Solyndra’s red herring

Sep 19, 2011

Dan Primack was a senior editor at Fortune from 2010 to 2016. He was also the author of Term Sheet, Fortune's daily newsletter about deals and dealmakers.

Solyndra is the subject of another bogus political scandal.

While both politicos and pundits continue to ignore Solyndra's flawed business model, lots of attention is being given to the fact that some of Solyndra's investors are scheduled to be reimbursed before the federal government. Apparently this is scandalous, because one of the investors -- Argonaut Private Equity -- is affiliated with a major donor to President Obama.

For example, take a look at this headline from Drudge:



Yeah, it looks bad. So long as you don't look beyond the headline.

Argonaut was among several firms that invested nearly $1 billion of equity in Solyndra, the solar panel maker that went bankrupt earlier this month. Most of that money was invested before the Department of Energy provided Solyndra with $535 million in loan guarantees, while a couple hundred million was invested as a condition of loan approval. None of that $1 billion has been "reworked" to the benefit of Solyndra's equity investors. They all are subordinate to the federal loan, and will likely get wiped out.

What Drudge and others are referring to, however, is $75 million in debt financing that Solyndra raised after the DoE loan. Basically, the company was floundering and this was a last-ditch effort to turn the company around. The primary debt providers were Argonaut and another existing Solyndra investor called Madrone Capital Partners. This is the money that has priority to the feds (assuming anyone ultimately buys Solyndra's assets).

It is ludicrous to suggest here that some sort of political favoritism was at work. Three reasons:

  1. 1. If the goal was to reduce risk for Solyndra's existing investors, then DoE would have simply invested the extra $75 million itself. Instead, Argonaut and Madrone put that risk on their own books -- as part of a broader restructuring that actually devalued their existing equity investments.
  2. 2. Of course Argonaut and Madrone have priority on the $75 million. That's how a restructuring works. Methinks some political commentators need to take Cap Table 101.
  3. 3. It is true that Argonaut is affiliated with Obama buddy George Kaiser, via a non-profit foundation. But it also is true that Madrone is affiliated with Wal-Mart’s Walton family, who generally contribute to GOP causes. As such, Drudge could have written: "Administration REWORKED Solyndra loan to favor to McCain donor." Equally true. And equally misleading.

[Note: As one reader pointed out, it's unclear if Madrone is one of Solyndra's first-lien lenders, or its only priority to DoE is on a debtor-in-possession financing that Argonaut and Madrone provided as part of the bankruptcy filing. Trying to double-check. Either way, Madrone gets some money back before the DoE]

As I keep writing, Solyndra is a major black eye for the DoE and there should be a full investigation. But let's stop the partisan insinuations until there is some actual evidence to support them.

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