As solar panel maker Solyndra sunk deeper into debt last year, a top Department of Energy official pulled the company's chief investor aside with a last-ditch pitch: If investors raised $75 million to help Solyndra stay afloat, they would be first to collect if the fledgling firm went bankrupt.
Solyndra did shut its doors this year, and now those investors, including a bundler to President Obama, stand first in line in bankruptcy proceedings. The Energy Department, which supported Solyndra with a $535 million loan guarantee even as auditors, analysts and government bureaucrats raised bright red flags about the company's prospects, placed U.S. taxpayers second in line.
The roots of that arrangement are spelled out in a Dec. 7, 2010 email from Steve Mitchell, the managing director of Argonaut Private Equity, Solyndra's top financial investor, and addressed to "George." Argonaut's founder is George Kaiser, an Oklahoma oil billionaire who bundled campaign contributions for Obama's 2008 election.
With Solyndra buried in a cash flow crisis late last year, the company and its chief investors met with Energy Department officials in a search for solutions. Solyndra and its investors wanted more money from DOE, which had already bankrolled it with the low interest half billion dollar loan issued by the Federal Financing Bank.
At the meeting, Mitchell wrote, DOE made clear that while it "should be increasing the loan" - it wouldn't.
"However, they also acknowledge that politically they had no will or ability to get this done," Mitchell wrote. "The DOE really thinks politically before it thinks economically."
Jonathan Silver, a former venture capitalist tapped by the Obama administration to run the loan program in November 2009, was not at that late-year meeting but was cited in the email discussion about politics at DOE. The emails released Wednesday redact, or black out, the name of the person who mentioned him.
After DOE shot down its idea, Mitchell wrote, Argonaut "politely moved the conversation" toward the potential bankruptcy ahead. This, he said, caught the Energy Department by surprise. "To me it was clear that the DOE folks were somewhat caught off guard that we weren't going to bail out the company."
As the meeting broke up, Mitchell wrote, he was approached by a top Energy official - pitching a new idea.
"The lead decision maker for the DOE at this week's negotiations... grabbed me and wanted to discuss one final proposal from the DOE," Mitchell wrote. "She suggested that we (current investors) commit to fund $75 million now and in exchange DOE would fund the remaining $95 million."
"Under her new proposal, in a downside situation - i.e. a liquidation scenario - our $75 million would receive 100 percent of the liquidation proceeds until we were made whole and her $95 million would stand behind us," Mitchell wrote.
Mitchell said he struggled with the idea of making another investment in a company losing millions and struggling to find a foothold in the market.
But for the investors, Energy's pitch carried favorable terms: If Solyndra went belly up, they'd have the first chance to recover. "This request does reduce our risk in the downside scenario," Mitchell wrote.
By last February, the deal was set. Investors, including Argonaut, raised $75 million. The Energy Department, in turn, refinanced Solyndra's loan to give the company more time to pay its debt. And it agreed to keep investors in line first in bankruptcy.
Energy Secretary Steven Chu signed off on the arrangement, records show. Chu, facing escalating criticism for his department's handling of its first loan guarantee, is scheduled to testify Thursday before the House Energy and Commerce Committee investigating the loan.
The fresh emails were part of 187 pages of correspondence made public on the eve of that testimony, including several government dispatches critical of the Energy Department's oversight of Solyndra. In many cases, the name of the email author is blacked out.
Initially pitched as the signature green energy investment under Obama, Solyndra's meltdown - and the mushrooming investigations it attracted - has instead become a political vulnerability for the president. His administration's decision to put investors in line ahead of taxpayers has attracted harsh criticism - and allegations from some Republicans that it violated the Energy Policy Act of 2005.
An Energy Department spokesman did not immediately respond to questions Wednesday about the roots of the government's refinancing pact with Solyndra and its investors.
Instead, the spokesman sent excerpts from Chu's planned testimony Thursday, where he will cite how clean energy investments reached a record $243 billion last year.
"When it comes to the clean energy race, America faces a simple choice: compete or accept defeat. I believe we can and must compete," Chu's statement says.
"We appreciate the support the loan programs have received from many members of Congress -- including nearly 500 letters to the Department -- who have urged us to accelerate our efforts and to fund worthy projects in their states," Chu added. "While we are disappointed in the outcome of this particular loan, we support Congress' mandate to finance the deployment of innovative technologies, and believe that our portfolio of loans does so responsibly."
The loan guarantee to Solyndra, he said, "was subject to proper, rigorous scrutiny and healthy debate during every phase of the process."
Still, some criticism of DOE's oversight of the deal has come from within government. The U.S. Treasury Department and Office of Management and Budget each raised questions about whether energy officials had the legal authority to put taxpayers second in line.
"There are some questions at the staff level about how DOE is going about the restructuring for Solyndra," an unidentified government official wrote last December, as the refinancing moved ahead. "At least one involves the legal question of what [the government 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."
Energy officials say the department's chief counsel conducted a "careful analysis of the terms of the restructuring" and determined it was legal. The department concluded it has "broad authority in a distressed situation to take action that will protect the taxpayer." In this case, the department said it refinanced the loan to keep the company afloat - or it could shut its doors instantly.
Six months after receiving DOE's life raft, Solyndra fired 1,100 workers and closed its Fremont, Calif., plant. Days later, it filed for bankruptcy - and, soon after, was raided by agents from the FBI and Energy Department Inspector General. Company CEO Brian Harrison resigned.
Also out: Silver, former executive director of DOE's Loan Programs Office, who resigned after facing persistent questioning earlier this year from the House Energy and Commerce Committee.
The Republican-led committee will turn its questions Thursday to Chu, and explore key areas:
- How did Chu's directive to move quickly in awarding green energy loan guarantees impact the level of scrutiny over of Solyndra's application?
- Should DOE have foreseen Solyndra's financial collapse, predicted even by others within government?
- Did DOE protect taxpayers in negotiating and refinancing Solyndra's loan?
The emails made public prior to his testimony will only heighten the scrutiny. Chu announced the department's commitment to back Solyndra in March 2009, boasting of the speed at which DOE moved in making the Silicon Valley firm the first recipient of Obama's green energy funding.
That August, a few weeks before the loan officially closed, government staffers were still raising pointed questions about the risk DOE was taking in backing a venture with no financial track record.
"I'm not really sure where to go from here," one unidentified official wrote by email as government staffers explored the fine print of Solyndra's financing. "We're verging on just silliness. The issue is pretty clear, but I don't think we understand it. I think in some respects this results from not having a financial advisor on the project team - who would grasp the idea."
Another government staffer questioned how the rush to close the loan forced negotiations and allowed little time to fully address Solyndra's financial viability. The official didn't want to make Solyndra a case study in how to proceed. "But we also need to make sure they don't jam us on later deals so there isn't time to negotiate those, too."
On Aug. 31, 2009, yet another official pushed for DOE to hold off the closing planned days ahead. "I would prefer that the announcement be postponed," the official wrote. "This is the first loan guarantee, and we should have a full review with all hands on deck to make sure we get it right."
Four months later, the government finalized the loan, marking the ceremony with a groundbreaking in California and Vice President Joe Biden beamed in on a giant video monitor. Chu was on hand to cite the loan as a signal of the administration's investment in green technology.
"It is time to rev up the American innovation machine and reclaim our lead on clean energy," Chu said. "This investment is part of a broad, aggressive effort to spark a new industrial revolution that will put Americans to work, end our dependence on foreign oil and cut carbon pollution."
A year later, presaging the larger free-fall to come, Solyndra was already deep in a cash crunch and planned to shutter a plant and lay off 180 workers in October 2010. The Energy Department, however, sought a favor: For the company to put off the announcement until after the Nov. 2 midterm elections, the new emails show.
"No announcement till after elections at doe (sic) request," says an email sent to an Kaiser company executive.
Solyndra's announcement came Nov. 3.