Solyndra presses for bankruptcy plan OK over US objection

Wed Oct 17, 2012 6:38pm EDT

* U.S. govt, Solyndra spar over tax breaks

* Investor says DOE backed plan that preserved tax breaks

* Closing arguments set for Monday

By Tom Hals

WILMINGTON, Del, Oct 17 (Reuters) - Failed solar panel maker Solyndra pressed a federal judge on Wednesday to approve its plan to end its politically charged bankruptcy over objections by the U.S. government, which argued the plan was being used by investors to dodge taxes.

Critics say government involvement in the company has cost taxpayers twice: for a $528 million government loan, and for tax breaks potentially worth $340 million that will go to venture capitalists.

Delaware bankruptcy judge Mary Walrath heard about five hours of testimony on Wednesday about the plan, which has the support of all of Solyndra's creditors aside from the U.S. government.

She adjourned the hearing until Monday, when both sides will present closing arguments.

The government might get nothing under the plan, according to court documents.

An executive of one of the venture capital firms said the Department of Energy, which guaranteed the loan, threw its support behind a key restructuring deal in February 2011 which preserved the tax breaks.

Steve Mitchell, a managing director of Argonaut Private Equity, told the court that preserving tax breaks "was very, very important" to the DOE because it gave Solyndra a better chance of survival.

Net operating losses, or NOLs, can be used to reduce future income by the amount of past losses. The bankruptcy plan allows Solyndra's parent company to exit bankruptcy under the control of Argonaut and Madrone Capital Partners. The parent company will not have any employees or operations and its main asset will be the NOLs.

Solyndra ceased operations last year and has sold virtually every asset to raise money to repay creditors.

The company argued that rejecting the plan could undermine payouts to creditors and a proposed sale of real estate, the company's most valuable asset. That sale will close next year.

The U.S. government, through the Internal Revenue Service, wants Walrath to reject the bankruptcy plan, arguing it was crafted for the impermissible reason of avoiding taxes.

IRS attorney Stuart Gibson pressed Mitchell about emails and memos that the government said showed Argonaut founder George Kaiser was keen on using the tax breaks if Solyndra failed. Some emails were sent nine months before Solyndra went bankrupt.

Gibson argued that a memo to the board of the George Kaiser Foundation, which controls Argonaut, showed the value of the tax breaks on a risk-adjusted basis would exceed their investment in Solyndra. Mitchell dismissed the memo as "sophomoric" and poorly calculated.

The company's federal loan was awarded as part of a government program to promote clean energy. The subsequent collapse sparked an 18-month investigation by Republicans who criticized the President Barack Obama's administration for failing to cut the government's losses on the investment.

Republicans at the time had accused the White House of making decisions to favor Kaiser, who was a fundraiser for Obama's 2008 presidential campaign.

The White House has defended the Solyndra investment, saying the Republicans investigation confirmed the decision to make the loan was "merit-based."

Solyndra filed for Chapter 11 protection from creditors on Sept. 6, 2011, as it and other solar panel companies were hurt by a flood of cheap imports from China that drove down prices.

The company filed an antitrust lawsuit seeking $1.5 billion in damages from three Chinese solar panel makers.

Solyndra's attorney told Walrath on Wednesday the lawsuit could eventually recover enough money to pay all of its creditors in full.

The case is Solyndra LLC, Delaware Bankruptcy Court, No. 11-12799.