Energy Secretary Chu to be questioned in Solyndra collapse

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The top Republican and Democratic members of a House subcommittee investigating the collapse of bankrupt solar panel maker Solyndra LLC after it received more than a half billion dollars in federal loans agreed Friday to seek the testimony of Department of Energy Secretary Steven Chu.

The agreement came during a House Committee on Energy and Commerce hearing over increasing questions surfacing about the loan restructuring for Solyndra, which put taxpayers behind private investors in case of a default. The deal was approved by the Energy Department earlier this year.

Under the restructuring, two private investment groups infusing $75 million into Solyndra — one group with ties to Oklahoma billionaire George Kaiser, the other with ties to Wal-Mart’s Walton family — were given priority to be repaid first before taxpayers if the company collapsed.

At Friday’s hearing, both Rep. Cliff Stearns, Florida Republican, chairman of the investigations subcommittee for the Energy and Commerce Committee, and Rep. Diana DeGette, Colorado Democrat and ranking member of the subcommittee, agreed that Mr. Chu should testify about the Solyndra loan and restructuring.

“We intend to bring Secretary Chu in,” Mr. Stearns said.

“I think it’s important to bring him in,” Ms. DeGette said.

Rep. Brian Bilbray, California Republican, credited Mr. Chu for not being a “political operative” and said that he has “no axe” to grind with the Energy Secretary.

“I hope to God this does not cause him to have to do what Silver did,” Mr. Bilbray said, referring to former Energy loans chief Jonathan Silver, who has resigned in the wake of the Solyndra collapse.

Democrats on the House Committee on Energy and Commerce’s investigations subcommittee began the hearing Friday by accusing Republicans of withholding the Energy Department memo justifying the restructuring, which was authored by Susan Richardson, chief counsel of the Energy Department’s loan program.

Republicans later consented to make the memo a part of the official record, but said they had been planning to investigate the document at a follow-up hearing.

Now that Solyndra has filed for bankruptcy, Republicans are raising sharp questions about the memo and whether the Energy Department had legal basis for approving the restructuring deal that made the government “subordinate” to the private investors.

Energy Department law states that government loans “shall be subject to the condition that the obligation is not subordinate to other financing.” The Energy Department moved forward with the restructuring on the basis of a legal opinion that said the move was permitted under the law, but Republicans weren’t convinced.

“They made a bad loan and they went and broke the law,” Republican Morgan Griffith of Virginia said.

A copy of Feb. 15, 2011, memo by Ms. Richardson and addressed to the department’s general counsel states that a restructuring is permitted because the “subordination” applies to the issuance of the loan, not a restructuring.

“We do not believe it can reasonably be read either as a requirement that the guaranteed loan may never be subordinated, or as a requirement that the guaranteed loan may never be subordinated … ,” the memo states.

“A continuing prohibition would, in our view, be inconsistent with the statutory scheme as it would preclude the use of a common restructuring strategy for a financially distressed borrower,” the memo from Ms. Richardson stated. “Investors are unlikely to make an equity investment in a distressed company on commercially acceptable terms.”

Also in justifying the restructuring, the memo cited statutory language that the loan agreement “shall contain such detailed terms and conditions as the Secretary determines appropriate to protect the United States in a default.”

Based on exchanges during the hearing Friday, Mr. Chu is almost certain to be grilled about his department’s decision to restructure the Solyndra loan.

In testimony Friday, Gary H. Burner, chief financial officer for the Federal Financing Bank, an arm of the Treasury Department, said he had never seen another loan restructuring that put taxpayers behind investors in the 28 years he’s worked for the Treasury Department.

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