Friday, September 16, 2011

Congress Likely to Cram Down Solyndra Billionaire

Sources close to the Congressional investigation into the loans that the Obama administration made to bankrupt solar company Solyndra, say that Congress is likely to attempt to scuttle an agreement that the administration reached last February that allowed major investors to take precedent over US taxpayers in the liquidation of the company.

In February 2011, Solyndra renegotiated with creditors, including the United States Government, in order to try to avoid bankruptcy. In that deal, an investment group funded by Obama donor George Kaiser, gave Solyndra $75 million in additional money in the form of debt on the condition that the US Government took a subordinated position in any bankruptcy after the first $150 million was returned to the government.

What that means is that in a liquidation of Solyndra, the administration will allow that the first $150 million goes to the government, the next $75 million  goes to Kaiser's fund. That would leave the government with a balance of $377 million outstanding unless a liquidation fetches more than $225 million.

In that case, the Kaiser investor group would likely control the amount of money that is eventually paid out to the government and other creditors and shareholders. This is a technique, known as a "cram down," that is often used by investors looking to gain control of a troubled company at the expense of other investors.

Democrat Senator Michael Bennet from Colorado used the same tactics to take control and combine three ailing movie theater groups in 2002. Bennet bought the senior debt of the companies while they were going down the tubes. This in turn allowed him to cut out other investors as the companies liquidated. Teachers' pension funds and other investors were forced to take pennies on the dollar for their investment because the Bennet group owned the senior position.

Within two years Bennet's group paid themselves back every penny they spent on the investment, gave Bennet $11 million, took on another billion dollars in debt, while public investors saw the price of the stock tank from $24 to $12 currently.

This is what the Louisiana Teachers' Pension Fund said 
at the time:
“…(T)he real explanation for draining the Company of its cash is that the Board is looting Regal and its subsidiaries to pay the individual Board members hundreds of millions of dollars in dividends, which have no legitimate business purpose and provide absolutely no benefit to the company.”
“(O)utrageous transfer of cash, which is leaving Regal in a clearly weakened and precarious condition… Anschutz and the Board are using Regal’s funds for their own personal purposes, leaving shareholders at risk of another trip through bankruptcy. There is simply no reasonable business objective for the Dividend.”
Yes, these are the guys who we send to the US Senate. In 2010, Bennet circulated a letter demanding that the country pass Obamacare with a public option. These are the guys we let design our healthcare system. Any questions?
The same "cramdown" technique could potentially allow the Kaiser group to force other investors in Solyndra into taking smaller amounts than the full value that they either invested or loaned to the company.   
Sources familar with the law that governs the loan made under the Solyndra program however say that a plain reading of the law prevents the administration from allowing investors to jump ahead of government guaranteed loans under any circumstances. 
Instead, members of Congress are likely to try to "cram down" the investment the Kaiser group made in February in an attempt to recover taxpayers' money.    

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