Treasury watchdog says Solyndra loan review was ‘rushed’

The Treasury Department's March 2009 review of the Energy Department's $535 million loan guarantee for the solar company Solyndra was "rushed" and it's not clear whether Treasury's concerns were fully addressed, the department's internal watchdog concludes in a new report.

The Treasury report details quick reviews just days before the Energy Department (DOE) issued a press release announcing conditional funding for Solyndra, the California solar panel company that went bankrupt last September.

From the Treasury Office of Inspector General's (IG) report:

In conclusion, we found that Treasury consulted on the terms and conditions of the Solyndra loan guarantee. However, whether that consultation met the intent of the applicable law and regulation is not clear because Treasury’s consultative role was not sufficiently defined, the consultation that did occur was rushed, and no documentation was retained as to how Treasury’s serious concerns with the loan were addressed.

Treasury officials ultimately signed off on the deal, but the IG concludes there are “questions as to whether Treasury’s concerns were fully addressed.”

The review unearthed an internal Treasury email noting that DOE is “under pressure to complete a deal” and a separate message stating, “the train really has left the station.”

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The report is certain to fuel attacks from Republicans, who say the Obama administration didn’t vet the company properly.

Republicans have not found evidence to back up claims by some lawmakers that the loan was approved for political reasons, but have nonetheless used Solyndra’s collapse as a jumping off point for wider attacks against White House green energy policies.

DOE conditionally approved the loan guarantee — an arrangement that puts taxpayers on the hook if the company defaults on its loans — in March of 2009, and finalized the deal in September of that year.

Treasury’s Federal Financing Bank provided the loan.

The report provides a look inside the final days before the high-profile March 2009 DOE announcement that Solyndra would be the first company supported under the green-energy loan guarantee program.

According to the IG, two Federal Financing Bank staff members attended a “dry run” presentation on March 16 ahead of a DOE staff presentation to DOE’s Credit Review Board.

The next day, the White House Office of Management and Budget (OMB) told Treasury that DOE would be issuing a press release on the deal. 

That prompted a Treasury official to “express concerns” about the review process in an email to OMB. The message stated Treasury had previously made clear that it wanted to be involved in developing the loan guarantees and “not be brought in at the end when the terms of the deal had already been negotiated,” the report notes.

On March 18, Treasury received a draft press release that DOE planned to issue later that day, prompting a Treasury official to ask DOE for more review time.

DOE agreed to extend the review time until noon on March 20, but then Treasury agreed with a DOE push to speed up the Treasury review to March 19 to enable the press release to come out on March 20.

Treasury and DOE held a conference call on March 19 in which Treasury questioned certain aspects of the financing agreement.

Treasury told the IG that all the comments were addressed by DOE, and after the call Treasury agreed to the Energy secretary’s signing of the term sheet and issuance of the press release.

Nonetheless, the IG report shows that after the conference call, an internal Treasury email stated: “[W]e pressed on certain issues such as why we aren’t providing only a partial guarantee and covering a smaller percentage of the eligible project costs, but the train really has left the station on this deal.”

The report finds that Treasury officials told the IG’s office that they were provided enough time to sufficiently review the terms and conditions of the Solyndra deal.

“However, Treasury’s e-mail correspondence at the time of Solyndra’s consultation leave questions as to whether Treasury’s concerns were fully addressed,” the report states.

The loan guarantee program was authorized in a 2005 energy law, and was modified and received funding through the 2009 stimulus law that ultimately enabled the Solyndra financing.

Elsewhere, the report states that Treasury was not consulted on DOE’s controversial 2011 restructuring of the loan guarantee, a revision that put investors helping the struggling company ahead of taxpayers for repayment of Solyndra collapsed.

The report says it’s “uncertain” whether Treasury should have been brought in under a provision in the loan guarantee statute that calls for such consultation if DOE allows a “deviation” that constitutes a “substantial change” in a guarantee.

The restructuring has been a focus of House Republicans who have criticized the early 2011 changes to the Solyndra deal.

From the report:

[W]e were told by Treasury officials that it was unclear if Solyndra’s restructure was considered a deviation. This is another matter that requires a common understanding. Specifically, the common understanding should provide for what would be considered a deviation that would constitute a substantial change in the financial terms and conditions of a loan guarantee and require Treasury’s consultation.

The report makes several recommendations to improve communication with DOE in the future, including a call to “establish a definition of what Treasury’s consultative role is and what it should include.”

“Treasury generally agreed with our recommendations and stated it will make a best effort to work DOE to define Treasury’s consultative role prior to conditional commitment and identify circumstances under which DOE should consult Treasury in the context of any deviations to the financial terms of the loan guarantee,” the report states.