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Solyndra's collapse is a tale of too much dazzle

Investors were convinced that the solar company was the harbinger of an alternative-energy boom. But the market changed too swiftly.

September 24, 2011|By Ken Bensinger, Stuart Pfeifer and Neela Banerjee, Los Angeles Times

One investor, British billionaire Richard Branson's Virgin Green Fund, bragged that it had selected only Solyndra from a pool of 117 solar companies seeking backing. Other investors included billionaire Oklahoma oil baron George Kaiser, and a fund that manages the money of the family behind Wal-Mart Stores Inc. Wall Street heavyweight Goldman Sachs Group Inc. was its lead investment banker.

"Very high-profile money was all over that company," said Bailey, the investment banker. "Nobody else had anything as strikingly different as Solyndra."

When the company emerged from what it called "stealth mode" in October 2008, it had already raised $600 million and was the toast of Silicon Valley. It also had applied for the Department of Energy loan guarantee, which would be granted in 2009.

That guarantee, the first approved in the program, made Solyndra a symbolic standard-bearer for the Obama administration's push for investing in green jobs.

Under terms of the deal, the Energy Department would guarantee the loan, issued by the Treasury's Federal Financing Bank and carrying a tiny 1% interest rate. The money would pay the lion's share of a new $733-million factory, the company's second, needed to increase capacity dramatically and streamline manufacturing.

That was key, the company said, because it urgently needed to bring costs down.

By the time the loan was conditionally approved, sinking demand for solar energy had helped drive the price of silicon off a cliff, to less than $100 a pound. Heavily subsidized Chinese flat-panel makers began slashing prices faster than Solyndra could.

Solyndra's prices were 66% higher than competing flat panels in late 2009, according to public documents filed with the Securities and Exchange Commission.

What's more, Solyndra was selling them for almost half what they cost to make in an effort to build market share, which only led to mounting losses.

The company never made a profit. By 2009, the company had lost $373 million. Less than a year later, losses grew to $558 million, enough to get auditor PriceWaterhouse to issue a stark warning about Solyndra's financial viability.

Solyndra argued, however, that it could get its prices down if it could just buy more time. The company pointed to successes such as a 3-megawatt installation in Belgium and a 500-kilowatt Costco Wholesale Corp. rooftop in New Jersey that won a national solar award. Even as the company was losing millions, the Wall Street Journal ranked it the top clean-tech company in the country.

"It was a really nice technology," said Mike Anderson, vice president for marketing at Solar Power Inc., which installed Solyndra panels on the Costco in Hazlet, N.J.

In mid-2008, his firm inked a deal with Solyndra to buy up to $325 million of its modules. But with prices falling much faster for other types of panels, Solar Power completed only one other project using the technology.

"It just didn't get to a point where it could compete," said Anderson, pointing out that the much lower cost of conventional panels outweighed the design advantages of Solyndra's product.

Meanwhile, more red flags kept popping up.

Just weeks after President Obama visited Solyndra's factory in May 2010, touting the permanent jobs it had created, Solyndra yanked a planned $300-million initial public offering. Soon thereafter, it named a new chief executive — who had no experience in solar panels.

The turmoil spurred an exodus of talent, according to Michael Kohlstadt, a research and development engineer who worked at Solyndra for four years before being laid off Aug. 31.

He had dreamed of cashing in his 13,000 stock options for as much as $250,000, but now is left with a lawsuit against the company for unpaid vacation time owed when Solyndra shut down.

"They were still hiring people the prior week," Kohlstadt said.

In the year and a half before its collapse, the company was able to raise $175 million in private loans, despite the continuing stream of alarming news. In February, the administration allowed Solyndra to take $75 million in additional outside loans that would take priority over its own debt, a desperation move that put taxpayers behind private equity firms in terms of getting repaid.

Behind the scenes, the company was pumping nearly $2 million into a lobbying effort designed to present a positive face to the government.

As late as July, the company sent a barrage of upbeat information to politicians, claiming that it was financially "on track" and "at pace with the industry" in terms of cost-cutting.

In California, the efforts paid dividends.

Last November, just two weeks after Solyndra shuttered its original factory and laid off 150 workers, the California Alternative Energy and Advanced Transportation Financing Authority authorized up to $34.7 million in sales tax exemptions for the company.

Christine Solich, the authority's executive director, said it did not factor Solyndra's viability into the equation.

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