More on Solyndra

I was going to leave this topic behind, but I just couldn't resist after Krugman's bit of snark on the topic.   Please see my new Forbes column here.  One bit, actually off topic from the rest of the article, that I added as a postscript:

Perhaps the worst Administration decision of the entire Solyndra affair has yet to receive adequate scrutiny.  Just 6 months before Solyndra failed, the Administration allowed Argonaut, the largest shareholder, to grab the senior debtor position from the US taxpayer in exchange for $75 million in new financing.  The Administration’s argument was the loan was needed to buy time, but buy time for what?  Solyndra’s relative cost position was getting worse, and it was experiencing a huge loss on every unit sold.  No one involved has been able to say what the company was counting on to save it in the 6 months this loan bought it, except perhaps the opportunity to cajole another half billion out of the US taxpayer.

But the loan did accomplish two things.  First, it gave Solyndra time to sell every liquid asset it owned that might have been of value to…. Argonaut.  And once this bit of self-dealing was complete and the company was cleaned out, the bankruptcy process could be entirely controlled by Argonaut such that it will likely end up with all the assets, most important of which seems to be a $500 million dollar tax loss carryforward.  If Argonaut can take advantage of these tax shelters, it will end up costing the US taxpayer an additional $150 million or so.

In short, the taxpayer got rolled.  Again.

Update:  Marc Morano:

 'When we had (Gulf) oil spill, we immediately had moratorium on off shore drilling. The oil industry was demonized & literally shut down'

'But after the green energy debacle, they are being feted and rewarded -- $9 billion more is being sent out to 14 more companies...Solar power is less than 1% of our electricity, yet this is being feted'

  • Smock Puppet, Noter of Mysterious Transformations

    >>> this is being feted’

    Seems pretty damned fetid to me...

  • Scott from Ohio

    Maybe I'm misunderstanding what Argonaut did, but as I understand it, they gave Solyndra $75 million of their own money, which gave them the "senior debtor position" over the US government. What could the government have done to prevent this? Is the government able to prevent a private company from investing in another private company simply because the government has also invested in that private company? Surely, you don't think the government should've responded to Argonaut's $75 million by throwing in another $75 million of taxpayer money? What am I missing here?

  • Daniel

    Scott, the government did the following:
    The government gave the initial $500 million loan to Solyndra in 2009. Over the course of two years, the company burned through these assets and were left looking for more cash. The government agencies responsible sought a private investor as the ability to find additional funding from within the government was difficult. Argonaut offered to provide $75 million in exchange for the senior debtor position. This means that the government agency had to waive its senior debtor position in favor of this.

  • LoneSnark

    Argonaut can give their money to whomever they wish. However, they cannot dislodge a primary creditor from primary creditor status without the permission of that primary creditor.

    For example, you can take a second mortgage out on your house, but in the event of default that second mortgage will always be paid after the first mortgage is paid in full, unless the first mortgagee chooses to waive that right. This is because the home owner signed a contract saying the first mortgage company will be paid first, attempting to sign such a contract with a second mortgage company would violate the contract he has with the first mortgage company, so he can't do it, unless he gets a waiver from the first mortgage company, which in this case he did.

  • tomw

    Problem for the Argonaut investors trying to exercise seniority rights is that the DOE cannot give away the seniority position according to the laws under which they issued the loan. Not allowed to subordinate their position, so the deciding who gets what should be a nice brouhaha.
    At least I've read that on the intertubes...
    tom

  • Mark

    "the seniority position according to the laws under which they issued the loan."

    No, on the surface DOE violated these laws. Not sure if there exists loopholes or other language that allows them to forgo their position so that is what I mean by "on the surface".

    If this was a Republican Administration and "Argonaut" was an investment firm that had GOP fund raising ties, this would be the front page story in the papers and lead story on mainstream media news for the last couple of weeks, and they would be calling for impeachment or resignation.

    This administration not only made a bad loan that was patently obvious to anyone with any real sense, they also gave away the shop to politically connected investors during the end game. The $75 million investment probably has a return on that investment of 300-400%, and most likely recoups most of the money they had sunk into the company.

    Either way, this administration should be paying much more of a price. Either they were complicit in making this deal to bail out the politically connected investors. Or they were absolute fools being manipulated by these investors. Either way, the voters need to wake up and smell the coffee on this group.

  • http://www.ianrandom.com Ian Random

    This is awesome. Man I wish I could do that. I've kinda given-up on trying to do the right thing. I just want to milk government for all it is worth.

  • caseyboy

    This is very disgusting. Argonaut, put in enough money to keep Solyndra upright while it organized the exit strategy to maximize their return. You know they did their due diligence in advance of putting their money in.

    As Coyote said, the NOL (net operating loss) has significant tax value and when used will result in a loss of tax revenue of about $150 million. There are likely other assets that can be sold to recover most if not all of the $75 million Argonaut paid. When the dust settles they will likely be out of pocket less than $25 million for which they'll have the NOL tax write-off worth over $100 million. I think Mark is right on the mark with his 300% to 400% ROI. And you know of course some of that money will make it back into Obama's re-election campaign fund. As for us taxpayers, zip, squat, nadda.