/solyndra.pdf>.

Snyder, Jim. “FBI Raid on Solyndra May Herald Escalation of Watchdog Probe – Bloomberg.” Bloomberg – Business & Financial News, Breaking News Headlines. Web. 15 Sept. 2011. <http://www.bloomberg.com/news/2011-09-08/solyndra-s-california-headquarters-raided-by-fbi-agency-spokeswoman-says.html>.

Turner, Greg. “Solar Co. Nets $150M Loan despite Crash of Evergreen, Solyndra – BostonHerald.com.” Home – BostonHerald.com. 09 Sept. 2011. Web. 15 Sept. 2011. <http://bostonherald.com/business/technology/general/view.bg?articleid=1364476>.

About the author

Zak Weinberg

Zak is a third year environmental studies major, and writing minor, at University of California Santa Barbara. In his free time he enjoys reading, writing, and staying active. Zak also founded a college website in Santa Barbara called Ole Today.