A foreign renewable energy company, that U.S. taxpayers hold a major stake in via the Department of Energy Loan Program Office, is imperiled by massive debt and has begun the process of negotiating with its creditors as a prelude to possible bankruptcy.
The company is Abengoa, based in Spain, which reportedly holds 887 subsidiaries around the world. Reuters reported at the end of last month that investors declined to provide needed capital for the firm, which led to what is called, under Spanish law, “pre-insolvency proceedings.” That entails a four-month attempt to alleviate debt burdens. If that falls short, then formal bankruptcy proceedings would likely follow, which would be Spain’s largest in history. Effects would ripple globally.
Several international banks have investments at risk, to the tune of about $21.4 billion, according to Reuters. American taxpayers could be on the hook for $2.34 billion, which is the amount of debt held by the government-owned U.S. Federal Financing Bank. It is Abengoa’s single largest creditor, according to the The Daily Caller News Foundation.
American ventures that received loans from DOE are solar projects in Arizona and California. The Loan Program Office awarded Abengoa a $1.45 billion guarantee in December 2010 for its Solana project in Gila Bend, Ariz. In September 2011 the LPO finalized $1.2 billion in financing for the Mojave Solar Project in San Bernardino County, Calif.
As usual, the Department of Energy says not to worry. You see, Abengoa is a “parent company” to these hundreds of subsidiaries and thus – theoretically – has a buffer of protection against any failure to repay its loans.
“Overall, DOE’s more than $32 billion loan portfolio has accelerated the deployment of clean energy technology and is performing very well, with losses of only approximately two percent of the entire loan portfolio,” said spokesman Bart Jackson to the Arizona Republic.
Jackson added that Solana (as well as Mojave) are “owned by a project finance company” that is “repaying its loan with interest.” But the company involved is also named “Abengoa.” According to the Republic, Solana is co-owned by Abengoa Yield Plc and Liberty Interactive Corp., another company that owns other “subsidiaries” and green investments. The newspaper says Abengoa S.A., which is the entity that is in financial trouble, is the largest investor in Abengoa Yield.
So is it a distinction without a difference? Daily Caller says the Federal Financing Bank’s risk with Abengoa is “exclusively in financing of projects,” as though there is nothing else to fear. But what else would concern to American taxpayers, other than a loan recipient’s ability to pay back what it owes?
Abengoa has run afoul of other federal agencies as well. In 2013 contractors working on Solana had filed claims against Abengoa over $16 million for lack of payment. The Republic reported that three other Abengoa affiliates were involved in the construction of the project, which spurs the question, are all these subsidiaries intended to buffer the parent company from paying its bills? Contractors filed liens against the project, and one even took all its employees off the job over nonpayment. The Republic says some small business owners settled for less than what was owed them.
Besides those glitches, Solana’s energy production in 2014 fell about 1/3 short of projections.
Speaking of uselessness from taxpayer-backed renewable boondoggles, Abengoa is responsible for an ethanol plant in Kansas that received nearly $230 million in federal loans and grants. While it has paid back its $132 million DOE loan, it has not sold any biofuels produced at the plant, instead having it “stored at the facility.” It has been open a year.
The Department of Energy has a habit of defending its stimulus endeavors, even in the headwinds of its many investment failures and frauds. When Fisker Automotive declared bankruptcy, losing millions of dollars, a spokesman boasted that the “Energy Department has protected nearly three-quarters of our original commitment to Fisker Automotive.” And DOE Secretary Ernest Moniz said his agency would “play an important role” when it awarded a $259 million loan to Alcoa for a project that had already been underway for 19 months and its existence was revealed two years earlier, without government help. And earlier this year Loan Program Executive Director Peter Davidson – in the face of accusations of deceptive financial reporting by the Government Accountability Office , that DOE had underestimated losses – shrugged off the criticism.
“As a whole, the portfolio is performing very well,” Davidson wrote.
Meanwhile the stumbling Abengoa continues to lobby for more subsidies, according to the Washington Free Beacon. Considering the blissfully ignorant, shabby loan program operation at DOE, why not try for more? Is this part of “negotiating with creditors?”
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.