Examiner spotlights Kaiser Solyndra loan subordination, tax credits

As one of a series of ten stories on the use and abuse of executive power by the Obama Administration, the Washington Examiner this week revisited the illegal subordination of federally guaranteed loans made to Solyndra, a modification to the loan agreement that benefited Argonaut Private Equity, owned by Obama campaign bundler George Kaiser.

The law under which the loan guarantees were granted, the Energy Policy Act of 2005, requires that taxpayers are first in line to be repaid in the event of bankruptcy. According to news reports, Kaiser demanded and was granted a restructuring of the financing that put his company ahead of the taxpayers in the repayment line. Obama's Department of Energy invented a novel reinterpretation of the law to allow them to nullify the law's protection of the taxpayers' interests, over the objections of government lawyers.

DOE also asked its outside counsel, Morrison & Foerster LLP, for its opinion, which described the offer as "prohibited."

The Office of Management and Budget also concluded that the DOE's Solyndra loan modification was illegal. On Dec. 14, 2010, OMB analyst Kelly Colyar, formerly the credit policy director at DOE, informed OMB Deputy Associate Director Richard Mertens of a problem "regarding the proposed structure's compliance with the statutory requirement that the DOE guaranteed debt not be subordinate to other financing." A Jan. 4, 2011, OMB staff memo said the same thing....

In direct opposition to the plain meaning of the statute and OMB guidelines on government contracting, DOE lawyers invented a new legal theory that the ban on subordination applied only at loan origination and was not a "continuing obligation."

In other words, since the Solyndra restructuring was a loan modification, DOE could do whatever it wanted.

Upon hearing this novel interpretation, OMB Energy Branch Chief Kevin Carroll said the DOE's reasoning meant "that basically DOE could modify to allow subordination on any loan, at any time, for any reason."

According to the Examiner's analysis, the taxpayers got soaked by Solyndra:

Kaiser has done well despite Solyndra's woes. Taxpayers can expect no more than $24 million returned from the original $527 million investment. Kaiser's investment firm got $975 million in tax breaks that could cut its future federal income tax bills by a third.