Solyndra hearing: Did the loan restructuring break the law?

Solyndra's factory full of panels in April

One of the uglier details of the Solyndra scandal is that when the Department of Energy helped Solyndra restructure its loan in early 2011, it agreed that $75 million in new funds from private investors became senior debt that ensured it would be paid back ahead of $385 million in federal loans (taxpayer money). During the hearing on Wednesday that looked into what happened in the run up to Solyndra’s bankruptcy, Republicans raised the suggestion that putting private investors funds before government money in such a way is breaking the law.

During the hearing, Rep. Fred Upton (R-Mich.) called the subordination of the government funds to private investors an “apparent violation of the law,” and Rep. Joe Barton (R-Texas) called the subordination potentially “a direct violation of federal law.”

Republicans pointed to a paragraph in the Energy Policy Act of 2005 that says obligations, or loan guarantees, shall not be subordinated to other financing, and asked Executive Director of the Loan Program Jonathan Silver why he didn’t think that restructuring the loan to subordinate funds was against the law.

Silver responded that the restructuring went through the council of the Department of Energy, the Office of Management and Budget, and the loan guarantee. Essentially, all the lawyers had reviewed it, said Silver. A Republican representative responded to Silver:

You didn’t have a very good lawyer, and I think you got bad advice.

Rep. Steve Scalise (R-La.) asked Silver if he personally made the decision to subordinate tax funds to private investors, and if not could he give the Committee names of the people who decided this. Scalise asked if anyone in the White House or the Secretary of the DOE would be on that list. Silver responded that he would work with Scalise to give them what they need.

I was pretty shocked to hear that subordination detail earlier this month, given the DOE at the time was taking increasing risks to aid the struggling company and helping it not go bankrupt in early 2011, despite that it went bankrupt several months later. The big decision in early 2011 by the DOE was between letting the company go bankrupt then, or help private investors pump more money into it.

The point was just one of the questions that went unanswered during the hearing on Wednesday. Republicans largely concentrated on pointing to two issues:

  • There was a credit agency under the Bush administration in early 2009 that sent Solyndra’s loan guarantee application back to it for more details. The loan was conditionally approved a few months later under the Obama administration. Republicans pointed to that as proof that the Bush administration was more cautious on this deal. Silver said a back-and-forth between credit agencies is part of a typical application process.
  • The other Republican narrative that came out during the questioning is the attempt to connect George Kaiser, Obama campaign contributor and investor in Solyndra via Argonaut. Executive Director of the Loan Program Jonathan Silver said he hadn’t spoken to Kaiser in the process.

The Democrats on the Committee had another set of points they wanted to maintain including:

  • Chinese solar manufacturers, backed by the Chinese government, are racing ahead and will lead in the solar industry. And the competition from Chinese solar manufacturers was a leading factor in why Solyndra went bankrupt.
  • Democrats also brought up how Republicans on the Committee don’t believe in climate change and have connections to the fossil fuel industries, and that is a factor in their discussions.

As I reported on Tuesday, Solyndra’s CEO and CFO decided not to attend the hearing this week, and say they will testify on the week of Sept. 19.