Solyndra Schadenfreude As Goldman Sachs Played Key Role

Tyler Durden's picture

While we are not completely shy of saying we-told-you-so, in the case of the players in Solyndra's fantastic rise and fall, we are more than happy to. Back in September we highlighted Goldman Sachs' key role in the financing rounds of the now bankrupt solar company and this evening MarketWatch (and DowJones VentureWire) delves deeper and highlights how the squid has largely stayed out of the headlines (what's the opposite of lime-light?) in this case despite its seemingly critical assistance and support from inception to pre-destruction.

MarketWatch: How Goldman played key role in Solyndra's rise

Goldman Sachs Group Inc. (NYSE:GS) , which Solyndra hired in 2008, helped propel the solar panel maker from Silicon Valley start-up to White House showcase. It solicited investors for the company with rosy valuation projections and helped Solyndra win a $535 million Department of Energy loan guarantee. And it positioned itself to earn underwriting fees if the company held an initial public offering.

 

The banking giant's name has come up in the course of the Congressional investigation that has followed Solyndra's spectacular downfall, but it's not the focus. Even so, the extent of Goldman's role helps explain how Solyndra catapulted from unknown start-up to secure more than $1 billion in private capital. That private backing was "absolutely" a factor in the government's decision to make Solyndra the first beneficiary of a DOE loan-guarantee program, said department spokesman Damien LaVera.

 

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Goldman spokesman Michael Duvally declined to comment on most aspects of Goldman's work for Solyndra, as well as whether the company has been contacted as part of the federal investigation.

 

Investment banks often help promising young companies raise capital, deal with the government and prepare to go public. Goldman's role in Solyndra followed that standard script, but its client turned out to be anything but typical, as Solyndra's bankruptcy filing in September triggered a political tempest.

 

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By the time Goldman got involved in 2008, Solyndra had already raised at least $300 million in equity and $93.5 million in debt, according to regulatory filings and research firm Dow Jones VentureSource.

 

That summer, as oil prices were at a record high, fueling interest in renewable energy, Goldman began soliciting investors for another round.

 

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A private-placement memorandum viewed by VentureWire, which was shopped around in July 2008 by Goldman to prospective investors, stated Solyndra had long-term sales contracts that "allow for approximately $1 billion of sales from 2008 to 2012."

 

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Goldman's involvement in Solyndra, and its lofty valuation projections, lent credibility to the company and helped rouse investor interest.

 

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Goldman considered putting in its own money, but it decided to wait, because Solyndra had just completed its latest financing round, a person familiar with the matter said.

 

By early 2009, Goldman was Solyndra's exclusive financial adviser as it helped the company negotiate terms of its $535 million government loan guarantee. Emails from January 2009 show Goldman dealing directly with the Treasury Department unit that made the loan guaranteed by the Energy Department.

 

By that time, the market was already turning against Solyndra, because the price of a key material used by its Chinese competitors was falling sharply. That was clear to a Goldman Sachs research analyst, Michael Molnar, who in October 2008 warned clients that the risk of oversupply in the market would "soon become a reality" as subsidies shrink and financing tightens.

 

One of Solyndra's competitors, Nanosolar Inc., sent an email to an energy department official in February 2009, questioning "whether the DOE loan guarantee program is suitable as a 'bail-out' program for failing private manufacturers."

 

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Goldman continued with plans to take Solyndra public. Following the closing of the federal loan in September 2009, Solyndra filed in December 2009 to go public and raise $300 million. Goldman and Morgan Stanley were the lead underwriters and stood to make millions of dollars in banking fees.

 

In March 2010, Solyndra's auditor raised doubts about the company's prospects. Two months later, Solyndra canceled its IPO, citing market conditions, and soon was in danger of defaulting on the DOE loan.

 

In an effort to keep Solyndra afloat, Goldman began canvassing for investors. In October 2010, Goldman representatives were scheduled to meet with the DOE to discuss the potential for bringing in more private capital from new investors, according to emails published last week as part of the Congressional investigation.

 

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By December 2010, Solyndra had run so short of cash that it violated terms of its loan agreement. A group of existing investors, including Argonaut, came to the rescue in February...

 

With no options in sight, the company pulled the plug in September, filing for bankruptcy and laying off about 1,100 employees. Solyndra's $1 billion sales projection in the Goldman-advised 2008 memo proved to be overly optimistic.

 

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All told, Solyndra raised $1.34 billion in private capital--including $632 million in equity and $300 million in debt with Goldman's help, according to filings and VentureSource data.

 

Solyndra is currently trying to unload its assets to the highest bidder in the wake of its bankruptcy filing. This time, it won't get any help from Goldman: Goldman's Duvally said the bank and Solyndra are no longer involved with each other.

As we said before, anywhere you look, Goldman has been there and left its slimy, inky mark.