Treasury skeptical of plans to save Solyndra-emails

WASHINGTON Fri Oct 14, 2011 5:09pm EDT

WASHINGTON (Reuters) - The Treasury Department took a hard line on last-ditch government rescue efforts for Solyndra in August, questioning the solar panel maker's financial projections and the motivations of private investors who were offering new cash, emails released on Friday showed.

New internal Treasury emails released by the House of Representatives Energy and Commerce Committee on Friday showed skepticism about two plans floated by the Energy Department as it sought to help the company, which had run out of cash.

The emails shed new light on internal dissent about the $535 million loan to Solyndra, which filed for bankruptcy on September 6, and was raided by the FBI.

Republicans have criticized the Obama administration over the Solyndra loan and have noted that investors in the company had contributed to President Barack Obama's election campaign.

The emails showed growing concern from officials outside the Energy Department about the loan risk in July 2010, after the company withdrew an initial public offering.

By December, Solyndra had defaulted on one of the terms of its loan guarantee, and the Energy Department agreed to a plan to restructure its debt.

That plan allowed $75 million in private investment to be ranked ahead of the government in the event of bankruptcy.

But by June and July, the company had run out of money and was selling inventory and accounts receivable to its investors to generate cash, documents in bankruptcy court show.

A new restructuring plan was pitched, with a second infusion of $75 million from unnamed private investors on the condition that more of the government's debt be subordinated.

Treasury officials insisted the Justice Department weigh in on whether the plan was legal.

"The proposed restructuring is clearly favorable to the other investors," said an official from Treasury's Office of Environment and Energy in an August 17 email to Mary Miller, Treasury's assistant secretary for financial markets.

After that plan failed, top government officials from the White House and the Treasury and Energy departments considered a $10 million bailout by private investors on August 28, days before the company shut its doors.

"I think DOE should be thinking through whether the proposed deal is just giving the investors more time to extract more value from the firm before bankruptcy," a Treasury official advised Miller, questioning the August 28 plan.

An Energy Department spokesman did not immediately respond to a request for comment.

ENOUGH SKIN IN THE GAME?

At a fractious Capitol Hill hearing on Friday, where Democrats and Republicans accused each other of creating a media circus, two career Treasury officials said the department had only limited involvement in decisions on Solyndra.

Treasury first heard about the Solyndra project on March 10, 2009, when the Energy Department asked for its assessment. Treasury provided the low-interest loan to build a new factory, but the Energy Department evaluated the project.

The company provided only 27 percent of the money for the project, but Treasury felt Solyndra should have at least a 35-percent stake, said Gary Burner, chief financial officer of Treasury's Federal Financing Bank.

"It was felt that it was a better risk to the government if there was more equity in the deal," Burner told lawmakers.

After Solyndra defaulted on one of the terms of its loan in December, the Energy Department agreed to a restructuring plan, saying it would be the best option for taxpayers.

Energy Secretary Steven Chu has "broad authority to take action," according to the department's legal justification.

But Treasury officials felt the department should have sought an outside opinion. "I thought it would have been wise for them to go to the Department of Justice" to discuss the legalities of the restructuring plan, Burner told lawmakers.

At the hearing, Democrats accused Republicans of being unfair by not inviting the Energy Department to tell its side of the story. "This investigation is beginning to resemble a kangaroo court," said Henry Waxman, top Democrat on the House Energy and Commerce Committee.

Republicans assured the Democrats the panel will soon hear from more Energy Department witnesses, including Chu.

(Editing by Paul Simao)

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