The Solyndra Bankruptcy

Solyndra Corp.’s guaranteed loan from the Dept. of Energy was rushed, Congressional GOP critics say. And now a motion filed by this collapsed solar company in bankruptcy court seeks to expedite the process to auction off Solyndra’s assets by late-October.

What gives? Will US taxpayers get all of their money back from this $528 million guaranteed loan Solyndra got if its bankruptcy auction is put on a fast track? Given that investors who might have been interested already have shunned the company for allegedly misrepresenting its financial statements, and would need more time to see what’s there?

“The unsecured creditors resisted the motion, saying that the timetable was too compressed and would depress values, especially without a lead bidder to set the frame for bids,” notes FOX News analyst James Farrell, who has reviewed the court documents. But the “court approved the company’s request for the auction timetable, noting the support of the Dept. of Energy and the Dept. of Justice.”

Officials from Solyndra and the Justice Department weren't immediately available for comment.

The DOE’s loan program has become a hot button issue for GOP Congressional critics of President Barack Obama’s green energy stimulus spending after Solyndra, a Fremont, Calif. solar panel maker declared bankruptcy despite receiving a $528 million federal loan. Solyndra has laid off its 1,100 workers.

House Energy and Commerce Committee GOP officials have already expressed their concern to Energy Secretary Steven Chu, as Energy Dept. officials handed out billions of stimulus tax dollars in loan guarantees.

“Given the failure of the program’s flagship guarantee to Solyndra, committee leaders are concerned that the Department of Energy appears to be rushing to award the remaining $9 billion in loan guarantees in the next ten days, resulting in risky investments for American taxpayers,” committee members said in a statement.

The House Energy and Commerce Committee has been probing Solyndra, as have the Treasury and Energy Departments and the FBI. Some of the probes are looking into whether Solyndra’s political connections were used toward getting taxpayer money out of the Administration’s stimulus program.

Solyndra has been pushing for, and won on a motion at the bankruptcy court, to have an auction of the company assets in a rather quick time frame – with the auction to occur on October 27th, notes Farrell. Reuters reports that the secured lenders (including the Justice Dept. as the representative of the Energy Dept.) supported the expedited schedule.

News reports indicate that the unsecured creditors, who will likely be back at the end of the line in the bankruptcy, wanted more time for potential bidders to get comfortable with Solyndra's asset values, but that they were being rushed. “To try to do due diligence on a company like this, without public financials and given the complexity of the business, is difficult if not impossible,” says Farrell.

The company has said that it has not identified a lead bidder, but there may be two interested bidders, with the names not disclosed by the company, news reports suggest.

“A rushed bid process, coupled with the fact that no one can possibly put any faith in the financials of the company given the current investigations, gives a huge advantage to insiders who may be interested in bidding,” says Farrell.

He gives this hypothetical.

“So let's say you are the Kaiser foundation's investment arm. You have had a guy on the board since the inception and know the business. You also know all (or a lot of) the secrets – good and bad. You are already millions into the company (and buying the company's assets would let you dollar cost average your investment for return on investment purposes). Although the company will not disclose the identity of the potentially interested parties, I would bet my left arm that some group of insiders is seriously considering bidding.”

Farrell adds: “In contrast, let's assume you run a clean energy fund. You know the industry, but not the company. You cannot fully trust the financial information because of the allegations of fraud. The company's senior executives are not answering the U.S. Trustee's questions about contracts, citing the Fifth Amendment, etc. You are either not going to bid or low ball your bid, especially with a compressed auction timetable..I think it is fair to say (as even Solyndra admitted at the hearing) that compressed auction times lead to lower bids.”

Here’s the conundrum — there is one part of the Justice Dept. agreeing to a fast-track path that might lead to less recovery for taxpayers (definitely less for unsecured creditors who hate the timetable) and possibly give a windfall to a group of insider bidders.

On the other hand, the US Trustee is taking an action that might derail the current timetable — which is “probably better for taxpayers (definitely better for unsecured creditors) and less favorable for insiders,” says Farrell.

There's more:

* The U.S. Trustee program – which is a component of the Department of Justice – works to protect the integrity of the bankruptcy system by overseeing case administration.  The U.S. Trustee is the entity moving for appointment of a trustee in the Solyndra bankruptcy proceeding.  The U.S. Trustee is not affiliated with the DOJ division that is representing the U.S. as a creditor in the bankruptcy proceeding.

* At the outset of any bankruptcy case, the management of a debtor-in-possession must meet with the United States Trustee at an initial debtor interview and must subsequently submit to questioning under oath at the Section 341 meeting.

* The US Trustee is moving the bankruptcy court for the appointment of a trustee in Solyndra (effectively kicking out the current management) essentially because the company is unable to provide the information necessary for a transparent bankruptcy process due to the assertion of the right against self-incrimination by the company's executives.

* In addition to the executive's testimony before the House subcommittee, the Trustee notes that:

1. Even before the subcommittee hearing, "the Debtors refused to answer the United States Trustee’s question about its contracts based on concerns about investigations and possible litigation."

Specifically, in an interview with the U.S. Trustee, Solyndra's GC Benjamin Schwartz asserted the Fifth Amendment and "refused to answer a question regarding the extent and nature of Solyndra’s contracts with customers."

2. Solyndra has been unable to identify who will testify on behalf of the company under oath as required at the Section 341 meeting of creditors (scheduled for mid-October).

* The key summary from the Trustee's motion (which makes clear that it is not necessarily an assertion of wrongdoing, just that the inability to provide information threatens to compromise the process) is that:

"At this juncture, the United States Trustee alleges no specific wrongdoing. The inability or refusal of the corporate officers to answer material questions, however, establishes cause for the appointment of a trustee and establishes that such an appointment is in the best interests of the creditors and the estates. In the alternative, these cases should be converted to a liquidation under chapter 7 of the Bankruptcy Code."