Let's get the easy part out of the way first. The New York Times and the Associated Press are only covering the outrages emerging in Solyndra's bankruptcy in the vaguest of terms. The only related Times item I could find was a sentence at the end of an October 11 Green blog post indicating that "the I.R.S. and the Energy Department argue in court papers" against the company's bankruptcy plan. The AP's Randall Chase was a bit more specific that day, writing that "The plan allows for two private equity funds that control Solyndra to potentially reap hundreds of millions of dollars in tax breaks after Solyndra emerges from bankruptcy, using net operating losses." Beyond that, the details are news only in the business press, and even then not to a great extent.
Are the private equity funds (you mean they're sort of like the eeeevil Bain Capital?) getting hundreds of millions in "tax breaks" as in tax deductions or tax reductions? Unbelievably, it's the latter (the former is almost $1 billion), as an October 15 Wall Street Journal editorial and an October 17 Bloomberg News item which seemed to be simultaneously trying to catch up to but then cover up what the Journal revealed.
The Journal laid out the gory details (bolds are mine throughout this post; HT American Thinker):
The Solyndra Memorial Tax Break
How Energy passed out tax-loss credits that mean taxpayers will pay twice for failure.Perhaps you thought the Solyndra scandal amounted to a $535 million government loan that will never be repaid. No such luck. In the latest twist, Solyndra's investors could be rewarded for their failure, thanks to a tax benefit the Administration handed out in a bid to evade political accountability.
... Having sold off its manufacturing plant, fired nearly 1,000 workers and proven the non-viability of its business model, Solyndra's only real assets are what the IRS calls "tax attributes." These are between $875 million and $975 million in net operating losses that can reduce future taxable income, which the IRS values as high as $350 million. Before it went toes up, Solyndra also accumulated $12 million in solar tax credits that can reduce tax liabilities dollar for dollar.
Tax-loss carry-forwards are routine but worthless if a company can't turn profits to pay taxes on. So Solyndra's owners are asking the court to liquidate the rest of the business and contribute a net $6.7 million to pay off creditors for pennies on the dollar. A holding corporation will then emerge from Chapter 11 that won't make products or employ workers, but it will get the Solyndra tax offsets.
The dummy company is owned by Argonaut Ventures I LLC, Solyndra's largest shareholder and the primary investment arm of the George Kaiser Family Foundation. Mr. Kaiser is a Tulsa oil billionaire who bundled campaign checks for Mr. Obama in 2008. The other owner is Madrone Partners LP, a California venture outfit.
... In February 2011, Energy signed off on a deal that would subordinate its repayment interests to a new $75 million loan to Solyndra from Argonaut and Madrone. The two owners would open this tranche of senior debt to other investors for equity warrants. But under the Energy term sheet, those warrants would then bounce back to the Argonaut-Madrone holding company if Solyndra became defunct. That gave Argonaut-Madrone 99.9% control of the net operating losses.
... The irony is that the law that created the loan program specifically bars the Energy Department from taking a junior debt position. So Energy simply produced a novel legal analysis claiming that this prohibition applies only when a loan originates, not when it is modified.
... Under the bankruptcy plan, taxpayers will recoup $27 million at most on Mr. Obama's $535 million "investment." The IRS and Energy Department are now asking the courts to reject the deal, because bankruptcy is designed to give a business a second chance, not goose a tax return.
But this is little more than an ex post facto double-cross. Energy created the tax avoidance problem in the first place by gifting Argonaut and Madrone the net operating losses to delay the Solyndra crack-up that was fast becoming inevitable. That left taxpayers worse off than if they simply let Solyndra fail.
... does he (President Obama) have to stick it to taxpayers twice for the same failed investment?
It would appear that the answer is: "If it concerns someone helping my campaign, heck yes!"
Given the circumstances, to quote a Shakespeare's "Hamlet," the IRS doth protest too much.
Bloomberg's report by Michael Bathon two days later was very circumspect about the lede, and distracted readers by concentrating of the fate of regular creditors:
Solyndra LLC, the solar-panel maker that received a $535 million U.S. Energy Department loan guarantee before going bankrupt, won’t be able to provide lenders ranking ahead of the government with a full recovery, the company’s financial adviser Eric Carlson said today.
The failed solar-panel maker generated about $117 million from assets sales, including the proposed sale of its manufacturing facility to a unit of Dublin-based Seagate Technology Plc (STX) for $90.3 million, subject to competing offers at a Nov. 14 auction, Carlson testified under questioning from Solyndra lawyer Maxim Litvak.
The company incurred about $46 million in costs to achieve those sales, giving it about $71 million in net distributable assets. Lenders who rank ahead of the government, Argonaut Ventures I LLC and Madrone Partners LP, are owed about $77 million, about $6 million short of a full recovery, said Carlson of Imperial Capital. The company has maximized the value of its assets and the costs were necessary to do so, he said.
Those of us who remember the company throwing millions of dollars of specialty glass straight into dumpsters without even trying to find a buyer for the material would beg to differ.
Continuing, Bloomberg's Bathon finally got to the loss carryforwards in his report's fifth paragraph, and gave a false impression that the company was somewhat viable until 2011:
The U.S. Internal Revenue Service objected to Solyndra’s bankruptcy plan, arguing it can’t be approved because its principal purpose is to allow Argonaut and Madrone to avoid taxes.
While Solyndra will be liquidated under the plan, its parent, 360 Degree Solar Holdings Inc., will exit court protection with net operating loss carryforwards of as much as $975 million to use against future income, according to court papers.
The potential tax breaks of as much as $341 million could be used by Argonaut, the investment arm of billionaire and Obama fundraiser George Kaiser’s charitable organization, and Madrone.
Solyndra’s collapse prompted congressional scrutiny of President Barack Obama, who praised the company during a May 2010 tour of its facilities. It was the first company to receive a loan guarantee under Obama’s stimulus program.
By early 2011, the fledgling solar startup began to face competition from foreign companies and plummeting prices for materials used in rivals’ products.
Nonsense. Solyndra was already in serious trouble when the Department of Energy was rushed into approving the company's loans in 2009.
The bottom line: Obama cronies "invested" $75 million to get $350 million in future tax reductions at profitable companies. Am I the only one dead tired of hearing Obama and his Gangster Government (Michael Barone's term coined in 2009 as disfavored creditors were getting the shaft during Chrysler's bankruptcy) hypocritically complaining about the rich "not paying their fair share" while passing out millions in breaks to fat cats they like?
According to Bloomberg, "Solyndra will have to wait until Oct. 22 (i.e., later today) for its fate to be decided." Well, if the courts approved the plan of General Motors, which essentially did the same thing by carrying "old GM" losses into "new GM" and saving "new GM" billions of dollars, how can the judge justify stopping this similar though more blatant subterfuge?
Cross-posted at BizzyBlog.com.
