Solyndra Moves Closer to Scrap Heap

NEW YORK ( TheStreet) -- Nobody wants to buy failed solar company Solyndra, and its fate will now rest in the hands of corporate auctioneers looking to sell it piece by piece.

"No company has given us a bid that we can work with. In the context of bankruptcy, by law a bid must be higher than the estimated liquidation value," said Eric Carlson, financial adviser at Imperial Capital, which was hired once Solyndra entered bankruptcy to find a buyer willing to revive the company as a solar manufacturer.

Carlson said Imperial Capital contacted at least 150 potential buyers, but was not able to find one bidder willing to bid above estimated liquidation value. The closer Solyndra gets to the scrap heap, the more questionable the market rationale provided by the federal government for its continued investment in the company looks.

At the height of the resulting political furor, the Department of Energy presented a very specific defense of its continued investment in a company with a deteriorating financial outlook, a defense predicated on Solyndra being worth more as a going concern than in liquidation.

The former head of the DOE loan guarantee program, Jonathan Silver, said this in written testimony provided ahead of a grilling by a House Energy committee:

" The DOE faced a choice: whether to (1) refuse to allow the Solyndra's restructuring, thereby ensuring that Solyndra would close its doors immediately, and that the U.S. taxpayer would recover only a modest amount of the loan; or (2) allow the company to accept the emergency financing, thereby giving it and its almost 1,000 workers a fighting chance at success, and the government a higher expected recovery on its loan."

Silver continued, "The decision was not an easy one, and it was made only after significant analysis and deliberation, using the same sort of tools and rigor that private sector lenders use in such scenarios...Both the market study and the financial modeling suggested that the company's value as a going concern was greater than what the government was likely to recover in liquidation at that time. Accordingly, DOE determined that restructuring the loan guarantee gave the U.S. taxpayer the best chance of being repaid on the loan."

The comments from Imperial Capital, though, suggest that for all the tools and rigor that private sector lenders use in such scenarios, the end result for Solyndra is going to be what many skeptics always imagined: A sale of equipment and real estate bit by bit, as opposed to any buyer willing to make a bet on the company as a going concern.

"Solyndra is a unique technology and it's unfortunate that given its benefits the technology isn't being utilized by anyone," Imperial Capital's Carlson said. "It's a big opportunity, but any buyer would need to invest a lot to restart the company. You'd have to fund the company to the breakeven point, and that's not a small check."

Reuters reported earlier Wednesday on the lack of buyers materializing for Solyndra.

Given the amount of money a new buyer would have to sink into Solyndra in the hope that it survived the current shakeout in the solar sector, it's not a surprise to see why no bidders materialized willing to keep the company alive.

The federal government can make the case that the situation in solar deteriorated in 2011 -- after it had restructured the Solyndra investment -- and it was this market deterioration that eroded its "margin of error." This led to flaws in the financial model it used to argue on behalf of continuing to fund the company. After all, it did ultimately pull the plug on Solyndra as opposed to funding it indefinitely.

However, the spurning of Solyndra and the preparation of its assets for the auction block suggests that the private sector models useful in making lending decisions might not be broadly applicable to a nascent alternative energy sector, where the competitive landscape can change overnight.

In the debate over whether the government stayed in Solyndra too long because it simply had too many sunken costs to get out, or because the financial models and private sector tools were on its side, it's starting to look like the sunken costs are sinking the DOE funding logic.

This isn't about the politics of Solyndra, in the end, but about future U.S. energy investment and energy policy. It's still the early days of an evolving sector in which the interaction of the markets and the government is critical to future progress.

Knowing when to fold is never an easy decision, but learning from past decisions can help.

-- Written by Eric Rosenbaum from New York.

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