Solyndra gave bright forecasts as it ran out of cash

WASHINGTON Thu Sep 29, 2011 12:52pm EDT

WASHINGTON (Reuters) - Just before solar panel maker Solyndra scrambled in August to get more cash from private investors and better loan terms from federal bureaucrats, top company officials went on a political road show.

Brian Harrison, Solyndra's CEO who on Friday refused to answer questions posed by a House panel, met in July with congressional Republicans who were skeptical about how much money the Obama administration had sunk into the company's factory. He also met Democrats eager to support clean energy.

"Things were on the upswing, that's what they told me," said Diana DeGette, a Democratic member of the House of Representatives.

"I don't understand how they could paint such a rosy picture to us and then five weeks later be in bankruptcy court," DeGette told reporters.

The CEO's assertions were part of a long pattern of Solyndra putting on a positive face for the public as it struggled to keep its business alive. The rosy scenarios Harrison presented now face intense scrutiny from lawmakers, the FBI and other investigators.

The Solyndra saga also has become a political headache for President Barack Obama, whose administration had showcased the company as an example of how renewable energy programs could create jobs.

Details of the FBI probe of Solyndra have not been revealed. Internal watchdogs for the Energy and Treasury departments are also looking at what went wrong.

Congressional investigators want to know if the California-based company was misleading the government and hiding severe financial stresses it faced when its costly technology was undercut by cheap overseas panels.

Concerned about a House Energy and Commerce Committee investigation that had begun in February, the solar company's lawyer in mid-July e-mailed Republican investigators with what he called an "upbeat letter" with "current data on Solyndra's positive economic and job situation." The company's lawyer in the e-mail chided investigators for continuing "to perpetuate an incorrect picture of Solyndra's condition."

Solyndra's Harrison then met lawmakers and congressional investigators face-to-face, bragging that the company had shipped record numbers of innovative panels around the world from a factory built with an Energy Department loan guarantee, competing with China in a made-in-America success story.

"Solyndra's revenues grew from $6 million in 2008 to $100 million in 2009 to $140 million in 2010. For 2011, revenues are projected to nearly double again," Harrison said in a July letter to the House Energy and Commerce Committee.

'YOU LIED TO ME'

On Friday, Harrison visited Capitol Hill again, under different circumstances.

Flanked by lawyers and surrounded by clicking cameras during a House panel hearing, Harrison and W.G. Stover, the company's chief financial officer, invoked their right against self-incrimination provided by the Fifth Amendment to the U.S. Constitution.

Republicans asked if they had provided accurate information, about meetings at the White House, and whether they talked about their poor financial situation with Argonaut Private Equity, a private fund owned by Obama fundraiser George Kaiser.

Twenty times, the executives read out a prepared statement declining to answer the questions.

"In our meeting, you lied to me about the financial health of your company," said John Sullivan, a Republican congressman, recalling a July 21 visit from Harrison.

Cliff Stearns, the Republican lawmaker leading the committee's probe, said in July Harrison "looked me in the eye and assured me that everything was just fine, and the company was on track to be cash-flow positive."

In 2005, Congress created a program to spur the renewable energy industry. The Obama administration added funding to the program under its economic stimulus plan.

The first company to secure a loan guarantee from the program was Solyndra, a Fremont, California-based start-up that had patents for solar tubes it said could be cheaper and more efficient than traditional silicon solar panels.

Solyndra told reporters in 2008 that it had raised more than $600 million in venture capital and had $1.2 billion of multiyear contracts.

The company secured $535 million from a U.S. Treasury Department lending program in 2009, secured by a guarantee from the Energy Department finalized in September, to help it build a factory to ramp up production.

As soon as Solyndra sealed the deal, it applied for a second loan guarantee of $469 million, and filed for an initial public offering in December to attract more money to pay for its factories and for general working capital.

In April 2010, a month before a visit to its factory by Obama, Solyndra's auditor questioned its prospects, noting large operating losses, negative cash flows and other issues.

A month after Obama's visit, the company withdrew its IPO, saying it had raised $175 million from private investors.

But the market for solar panels had changed. The Energy Department, which launched a website to defend its investment in Solyndra, blames Chinese subsidies for flooding the world with cheap solar panels.

By February 2011, the company announced it had raised another $75 million from investors including Argonaut and Madrone Capital, affiliated with the Walton family, which founded Wal-mart Stores Inc.

Left out of the press release was that the investment came on the condition that the backers recover their money ahead of claims by the government, should things turn sour.

RESTRUCTURING DECISION

Republicans have seized on the restructuring decision, saying the law requires the government to have priority over claims by creditors and investors in the event of bankruptcy or liquidation.

"It certainly has struck people as significant since the statute and the regulation call for the Secretary of Energy to have the first lien on all the project assets, and not to be subordinated," said Salo Zelermyer, a former senior counsel with the Energy Department during the Bush administration, and now with the Bracewell & Giuliani law firm in Washington.

A senior Energy Department official said "extensive legal review" showed the department should do what it could to try to get as much money as possible for taxpayers.

"You're making all those hard choices. You're seeing what the choice is between immediate liquidation, what's the likely recovery to the lender -- or if it gets a further lease on life through some kind of restructuring and survives, what's your payback then," said Daniel Poneman, the department's deputy secretary.

The company returned to the government for help again this summer, saying it could get more financing from its venture capital backers if the government agreed to new terms.

"It was a failure to secure this financing that left the company with no other option but to seek to reorganize through a bankruptcy filing under Chapter 11," the company said.

But by that point, Poneman said experts told the department the company could not survive even with another "turn of the wheel." Shortly thereafter, the company filed for bankruptcy protection.

More than 1,000 employees are out of work and suppliers contacted by Reuters said they, too, have had layoffs.

Solyndra had placed some of its largest-ever orders for its factory in July and August, creditors told Reuters, saying the company showed no signs of cash flow problems that would shut it down a few weeks later.

More clues about the company could emerge in bankruptcy court in Delaware where the company is slated to give information about its next steps on Tuesday.

LOOKING FOR RED FLAGS

Congressional investigators are poring over tens of thousands of pages of documents they demanded from the Energy Department, White House and private investors to find out whether the government did its homework before handing out the money.

Republicans want to know whether the loan and the refinancing was influenced by Obama donors like Kaiser.

Republicans have released executive branch emails they say show a pattern of rushing decisions on the project.

In response, the Energy Department has been emailing reporters "Solyndra Facts vs. Fiction" to highlight the due diligence it said it did on the deal, and to try to knock down Republican arguments.

The scrutiny has chilled the solar power industry. Two pending loan guarantees that had been expected to close by the end of the month have been canceled in the past two days.

The owner of one of the projects, SolarCity, said the Energy Department has required more documentation since the scandal, causing it to miss it a Sept 30 deadline.

The Obama administration rejects accusations it showed any political favoritism toward Argonaut and contends it did its homework.

Republicans promised more hearings and more headlines.

"Let me just warn you and the other folks involved in this taxpayer rip-off. We're not done. No we're not," Fred Upton, chairman of the House Energy and Commerce committee, told company executives at Friday's hearing.

(Additional reporting by Tom Hals in Wilmington, Delaware, Ayesha Rascoe in Washington and Nichola Groom in Los Angeles; Editing by Russell Blinch and Will Dunham) 戀⁹湥

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