George Kaiser, GKFF, and Solyndra

This is long, but worth reading, particularly if you're knowledgeable about the financial aspects of bankruptcy. There are some interesting twists and turns that seem to suggest that GKFF's investments have been protected to the detriment of federal taxpayers. If that's so, I'm torn: It's better for Tulsa if GKFF doesn't get soaked by the failure of Solyndra, but as a fiscal conservative I have a problem with a government guarantee, particularly one that has a strong whiff of political favoritism, that gives investors nothing but upside while taxpayers break even at best. But that's all my opinion and speculation, and it's certainly not my intent to suggest any wrongdoing on the part of anyone involved.

Solyndra's Fremont, California, facility, by Monica's Dad on Flickr. Creative Commons Attribution 2.0 Generic license.

A few news stories and commentaries of interest, regarding Oklahoma's wealthiest man, George B. Kaiser, and the recently-bankrupt solar energy firm Solyndra, which failed despite $535 million in federal loan guarantees. The stories discuss Kaiser's fundraising for the Obama campaign, his visits to the Obama White House the week before the Solyndra guarantee was approved, the increasing level of his George Kaiser Family Foundation's investment vehicles in Solyndra, and Kaiser's Argonaut Ventures I moving first in line, ahead of the taxpayers, for repayment.

From the Daily Caller, an account of George Kaiser's four visits to the White House in the week before the Solyndra loan guarantee was approved:

According to White House visitor logs, between March 12, 2009, and April 14, 2011, Solyndra officials and investors made no fewer than 20 trips to the West Wing. In the week before the administration awarded Solyndra with the first-ever alternative energy loan guarantee on March 20, four separate visits were logged.

George Kaiser, who has in the past been labeled a major Solyndra investor as well as a Obama donor, made three visits to the White House on March 12, 2009, and one on March 13. Kaiser has denied any direct involvement in the Solyndra deal and through a statement from his foundation said he "did not participate in any discussions with the U.S. government regarding the loan."

But the countless meetings at the White House seem hardly coincidental. Kaiser, in fact, is responsible for 16 of the 20 meetings that showed up on the White House logs.

In the meetings on March 12, Kaiser met with former Chairman of the Council of Economic Advisors Austan Goolsbee at 11 a.m., Senior Advisor Pete Rouse at 3 p.m., and Deputy Director of the Domestic Policy Council Heather Higginbottom at 6:30 p.m. On the 13th, Kaiser met with Deputy Director of the National Economic Council Jason Furman at 9 a.m....

As TheDC previously reported, Solyndra officials, including Kaiser himself, donated hundreds of thousands of dollars to Barack Obama.

Kaiser personally donated $53,500 to Obama's presidential campaign in 2008. Ben Bierman, executive vice president of operations donated $5,500 to Obama, and Karen Alter, senior vice president of marketing gave $23,000, just to name a few.

From Reuters' MuniLand blog on September 8, 2011: "The President's argonaut," a detailed look at the George Kaiser Family Foundation's investment in Solyndra:

Two of Solyndra's largest investors are Argonaut Ventures I, L.L.C. and the GKFF Investment Company, LLC. Both firms are represented on the Solyndra board of directors by Steven R. Mitchell (see Solyndra S-1 page 119). Both are investment vehicles of the George Kaiser Family Foundation of Tulsa, Oklahoma....

George Kaiser alleges that he didn't discuss Solyndra with any White House officials but his investment vehicles were very hot for Solyndra. I went back into Solyndra's IPO filing and totaled up the amount of funding Kaiser's investment businesses gave Solyndra. Over 9 rounds of financing it invested approximately $337 million, or 48% of all equity raised for the business. Although Kaiser, through Argonaut and GKFF Investment Company, LLC, did not participate in the initial two private financing rounds, they dominated the following funding rounds and were the major venture capital investors in the firm....

Like many bankruptcies there are a lot of creditors in line to be repaid by disposing of Solyndra's assets. What is unusual is the order of precedence of creditors. When the Solyndra loan was guaranteed by the Department of Energy and paid out by the U.S. Treasury according to US law 10 C.F.R. §609.10(d)(13), the government should have become first in line for repayment (page 2):

Any Guaranteed Obligation may not be subordinate to any other debt and must have a first lien position on all assets of the project and all additional collateral pledged as security for any project debt.

But when I read the bankrutpcy filing it turns out George Kaiser's investment firm is actually first in line, ahead of the U.S. government, for $69 million. Here is the ordering:

Tranche A: $69,302,901 - Argonaut Ventures I, L.L.C
Tranche B/D Term Loan Facility: $527,808,544 - U.S. Department of Energy
Tranche E Credit Documents: $186,481,645 - Argonaut Ventures I, L.L.C.

The financing documents were rewritten in February 2011 and gave priority to Argonaut for Tranche A. Several commentators have raised the question of why the Department of Energy would have allowed the government to become subordinate to Argonaut given the law.

Bruce Krasting on the Zero Hedge blog notes a curious omission on the list of witnesses at Wednesday's House Energy and Commerce Committee hearing:

Of interest to me is that there are no witnesses scheduled for the principal owner, Argonaut Ventures (George Kaiser family investment vehicle). One would think that it might be informative to talk with the investors. Ah, well.

Maybe a couple of Tuesday's Tulsa City Council primary winners could have flown up to DC to represent the investors -- GKFF trustee Phil Lakin and former GKFF lobbyist G. T. Bynum.

(Another Tulsa connection: Congressman John Sullivan is vice chairman of the Energy and Power Subcommittee of the House Energy and Commerce Committee and, as such, Sullivan is on the Subcommittee on Oversight and Investigations.)

Krasting writes that Argonaut purchased Solyndra's inventory and accounts receivable in July. He speculates that Argonaut might be able to profit from the purchase of Solyndra as a company to be able to use its Net Operating Losses (NOLs) to offset income from other energy-related investments. (That's my attempt at a summary as a financial novice. Best to read Krasting's opinion for yourself.)

Bottom line. Only Argonaut has a chance of utilizing the tax benefits. Whether they are ultimately worth anything is not clear. But this fact does give Argonaut a potential leg up on other bidders. Keep in mind that Argonaut would not be paying cash for anything. They would just swap all of [Solyndra] (including the NOLs) for their otherwise worthless IOUs.

Krasting goes on to relate something he said on the Pat Campbell Show on Tulsa talk station KFAQ:

At one point it came up that Kaiser is a pillar of Tulsa. I used that chance to say: (Edited for stutters, run ons etc...(Link)

George Kaiser could step up in a bankruptcy court and offer to put $300mm into [Solyndra]. The proceeds would be used to substantially pay down the government IOU. The balance of the debt would be converted into common stock. If [Solyndra] were around in 5-7 years, the government might get the rest of its money back.

That's my challenge to George Kaiser. Step up and fix this problem.

Of course this would be the dumbest thing for Kaiser to do. I don't think he's dumb at all (and he has the best lawyers). I'm sure he doesn't like losing good money after bad. That said, this isn't one of those everyday stories. This one could swing an election. I wonder if he gave it a thought.

I wonder if Bruce Krasting has heard of Great Plains Airlines. The failed Tulsa-based airline defaulted on $7.1 million from George Kaiser's Bank of Oklahoma and burned up some $30 million in transferable tax credits. According to first-hand accounts, bank officials claimed city officials had made implicit guarantees that the city would cover any default, despite assurances from the same officials to the public that the city taxpayers were not on the hook if the airline failed.

When the FAA ruled that the collateral for the loan could not be used for that purpose (an illegal subsidy using FAA passenger service fees to favor one airline over others at the same airport), there was a lawsuit. The city government was added to the suit under the flimsy pretext of "unjust enrichment," then-Mayor Kathy Taylor, a Democrat, immediately waved the white flag, and the loan was repaid, just before the end of 2008Q2, out of Tulsa's sinking fund at the expense of city property taxpayers.

The list of Great Plains Airlines investors was a who's who of Tulsa insiders. (It should be noted that Kaiser was not an GPA investor.) Politically connected private investors would see nothing but upside for investments that often consisted of in-kind services, while the taxpayers would (and did) take it in the shorts if it failed and at best could hope for break-even.

(More about Great Plains Airlines, its failure, and the ongoing impact on Tulsa taxpayers in the BatesLine Great Plains Airlines archive.)

MORE: Bruce Krasting has a September 15, 2011, update, "Solyndra - A few new facts. A few new questions," in which he takes a closer look at the sale of Solyndra's inventory and accounts receivable by subsidiary Solyndra Financial to a day-old Delaware corporation called Solyndra Solar II, with a company called Argonaut Solar acting as agent. The sale is disclosed in the bankruptcy filing. Krasting asks some questions:

I have found no explanation/details for this transaction. It is clear that a purchase/sale took place. The question of how much was sold and at what price is not clear. It is also not clear what Argonaut Solar is doing in this deal. Argonaut is a name that George Kaiser uses. His family investment vehicle channeled money to SOL through a company called Argonaut Ventures. Why would a company controlled by GK have a role as Agent between the buyer and seller of SOL's assets? A question to ask is whether GK has (directly or indirectly) an interest (equity or debt) in SSII.

Krasting considers the impact to the taxpayers:

Argonaut (GK) has separately offered to provide a post bankruptcy loan of $4mm ("DIP"). There are many terms required by Argonaut. One requirement relates to the A/R sales. From the docs:

It is a condition to funding under the DIP Facility that the Inventory Accounts Receivable Trust Funds being held in the Inventory A/R Purchaser Trust Accounts are released to Argonaut Solar, LLC, as agent for the Inventory A/R Purchasers.

Argonaut's (very good) lawyers make their position very clear as to who owns the assets in the A/R accounts.

The Purchased Inventory (including any proceeds thereof) and the Inventory Accounts Receivable Trust Funds (including any proceeds thereof) are property of the Inventory AIR Purchasers and not property of the Debtors' estates.

In other words, Argonaut is willing to make a new $4mm loan, PROVIDED that the Judge releases (at least $3.86m) back to an entity that Argonaut is connected to (SSII). In addition, the Judge would be functionally sanctioning the A/R sale. The inventory (whatever it is worth) and the receivables (whatever they are worth) will be excluded from the Debtors Estate. That means that there is even less of a chance that Uncle Sam sees a penny of the money that he (we) are owed.

Krasting emphasizes that he is not suggesting wrongdoing on anyone's part. (Nor am I.) He is simply, as a taxpayer and blogger, looking for some clarity. (As am I.) Krasting has asked for insight from his readers. If you can shed any light on what all this means, please leave a comment or contact me via email. If someone from GKFF or one of the foundation's related investment vehicles wishes to provide some sort of rationale behind these items from the bankruptcy filing, as noted by Krasting, I'd be happy to publish it here.

MORE: If you've lost Jon Stewart... (via Brandon Dutcher on Twitter)

Stewart leads into a clip from an ABC News story about Kaiser's White House visits: "For this to truly become a weapons-grade political fodder, you're going to need incompetence with more than just a whiff of sinister cronyism."