Solyndra Strikes Again

The Solyndra scandal just refuses to go away. By now, everyone knows about the money thrown at a pie-in-the-sky solar panel scheme by the unwilling taxpayers on the orders of the Obama administration. The company was shaky at best, but it was run by big contributors to the Obama campaign, so a few (dozen) federal rules and plain common sense were tossed aside to fund another green disaster.

The company failed shortly after receiving the loans, and the taxpayers are now on the hook for the losses. As part of a sweetheart deal between Solyndra’s chief investors, Obama contributors all, and the Department of Energy, Solyndra not only received approximately $535 million in federal guaranteed loans, but in violation of federal law the major shareholders were granted priority in bankruptcy over the taxpayers who coughed up the money for the loan. The Department of Energy has claimed all along that it had no idea whatsoever that Solyndra was about to fall off a financial cliff.

And now we have a new wrinkle to consider. A mere two days before the Solyndra board of directors decided to file for bankruptcy protection, there was a mysterious sell-off of inventory. Allegedly, the sale was to stave off the collapse of the company. It is not an unusual procedure for going concerns which are experiencing short term cash flow problems. But in the real world of healthy, but troubled corporations, these things are carefully-planned and take place weeks or months before a company is facing bankruptcy.

The sell-off has a number of very strange-smelling details. First, there is the question of why the inventory was sold off so cheaply. The inventory was fairly evaluated at $58.1 million. It was sold for cash--$17.5 million in cash. Even very distressed corporations in need of cash can usually find a buyer that will pay the real value of the inventory, or something close to it. Even under the worst possible circumstances, getting only 30% of the actual value is nearly unheard-of.

To any trained accountant (in the Department of Energy, for instance?) this means that the company is not only in trouble—it’s in big trouble. The bankruptcy court must look at the time of the sale, as well as the buyers, and determine if the sale was for reasonably equivalent cash-to-value as well as whether there was any reasonable belief that the infusion of cash would increase liquidity to the point that the corporation might remain viable. Given the bankruptcy filing two days later, that seems unlikely. That leaves the question of who paid the cash.

Even the name of the buyer is suspicious—Solyndra Solar II. That name was picked for the affiliates of Solyndra’s debtor-in-possession lender. And who might that be? Argonaut Private Equity and Madrone Capital Partners. Argonaut is the investment wing of a foundation headed by billionaire George Kaiser. Full circle, ladies and gentlemen. Kaiser is one of those Obama contributors and Solyndra board members who got precedence over the taxpayers in case of bankruptcy. Madrone Partners also has connections to the Waltons of Wal-Mart fame.

An official spokesman for Argonaut, who also served on the Solyndra board, told reporters that the investors (which investors?) did not profit from overall sales of the inventory or the accounts receivable. A separate corporation had been formed to purchase the Solyndra accounts receivable by the same cast of characters, and is named Solyndra Solar LLC. The spokesman, Steve Mitchell, added that the plan was to give the company more time to turn around. Two days? That would be one helluva turnaround.

Solyndra Solar LLC and Solyndra Solar II were both properly listed in the initial bankruptcy filing. But it was not until a much later addendum that the full list of officers and investors of the buyers was added. And it was only at the late filing that the amount of the money, inventory, and accounts receivable became known.

All of this is unusual, but not entirely unheard of in the wonderful world of failing corporations. The purchasers have sometimes managed to make a good deal by which the original company survives and the investors in the special corporations provide the money and own the inventory which they supervise while the original entity changes form, but still remains in business. That most assuredly did not happen in the case of Solyndra.

George Mason University Professor and bankruptcy expert Todd Zywicki gingerly explains it this way: “There’s nothing inherently problematic about that as it is common to want to stockpile cash on the eve of a bankruptcy in order to have a sort of war chest going into the case. It could be a problem, however, if there were particular creditors who were benefited by converting the accounts receivable and inventory to cash for some reason or if those assets were converted for less than reasonably equivalent value."

And therein lies the rub. We await an explanation from George Kaiser, Friend of Obama..