Solyndra solar company fails after getting controversial federal loan guarantees
By Joe Stephens and Carol D. Leonnig,
A company that served as a showcase for the Obama administration’s effort to create jobs in clean technology shut down Wednesday, leaving 1,100 people out of work and taxpayers obligated for $535 million in federal loans.
Solyndra, a California solar panel maker, had long been an administration favorite. Over the past two years, President Obama and Energy Secretary Steven Chu each had made congratulatory visits to the company’s Silicon Valley headquarters.
Although Wednesday’s announcement came as a surprise, House Republicans and government auditors had questioned the wisdom of the administration’s loan guarantees to the company, backed by capital from billionaire Democratic fundraiser George Kaiser. In July, a House subcommittee subpoenaed White House documents related to the guarantee, and after Wednesday’s developments, Republican lawmakers vowed to continue investigating.
Solyndra officials said in a news release that they were suspending operations and planned to seek Chapter 11 bankruptcy protection. The move would give the company time to evaluate options, including selling the business or licensing its technology to other companies.
“This was an unexpected outcome and is most unfortunate,” Solyndra chief executive Brian Harrison said in a statement. “Regulatory and policy uncertainties” made it impossible to raise capital to quickly rescue the operation, he said.
The White House said that it remained committed to building an economy based on clean technology.
“While we are disappointed by this particular outcome, we continue to believe the clean energy jobs race is one that America can, must and will win,” it said in a statement. “The Department of Energy’s overall portfolio of investments — which includes dozens of other companies — continues to perform well and is on pace to create thousands of jobs.”
Wednesday’s announcement came amid a broader shakeout in the solar industry. Energy Department officials said that less expensive solar panels made by government-subsidized companies in China undercut Solyndra’s products.
“We have always recognized that not every one of the innovative companies supported by our loans and loan guarantees would succeed,” Energy Department spokesman Dan Leistikow said in a statement. “But we can’t stop investing in game-changing technologies that are key to America’s leadership in the global economy.”
The Treasury Department provided Solyndra’s loan, on the assurance of the Energy Department. The terms were reviewed in advance by the White House Office of Management and Budget, and almost all of the $535 million has been disbursed to Solyndra.
Taxpayers might be on the hook for most of the loan if Solyndra is unable to repay, said experts in the stimulus and loan guarantee program. The Energy Department could seek repayment in court, but receiving more than a nominal amount is unlikely because of the company’s depleted cash and assets.
“Congress recognized the risks inherent in such an effort and wisely set aside funding to offset any potential defaults or losses,” Leistikow’s statement said.
Some of the biggest investors in Solyndra, which made easy-to-install solar panels for industrial applications, were venture capital funds associated with Kaiser, a key Obama fundraiser. The company, its connections to the administration and the imperiled federal loan guarantee were detailed in a Washington Post report in June.
On July 13, the Republican subcommittee majority voted to subpoena White House documents related to the loan guarantee, as it probed how Solyndra received the administration’s first loan guarantee under the federal stimulus plan. Material sought by the committee included e-mails and other documents that the lawmakers said officials at the Office of Management and Budget had failed to produce voluntarily.
On Wednesday, Republicans on the House Energy and Commerce Committee issued a statement saying that Solyndra executives and administration officials had repeatedly assured staff investigators that the company was financially sound. They called Solyndra’s closing the latest indication that Obama’s stimulus policy had failed.
“We smelled a rat from the onset,” Rep. Fred Upton (R-Mich.), chairman of the committee, said Wednesday in a joint statement with Rep. Cliff Stearns (R-Fla.), chairman of the committee’s investigations subcommittee.
“For an administration that parades around the banner of transparency, they fought us tooth and nail all summer long in turning over relevant documents related to the credit approval, and today we found out why.”
Administration officials have said the loan guarantee was issued on its merits alone. Democrats said the White House had done its best to comply with congressional investigators, whose requests were what Rep. Henry A. Waxman (D-Calif.) in July called a “fishing expedition.”
Solyndra had repeatedly been highlighted as a model by the Obama administration. Chu attended the groundbreaking of the factory that Solyndra built using the federal loan, and Vice President Biden’s image was beamed to the ceremony through a video feed.
In early 2010, independent auditors questioned whether Solyndra could remain a “going concern.” Obama visited Solyndra’s factory in May 2010.
“The future is here,” Obama said in his appearance, praising plans “to hire a thousand workers.”
A month after Obama’s visit, the company withdrew plans for a public stock offering. A few weeks later, Government Accountability Office auditors announced that the Energy Department had given favorable treatment to some loan-guarantee applicants. A GAO report said the department bypassed required steps for funding awards to five applicants, including Solyndra.
Earlier this year, the Energy Department’s inspector general criticized the agency for not maintaining e-mails discussing how loan-guarantee winners were selected.
GAO auditors, who first uncovered the department’s rush to provide Solyndra a loan without completing required reviews, fear that similar defaults could happen with other loan guarantee projects that weren’t properly vetted.
In June, Solyndra chief Harrison told The Post that the company’s finances had improved. With cumulative sales of more than $250 million, he said, Solyndra “doubled our production from 2009 to 2010, and we’ll double it again from 2010 to 2011.”
Costs for solar panels have dropped rapidly as the market matures, so that stronger companies are emerging and less competitive ones are falling by the wayside, said Rhone Resch, president of the Solar Energy Industries Association.
But solar industry analyst Peter Lynch said that Solyndra struggled from the beginning with an imbalanced financial model.
“You make something in a factory and it costs $6, you sell it for $3, but you really, really need to sell it for $1.50 to be competitive,” Lynch said of Solyndra. “It was an insane business model. The numbers just don’t work, and they never did.”