Posts Tagged ‘Megan McArdle’

From The Atlantic’Megan McArdle:

Solyndra had raised only $450 million on the strength of its technology (a non-silicon-based solar panel, at a time when silicon prices were very high). This implies that more than half of the money was raised after the feds agreed to a $500 million dollar loan guarantee at extremely attractive below-market rates.

It’s not exactly surprising that investors were willing to take a little flyer on a high-risk project that was being heavily subsidized by Uncle Sam–especially since the signal of the subsidy may have served, for some investors, as a substitute for doing their own due diligence. But I’m not sure that this can serve as evidence that the government’s investment was a good idea.

After all, the investors had the potential for upside. For the government, there was no upside: they were on the hook if the loan failed, but all they got if the loan succeeded was the psychic benefit of a job well done. And if I’m doing the math right, and it’s true that Kaiser, the largest backer, had a roughly 35% stake in the firm, then it looks like the government had by far the largest exposure on Solyndra, even though from the taxpayer’s point of view, this deal was “Heads you win, tails I lose.”

Plus this:

As if that wasn’t bad enough, by November of last year, the company was teetering. Its technology was essentially a large bet that prices of silicon would stay high, making its product competitive. It’s never clear that this was a good bet–Peter Lynch, a solar industry analyst, told ABC that “It’s very difficult to perceive a company with a model that says, well, I can build something for six dollars and sell it for three dollars.” But in 2009, thanks to expanded capacity and a recession-induced decline in demand, the price of silicon-based panels began falling. In June of 2010, the company pulled its IPO. In November, it laid people off and seems to have been on the brink of bankruptcy.

Last February, there was a hail-mary financing round in which the firm raised $75 million. But to secure that deal, the administration had to agree to take a back seat to the new investors. Today, the DOE’s Silver argued that this was the right decision, because quitting then would have meant liquidation, while now it can be reorganized as a going concern. Mr. Silver knows more about Solyndra’s operations than I do, of course, but I am struggling to see how it can be “more valuable” as a going concern manufacturing products that cannot be sold at a profit. This is not a case of a company that has crippling debt or legacy costs, or a temporary cash flow problem, which can be resolved in bankruptcy. It seems to have a permanent structural gap between the cost of manufacturing its products, and the price at which people are willing to buy them.

Read the whole thing.


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