Energy Dept. Ignored Warnings About Solyndra Loan


Solyndra: Questions From Treasury About Loan

Records show Treasury raised questions from the start about DOE's plan. On February 10, 2011, CFO Burner sent an email to DOE officials after learning about the refinancing. "We understand that these adjustments may include subordination of Solyndra's $535 million reimbursement obligation to DOE and possibly the forgiveness of interest. Unless DOE has other authorities, these adjustments may require approval of the Department of Justice," he wrote.

Treasury's questions persisted. In one pointed memo shortly before Solyndra declared bankruptcy this summer, a top Treasury official wrote to the White House to make clear that the decision to restructure the deal did not have Treasury or Justice Department approval -- despite early suggestions that approval from both agencies may be required.

"To our knowledge, that has never happened," wrote Mary J. Miller, Treasury's assistant secretary for financial markets. "While I expect that DOE has a view about why loan subordination can occur without DOJ approval or Treasury consultation, I wanted to correct any impression that we have acquiesced in the steps to date."

In another email in August, a Treasury lawyer weighed in: "But I will bet a quarter that the DOE lawyers have some kind of theory on how whatever restructuring they have done and whatever they are considering doing does not violate these requirements. Can't wait to hear it."

On Friday, Burner and a second witness, Gary Grippo, Treasury's Deputy Assistant Secretary for Fiscal Operations and Policy, said the department's role was to advise DOE and flag concerns. But they said Treasury could not legally reject the refinancing.

The Department of Energy said its refinancing was legal, and DOE has crafted a six-page memo outlining its justification. Officials say they conducted a "careful analysis" before moving and decided they had "broad authority in a distressed situation to take action that will protect the taxpayer." In the end, the Energy Department said, it decided to back a financially strapped company as an effort to save the project.

"As is typical in cases where distressed companies seek new debt financing, the new financing would have priority, in the event of liquidation, over the company's existing debt -- including the DOE loan guarantee (the investors' almost $1 billion of original equity investment was, and remains, subordinated to the debt owed to the government)," the department said in the memo.

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"DOE faced a choice: whether to (1) refuse to allow the restructuring, thereby ensuring that Solyndra would close its doors immediately, and that the U.S. taxpayer would recover only a modest amount of the loan; or (2) allow the company to accept the emergency financing, thereby giving it and its almost 1,000 workers a fighting chance at success, and the government a higher expected recovery on its loan," the department wrote.

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