'Connected' Energy Firm Got Lowest Interest Rate on Government Loan

Solyndra, funded by Obama backer, went bankrupt despite $535 million loan.

September 6, 2011, 6:54 PM

Sept. 7, 2011 — -- A politically connected solar company that pocketed a half billion dollar government loan, only to shut its doors, fire workers and file for bankruptcy, benefited from a series of breaks in securing the federal funds -- including an interest rate lower than other green energy projects, iWatch News and ABC News found.

The $535 million loan to Solyndra Inc., issued by the U.S. Department of Treasury's Federal Financing Bank, included a quarterly interest rate of 1.025 percent, the government bank reported in July. Of 18 Energy Department loans cited in the bank's report, Solyndra's rate was lowest. Eight other Energy Department projects, each also backed by the Federal Financing Bank, came with rates three or four times higher, the report shows.

That treatment is in keeping with the history of the loan to the California solar panel maker, an arrangement inked in September 2009 with great fanfare -- and touted, not long after, during a factory visit from the president. Monthly government bank reports filed since then reveal Solyndra's rate as the lowest for any energy-related project in nearly every report; in every case its rate was well below that of most energy projects, which ranged from cutting-edge electric car makers to wind and solar ventures.

Department of Energy officials said the rates for all of its green energy loans were set by the bank using a formula, and Solyndra's favorable terms were not the result of special treatment.

"All borrowers under the [government loan guarantee] program receive the same treatment," Energy Department spokesman Damien LaVera wrote to iWatch and ABC News in response to questions.

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Solyndra spokesman David Miller agreed, saying Tuesday that the interest rate was based on hard data -- such as when the loan was granted and the length of the repayment period. Solyndra's loan was for seven years, he noted, while other energy loans would have longer repayment periods. Miller pointed to a Treasury spreadsheet showing rates for 20- and 30-year loans are higher than those that are to be repaid in seven.

"It depends on the terms you negotiated," Miller said. "You'd have to look at each one of those other companies and see what their term was and that would probably explain to you what the difference would be."

But records show the advantageous terms came in spite of red flags about the risks of investing in Solyndra. In 2008, as the loan agreement was moving forward, an outside rating agency gave the deal with a B+ grade, a less than optimum score, according to records obtained by iWatch and ABC under the Freedom of Information Act. That same year, the records show, Dun & Bradstreet assigned the company's credit appraisal as "fair."

Analysts say there were warning signs about the deal from the start, when Obama's Department of Energy pitched its first energy loan guarantee as a symbol of the expanding green tech movement. Yet the administration repeatedly took steps that would seem to benefit Solyndra: the Department of Energy announced its loan commitment before all due diligence was completed -- later raising concerns from auditors; the president made a personal visit to tout the company's prospects; and the department agreed to grant Solyndra fast-track approval.

'We Don't Talk to Journalists'

The Federal Financing Bank, created by Congress in 1973 as a part of Treasury to reduce the cost of borrowing, referred questions about the Solyndra loan to Treasury. "We don't talk to journalists," a Bank employee told iWatch last week.

A former official with the federal bank said that typically, key details -- such as the lending rate -- are worked out as part of the negotiation between the borrower and the Department of Energy. One part of the equation on setting such rates, the expert said, is how much private equity is coming to the table.

Solyndra's most prolific financial backer is George Kaiser, an Oklahoma oil billionaire who was a bundler of campaign donations for Obama's 2008 race. Kaiser's Argonaut Ventures and its affiliates have been the single largest shareholder of Solyndra, according to SEC filings and other records. The company holds 39 percent of Solyndra's parent company, bankruptcy records filed Tuesday show.

Under terms of the bankruptcy filing, investors including Argonaut -- which led a $75 million round of financing for Solyndra earlier this year -- will stand in line before the federal government and other creditors.

When Solyndra announced that round of fundraising this February, it noted that the DOE had refinanced terms of the $535 million loan to extend the payment period. Under an "inter-creditor agreement" cited in the bankruptcy filing, the investors in the $75 million financing are considered first lien holders. That leaves Obama officials to confront the prospect of waiting behind private companies.

Energy officials confirmed this arrangement, saying that private investors including Kaiser would first recoup their $75 million, then the U.S. government would have a chance to recover $150 million of its investment. If any money is left, the private investors and the U.S. government would divvy up the remainder in equal shares.

LaVera, the Energy Department spokesman, said the department agonized over whether to refinance the loan in these terms, but ultimately decided it was worth the risk if it meant prolonging the company's chance for survival.

"This restructuring gave Solyndra and its workers the best possible chance to succeed in a very competitive marketplace and put the company in a better position to repay the loan," he said. "Ultimately, the choice was between imminent liquidation or giving the company and its workers a fighting chance to succeed."

George Kaiser Declines Interview Requests

Kaiser has declined interview requests for months from iWatch and ABC News. His Tulsa-based George Kaiser Family Foundation, which in 2009 cited a $342 million investment value in Solyndra, issued a statement after Solyndra's collapse saying the solar firm faced "serious challenges in the marketplace, especially the drastic decline in solar panel prices during the past two years caused in part by subsidies provided by the government of China to Chinese solar panel manufacturers."

Questions have long persisted about why Obama chose Solyndra to be the first green energy company to benefit from the federal loans program. In May, iWatch and ABC reported that the Energy Department announced its commitment to back Solyndra without first receiving full marketing and legal reviews. That shortcut drew criticism from government auditors, who accused DOE of favoring some applicants, like Solyndra, over others.

And Obama's Office of Budget and Management viewed the deal as riskier to taxpayers than DOE had, iWatch found.

As a House committee escalates its investigation of the loan, the fallout from the doomed deal continues. Last week's firings have left more than 1,000 without jobs in a project that was supposed to help stir the economy as well as the environment. On Tuesday, one of those former workers, Dan Braun, filed a class action complaint in the bankruptcy proceeding contending Solyndra illegally fired workers without giving 60 days' notice.

Last Friday, Rep. Pete Stark, D.-Calif., sent a letter to Brian Harrison, President and CEO of Solyndra, raising the same issue.

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"The decision by Solyndra's executives to terminate more than 1,000 of its hardworking employees without warning and to immediately cut off further payment and benefits was reckless, irresponsible and heartless," Stark wrote. "It may also be illegal. I urge Solyndra's leaders to quickly revisit their decision and do right by their employees."

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