Goldman’s role in Solyndra’s rise and fall
Last issue, I discussed the photovoltaic, or PV, solar market, its advantages at small scales, its relative inefficiencies and the lack of an existing solution to reducing solar panel size without reducing energy output. These circumstances prompted Solyndra and others to adopt a thin film strategy to reduce material and other costs.Thin film gained momentum because the cost of polysilicon — the primary material in PV panels — skyrocketed to $450 a kilogram in 2008. Solyndra’s response was to use less expensive materials, and less of them. The strategy was reasonable, given the prevailing wisdom among experts was that polysilicon prices would remain elevated for years.Enter Goldman Sachs. Solyndra had already raised nearly $400 million in equity and debt financing, but hiring Goldman in 2008 helped further separate them from a crowded solar pack. A fortuitous rise in oil prices, combined with Goldman’s credibility and world-class contacts, set the stage for a financing bonanza.In July 2008, Goldman was unabashedly touting to prospective investors that Solyndra possessed sales contracts worth almost $1 billion over the next four years. And Chris Gronet, Solyndra’s founder, reportedly claimed to investors that a projected second-quarter 2010 IPO would be valued at a lofty $4 billion to $6 billion.Despite these sunny numbers, Goldman considered investing its own money but curiously never pulled the trigger. Nonetheless, by 2009, as Solyndra’s exclusive financial adviser, Goldman was instrumental in negotiating the $535 million government loan guarantee. Can you say, “friends in high places”?Solvency questionedThe ill-fated loan originated with the Goldman-friendly Bush administration, but long before the Obama administration consummated the deal the price of polysilicon began to tank.This unwelcome shift didn’t escape the attention of Goldman. As early as October 2008, they warned clients that with subsidies subsiding and financing faltering, the risk of oversupply would “soon become a reality.” The government loan didn’t close until September 2009.Others also recognized the shifting market sands. Although from a suspect source, an email sent by a Solyndra competitor to the Department of Energy questioned “whether the DOE loan guarantee program is suitable as a ‘bail out’ program for failing private manufacturers.” Evidently the query was ignored.If the moral dilemma of helping Greece hide its debt didn’t deter Goldman, a little thing like a collapsing market wasn’t going to derail its plan to take Solyndra public. On the strength of the government loan the company filed its IPO in December 2009.But by March 2010, Solyndra’s auditors began questioning the company’s solvency, and shortly thereafter the IPO was shelved. Undaunted, Goldman continued soliciting investors, albeit at greatly reduced valuations. Sounds foolish, but without a cash infusion, there was a risk that the government money spigot would run dry.Sure enough, by December Solyndra’s lack of cash violated the loan terms.Attempting to salvage the situation, private investors threw $75 million of good money after bad with one stipulation — they would be repaid before the government in case of default. Very patriotic. Less than a year later, Solyndra was bankrupt, but only after Goldman had helped them squander almost $1 billion.None of this should surprise anyone. Goldman was being Goldman — greedy. The government was being the government — inept. And Solyndra was just the latest in a long line of startups that bet on the wrong horse. Solyndra at least made an honest if ill-fated effort to advance the stage of solar technology.Author, professor, entrepreneur, radio and TV commentator, Tony Paradiso of Wilton is a marketing, management and macroeconomic expert. His website is at tonyparadiso.com.