E-mails show more officials were concerned about Solyndra loan

October 14, 2011

Concerns that it might be illegal to let private investors recover their money before taxpayers if Solyndra went bankrupt were more widespread within the Obama administration than previously known, documents released on Friday show.

As Energy Department officials moved toward restructuring a half-billion dollar loan to Solyndra in February, the chief financial officer at the Treasury Department’s Federal Financing Bank wrote to them questioning plans to put taxpayers second in line for repayment. The official, Gary Burner, urged the agency to seek legal advice from the Justice Department.

“These adjustments may require approval of the Department of Justice,” Burner wrote in a Feb. 10 e-mail. “Let me know if you need the name of a contact at DOJ.”

Despite the warning, the deal went forward without Justice Department involvement. Solyndra, a California-based solar panel maker, collapsed in August, and taxpayers are liable for a $535 million federal loan to the company.

Burner’s e-mail was released in connection with a hearing Friday before an investigative panel of the the House Energy and Commerce Committee. The hearing examined circumstances surrounding a similar e-mail released last week that also raised questions about the refinancing.

In that e-mail, Assistant Treasury Secretary Mary Miller wrote to the deputy director of the White House’s Office of Management and Budget, saying that she had warned officials before the deal was completed that it might be illegal. She also urged officials to get prior Justice Department approval.

“To our knowledge that never happened,” Miller wrote in the Aug. 17, 2011, message to the OMB.

Energy Department spokesman Damien LaVera said Friday that career officials conducted a “careful analysis” of the restructuring terms and concluded they were lawful. Changes to the loan did not involve “compromising the claim,” and so Justice approval was not required, he said.

Energy Department lawyers argued in a February memo, also released Friday, that although federal law bars the government from making taxpayer interests subordinate to those of private investors, that restriction does not apply in a restructuring. That is particularly true in Solyndra’s situation, the memo said, because the restructuring was intended to save a failing company and protect taxpayers’ investment.

Energy Secretary Steven Chu approved the new terms in February, allowing private investors to pump $75 million more into the ailing California company.

At Friday’s hearing, Burner testified that he neither intended to suggest consultation with the Justice Department was required nor concluded the deal would be illegal. Under questioning, he said he continued to believe “it would have been wise for them to seek Department of Justice approval.”

Committee Republicans cited the e-mails as evidence the Obama administration ignored clear warnings from its own staff that the deal was illegal. They claim the administration was rushing to save a company it had repeatedly highlighted as a stimulus program success story.

“While President Obama may claim that hindsight is 20/20, the facts tell a different story,” said Rep. Cliff Stearns (R-Fla), chairman of the investigative subcommittee. Stearns said e-mails showed a long chain of officials, starting in the White House, “knew that Solyndra was a bad bet destined to fail.”

Republicans dismissed the Energy Department legal memos that authorized the restructuring and suggested that the energy secretary’s name, included on a January draft of the memo, was deleted from a final February version to shield him.

A memo draft labeled Jan. 19 indicated it had been written for Chu by the loan program’s chief legal counsel. But a final version dated Feb. 15 indicated it was instead intended for the Treasury Department’s general counsel.

“It’s a legal office opinion that basically says you can ignore the law,” said Rep. Steve Scalise (R-La.).

Committee Democrats responded that Republicans lacked evidence and said that they had biased the hearing by failing to invite Energy Department officials for explanations. They alleged that Republicans wanted to halt government support for environmentally friendly energy.

Meanwhile, the White House told the Energy and Commerce Committee on Friday that it would not comply with a request for all internal White House communications regarding the Solyndra loan. The committee had sought the documents to “understand the involvement of the White House in the review of the Solyndra loan guarantee and the Administration’s support of this guarantee.”

Other e-mails released Friday highlight broader disagreements about the deal.

“There are some questions at the staff level about how DOE is going about the restructuring for Solyndra,” said a Dec. 15, 2010, e-mail between senior OMB officials. It referred to a plan to make some existing debt “junior” to new debt from the private investors.

“I think they have stretched this definition beyond its limits,” an OMB staffer wrote.

In an exchange on Aug. 28, three days before Solyndra’s collapse, Assistant Treasury Secretary Miller expressed concern that the Energy Department remained interested in giving Solyndra an additional $5.4 million and was not more skeptical about investors purported willingness to put up another $10 million.

“I think DOE should be thinking through whether the proposed deal is just giving the investors more time to extract more value from the firm before bankruptcy (and hence reduce USG collateral),” the message said. A Mar. 16 memo from the Federal Financing Bank noted that the equity contribution by Solyndra was “merely 27% of the Project costs, which is low for a start-up company.” The memo noted that figure was below the original expectation of a 35 percent equity contribution.

“The borrower claims that it cannot raise additional capital in this market,” the memo said.

Staff writer Carol D. Leonnig contributed to this report.

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