Solyndra’s Restructuring Was Unusual, but Illegal? Not Clear

But the hearing did not shed light on whether the arrangement violated federal law, something the Energy Department denies. In fact, much of the hearing focused on whether the subcommittee would release a six-page opinion by Energy Department lawyers arguing that the arrangement was within the legal authority of the energy secretary. House Democrats wanted the memo released, and Republicans were reluctant, arguing that they would hold a separate hearing later on the Energy Department’s memo.

In the end, the memo was released at the hearing. The memo justified the loan restructuring, including the “subordination” of the government’s interest. The memo said that the law required that at the time the loan was made, the government had to be first in line for repayment. But it said the terms could be changed later: “It is not a continuing obligation or restriction on the authority of the secretary.”

The Investigations and Oversight Subcommittee of the House Energy and Commerce Committee is looking into the decision to promise Solyndra $535 million in federal loan guarantees; the company borrowed $528 million, and declared bankruptcy in September.

Solyndra was in default on the loan by December 2010, having violated a financial requirement, according to the Energy Department’s memo, but the government did not cut off a remaining $95 million the company was promised.

This year, with the company running out of cash, the government allowed it to borrow an additional $75 million from private investors that had already invested money; as part of the transaction, the private investors were put first in line to recover money if the company was liquidated.

The arrangement is customary in commercial finance. But Gary H. Burner, the chief financial officer of the Federal Financing Bank, which made the loan, and a Treasury employee for 28 years, and Gary Grippo, who was appointed deputy assistant Treasury secretary for government financial policy by President Obama, said they had not heard of such “subordination” before.

The two officials said that it was not up to them to determine the Energy Department’s legal authority. At one point, Treasury officials suggested that the Energy Department seek a Justice Department opinion, but Energy officials said that was not necessary because the government was not forgiving interest or principal.

Energy officials say that without the injection of $75 million from private investors, the company would certainly have failed sooner. With the fresh cash, there was a possibility that the company would be viable and could repay the government. Now the company is exploring whether to restructure or liquidate.

Asked by committee Republicans why the Treasury Department did not push harder to get the Justice Department involved in interpreting the law, Mr. Grippo said, “It’s not our statute; we did not have all the facts.”

“We were identifying a question,” he said. “We weren’t answering it or drawing any conclusions.”

Two senior Democrats, Representative Diana DeGette of Colorado, the ranking minority member of the subcommittee, and Representative Henry A. Waxman of California, the ranking member of the full Energy and Commerce Committee, had asked Republicans to call Energy Department witnesses to testify on the question of whether they should have gone to the Justice Department for legal advice.

But Representative Cliff Stearns, Republican of Florida and chairman of the Subcommittee on Oversight and Investigations, replied that when the head of the Energy Department loan guarantee office, Jonathan Silver, testified a month ago,  the Democratic lawmakers had been “conspicuously mum” on the question of whether the restructuring of the loan violated the law.

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