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Were early warnings about now-bankrupt Solyndra ignored?

ReutersAn FBI vehicle is pictured at the offices of solar panel startup Solyndra in Fremont.

WASHINGTON, D.C. – House investigators looking into the failure of Fremont-based Solyndra are likely to focus on why the Obama administration kept giving the troubled solar panel manufacturer taxpayer cash amid multiple warning signs that the company was in serious trouble – including shelving plans to go public and the company's own auditor warning that Solyndra might need to file for Chapter 11 protection.

“You had this cascading series of bad news at Solyndra,” said Salo Zelermyer, a lawyer who helped set up the Department of Energy's loan guarantee program in 2006 when Solyndra first applied for federal help.

Zelermyer, now with Bracewell & Giuliani in Washington, D.C., said House investigators likely will focus on whether last-second efforts by the Department of Energy to save the company showed the Obama administration knew more about Solyndra's troubles than they let on.

“This is going to be the major focus of the House committee's work,” he said.

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Jonathan Silver, the Department of Energy's head of the loan guarantee program, along with Jeffrey Zients, deputy director of the Office of Management and Budget, are scheduled to testify today. Brian Harrison, Solyndra's president and CEO, along with W.G. Stover Jr., the company's chief financial officer, will testify next week after saying they would not be able to appear today.

The oversight panel of the House Energy and Commerce Committee will probe the sudden demise of the solar manufacturing company touted by President Barack Obama during a May 2010 visit as “leading the way toward a brighter and more prosperous future.” The committee already has requested all the correspondence between the White House and Department of Energy regarding Solyndra.

Solyndra produced cylindrical panels that convert sunlight into electricity using an advanced thin-film technology based on copper indium gallium diselenide, which included no silicon, typically the biggest expense in photovoltaic cell manufacturing.

The company filed for bankruptcy earlier this month, citing more than $783 million in debt, including more than $527 million owed to the federal government. FBI agents raided the Fremont-based company last week and searched executives' homes. An FBI spokeswoman declined to comment on the investigation.

“Solyndra was the hallmark of the president's green jobs program and widely promoted by the administration as a stimulus success story, right up until its bankruptcy and FBI raid,” Energy and Commerce Committee Chairman Fred Upton, R-Mich., and Oversight and Investigations Subcommittee Chairman Cliff Stearns, R-Fla., said in a joint statement before the hearing.

“We had a sense Solyndra was a bad bet from the beginning and its failure raises significant red flags for the entire loan guarantee program,” the two Republicans said.

Solyndra received $535 million in loan guarantees from the Department of Energy in fall 2009, as part of the Obama administration's effort to fund green energy startups under the American Recovery and Reinvestment Act. But shortly after Obama visited the company in May 2010, Solyndra shelved plans for a $300 million initial public offering and shut down its initial production line, laying off more than 100 workers.

And just two years after receiving the loan, Solyndra closed its doors for good and laid off more than 1,100 workers. The company cited intense competition from China and a drop in silicon costs, which made more traditional products offered by its competitors more affordable.

“Solyndra was the flagship of the Recovery Act green energy loans, and it is often a warning sign when a company delays a liquidity event,” said Kevin Book, an analyst with ClearView Energy Partners in Washington, D.C., who follows green energy financing. “The withdrawal of the planned public stock offering should have occasioned further due diligence” by the Energy Department, he said.

But some question whether that was actually done.

Frank Rusco, an investigator with the Government Accountability Office, who warned the Department of Energy that its loan guarantee program had oversight issues in 2010, said more questions are likely to be asked on how the company was approved for a loan by the government in the first place, despite a history of losses.

“DOE had not followed the processes they held themselves to,” Rusco said in an interview. “We found that very troubling.”

At the same time Rusco's report came out, Solyndra began to run into trouble as the price of silicone dropped and competitors' products become more affordable.

Solyndra's auditor, PricewaterhouseCoopers, warned in a filing to the Securities and Exchange Commission that “the company suffered recurring losses from operations, negative cash flows ... raise(s) substantial doubt about its ability to continue as a going concern,” auditor-speak for a potential failure of the company.

Even as the Energy Department had warned Solyndra in fall 2010 that it would cut off federal financing unless the company worked out new arrangements with its private investors, the taxpayer cash continued to pour in. 

According to the Department of the Treasury's Federal Financing Bank records, Solyndra borrowed more than $80 million from October 2010 to February 2011, while the last-ditch private financing round was arranged.

“There were some warning signs,” Bracewell's Zelermyer said. “The company's management was going around Congress at the time saying they were in stable condition, but who was vetting that? Clearly, DOE and OMB were aware that all was not right.”

House members also are likely to question why interest rates for the Solyndra loans on average were sometimes a full percentage point lower than comparable Energy Department loans to other companies. The interest rate averaged about 1.5 percent, compared with other companies, such as Colorado-based Abound Solar Inc., which received a $400 million loan guarantee that year from the Energy Department, but at an interest rate more than double that of Solyndra's.

“With taxpayers potentially on the hook for this half-billion dollar bust, it’s time to sound the alarm about the remaining $10 billion in loan guarantees set to expire September 30. Let’s learn the lessons of Solyndra before another dollar goes out the door,” Upton said in his joint statement.

The questions over the Department of Energy's dealings with Solyndra's final-round financials also may have a cruel twist for taxpayers. In February, the department approved a last-ditch controversial arrangement by Solyndra's private investors to inject an additional $75 million into the struggling company to stave off bankruptcy. In return, the Energy Department gave up the right of “first lien” to the private investors, meaning they would be paid back first over taxpayers, should the company default on its loan, which it did.

“This was the last remaining hope for Solyndra to survive,” Zelermyer said.

With a first lien, the Energy Department would have had first dibs on all the hard assets, equipment, even licensed Solyndra's technology to other companies or taken over and operated the plant itself, if the company went bankrupt and defaulted on its loans.

“As it turns out, not only did the company go bankrupt, these investors are going to get paid before the taxpayer does," Zelermyer said. 

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