Solyndra bankruptcy a potential headache for First Solar; loan selection process called into question


In a company note issued earlier today by Jefferies, analysts said that investors are "concerned" that the Solyndra saga will have a negative impact on three of First Solar’s projects.

According to the analysts, the Desert Sunlight Solar Farm (DSSF) and the Antelope Valley Solar Ranch 1 (AVSR) projects should receive the Department of Energy (DOE) loan guarantees promised to them, but that the Topaz project is likely to be sold without one.

And now, just hours later, First Solar has announced that its Topaz project has not met the statutory deadline to receive the loan guarantee. As such, the company says a different transaction structure will need to be found.

Political forces

The question now, say the analysts, is will political forces act to divert funds away from the projects. "Will the interagency departments approving loan guarantees crumble in light of congressional/political pressure?" they ask. "According to one former DOE executive, the congressional committees do not have the ability to block loan guarantees within an authorized budget and mandate, but they can apply political heat to force delays within the DOE and OMB."

Essentially complete

According to Jefferies, First Solar believes the conditional loan guarantees for its DSSF and AVSR projects "will be approved and are essentially complete."

Back in June, the DOE announced that it had granted a conditional loan commitment of USD$680 million for First Solar’s 230 megawatt (MW) AVSR photovoltaic project.

Furthermore, it said that the company’s planned 550 MW DSSR project, set to be located in California and which has a power purchase agreement with PG&E, was granted USD$1.88 billion in partial loan guarantees.

Finally, the proposed 550 MW Topaz Solar Farm, to be located in San Luis Obispo County, received USD$1.93 billion in partial loan guarantees which, as was announced today, have been withdrawn.

Letter to Chu

However, on September 20, House Energy and Commerce Committee Chairman of the Committee on Energy and Commerce, Fred Upton, Chairman of the Subcommittee on Oversight and Investigations, Cliff Stearns, and Ed Whitfield, Chairman of the Subcommittee on Energy and Power sent a letter to U.S. Secretary Steven Chu regarding 14 of DOE’s conditional loan commitments totaling $8.9 billion. These are said to include 10 projects totaling $8 billion under 1705, with the three First Solar projects reportedly accounting for half.

The letter poses three questions, to which they ask for the answers to by "no later" than September 23. They are:

  1. Does the DOE intend to close each of the ten conditional commitments issued under Section 1705 and totaling $8.029 billion before the September 30 deadline?;
  2. Does the DOE have the authority to ask for additional time to conduct due diligence on the ten conditional commitments made under Section 1705, and finalize them at some date after September 30, 2011?; and
  3. What will be the result if the DOE does not finalize each of the ten conditional commitments made under Section 1705 before September 30, 2011?

The letter to Chu further requests DOE staff to brief the House Energy and Commerce committee by September 26 on the financial condition of each closed loan guarantee and the 14 conditional commitments.

Calling Solyndra’s loan into question

Furthermore, in the letter, the measures by which Solyndra received the loan guarantee are called into question.

"During the course of our investigation, the Committee has identified several documents which suggest that the timetable to issue the Solyndra loan guarantee was accelerated in order to meet stimulus deadlines, impacting the quality and comprehensiveness of DOE’s and OMB’s due diligence," it said.

"For example, beginning in December 2008, a DOE employee began raising concerns about Solyndra’s working capital. In August 2009, just before Solyndra’s closing, that same employee again noted that the working capital issue remained unresolved, and that the ‘model runs out of cash in Sept. 2011 even in the base case without any stress.’

"… Now that Solyndra has declared bankruptcy, we cannot help but wonder whether the additional time to review this guarantee might have prevented the taxpayers from being on the hook for the $535 million loaned to the company."

Upton, Stearns and Whitfield voiced concerns that with the 2011 September 30 deadline looming, there will be another rush to close more guarantees.

House Judiciary Chairman Lamar Smith has additionally asked the Justice Department to appoint a special independent examiner to investigate the Solyndra bankruptcy, say the Jefferies analysts.

They conclude by saying that House Subcommittee on Oversight and Investigations is holding a hearing on Solyndra on Fri, September 23. "Lawyers representing Solyndra executives Brian Harrison (CEO) and Bill Stover (CFO) have notified the committee that their clients are pleading the Fifth and will not be testifying at the hearing," wrote the analysts.

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