Solyndra Bankruptcy Process

I thought this article from Zero Hedge was a pretty good window into the bankruptcy process for those of us unfamiliar with what goes on.  The most interesting point is that by allowing Argonaut to cut ahead of taxpayers as the senior creditor, the Obama Administration virtually ceded control of the bankruptcy process to Argonaut.  Argonaut has put up the debtor-in-possession financing as well, and the combination of these two positions gives it pretty tight control of the process going forward

The plan put forward is a four-week sale of the company. The logic behind this very rapid schedule is that Solyndra is still burning cash at the rate of $1mm a week. How long will the $4mm DIP financing last? Four weeks. The terms of the DIP makes it a sure thing that Solyndra is going to be sold ASAP. That sounds good. But not for the DOE.

The one-month period is a very short time frame. The likely result will be that no serious alternative buyer will appear. Should that happen, the senior creditor will get all of the assets of the company at the end of 30 days. That would be Argonaut. It's possible that Argonaut will end up owning a company that lists $850mm in assets for less than $100mm.

I am not sure taxpayers were ever going to get anything out of this mess -- the combination of a high-cost manufacturing plant with me-too technology in a commoditized business was never going to be wildly valuable -- but the Administrations decision to allow Argonaut to jump the seniority line has pretty much assured that whatever value that might be there will go to Argonaut and not the taxpayers.

Postscript:  Someone might argue that the decision in February to allow Argnaut the senior position was required to get them to put up the $75 million that was necessary at the time to keep operating.  I am positive this is true, given the condition of Solyndra finances at the time.  However, the right answer at the time was to shut the thing down then, while the US had seniority and before Argonaut cleaned out all the assets of value (as they did this summer, selling inventories and receivables to themselves).  The company had no real prospects of ever making money when it was first financed two years ago and certainly did not in February.  The $75 million in February was less financing and more a pre-emptive bid for the company's carcass in the inevitable bankruptcy, and it will likely play out exactly this way.

Update:  I have read that Argonaut may be interested in the $500 million of tax losses.  These are tricky to use, and only Argonaut of all potential buyers could reasonably make use of them.  These might be worth $150 million in avoided taxes, so the $75 million price might make sense.  If Argonaut pulls this off, it would mean that the decision to accept their $75 million in financing is even more costly to the taxpayers.  Not only did they miss out on whatever value might be in the company, but it also created the opportunity for $150 million in tax avoidance that comes right out of Uncle Sam's coffers.

  • Benjamin Cole

    Yeah, $500 million was wasted on Solyndra. There energy sector is flush with venture capital, anyway. This was waste squared.

    That said, we spend $1 trillion annually on the defense-VA-homeland security boondoggle-a-rama. $3,333 for every man, woman and child in the USA. Or roughly $6,666 for every income tax payer. Every year and counting.

    I wish some GOP'ers, beyond Ron Paul, would step outside their comfortable partisan cocoons and face this issue.

  • Jim Clay

    Wait, so Kaiser is the owner of Solyndra AND Argonaut? Just when I thought this mess couldn't stink any more...

  • Matt

    "selling inventories and receivables to themselves"

    Wait, wait...they "sold" assets to themselves? While simultaneously the newly-senior creditor _and_ the principal shareholder of a company that was already in bankruptcy at the time?

    Isn't that illegal?

    I seem to recall, when I was setting up my businesses, being advised by both my lawyer and my accountant _never_ to try doing something like that, even when there _isn't_ a bankruptcy court watching over me.

    I also seem to recall that bankruptcy judges, when there are less-than-arms-length transactions in the bankrupt entity's recent history, can claw back those sales and consider the "sold" assets as part of the bankruptcy estate.

    The more I read about this company, the less it seems like a legitimate (if insanely imprudent) commercial enterprise, and the more it seems like an intentional-from-the-beginning scam.

  • http://www.azbklawyer.com/ Chandler Bankruptcy Attorney

    It's all a mess and many ways to look at things.

  • Ted Rado

    The poor American taxpayer: screwed again.

  • tomw

    They bought their company and $150M in tax credits for $75M. Pretty good deal, if you can get away with it. Annnnnd, the $500M in Fed loans go poof.
    All for a measly $50k contribution to Teh Won's campaign...
    Sure, it's legal. If you don't get caught. But, you must remember who is the AG, and how prosecutions of guitar makers are a priority over drug runners and everything else...

    tom

  • Smock Puppet, Corrector of Fallacious Propositions

    >>> I wish some GOP’ers, beyond Ron Paul, would step outside their comfortable partisan cocoons and face this issue.

    Benny, we already discussed this in another thread, you just freakin' ignored it.

    You're the one in a partisan cocoon. You're too busy trying to claim we don't want LESS GOVERNMENT ALL AROUND.

    That said, DEFENSE is, in fact, a legitimate purpose of government, one of the Federal Government's STATED CONSTITUTIONAL PURPOSES.

    Taking enormous wads of money out of taxpayer hands to give it to random large campaign contributors in the guise of "investment"...?

    Not the last time I checked.

    So whining about defense spending in a thread about blatantly overt corruption pretty much pegs the bogon flux meter on "overload".

  • Martha Steneet

    TESLA TAKES GOVERNMENT TAX MONEY SAYING THEY WILL CREATE U.S. JOBS and then hires FOREIGNERS: : Look at the ads Tesla has placed on LinkedIn: "Senior Immigration Paralegal - Tesla Motors- Palo Alto, California (San Francisco Bay Area), etc..."

    Elon Musk made a deal with Dianne Feinstein to take over the NUMMI plant so it would look like she saved jobs but, in fact, almost no NUMMI staff were hired and Tesla does not even know how to set-up the factory.

    John Doerr & Steve Westly ran Steven Chu's nomination and forced the White House to appoint him and then forced Steven Chu to fund their company: Tesla Motors.

    Tesla cooked the books to get DOE funding.

    The CEO & senior staff lied to the City of San Jose about building their car factory there and those communications are actionable.

    The CEO & senior staff lied to multiple other cities about building their car factory there and those communications are actionable. They always promise a city or country a factory or sales office and then pull out.

    The CEO has been sued by his staff, his wife, his business partners and his suppliers for manipulation and unethical behavior.

    The CEO paid GQ magazine to write a story about him to help him get dates. The CEO paid the marketing group for Iron Man to say that Iron Man was based on him. History has shown that megalomaniacs have destroyed every company they have run.

    The CEO cheated on his wife with escorts while married. The values of the CEO are the values of the Company. Eolon Musk hires most of the escorts in Silicon Valley.

    The car electromagnetic radiation fields from the battery pack cause cancer.

    They bribed officials to get their federal loan and the funds expended by them to get that loan are being traced back to sources. The McKinsey guys at DOE are connected on paper to Tesla in extensive conflicts of interest.

    He was $100,000.00 off, PER CAR, on the cost to build each car. The company has blown tens of millions of dollars on work it had to completely dump in the garbage and start over on.

    The company has numerous consumer complaints on price changes, overheating of the battery and charging system and inability to get 220V without huge premiums for the setup.

    Nobody is buying the cars anymore and there are hordes of competitors with better electric cars.

    (Free to repost)