Inspector General: DOE failed to manage ‘risks’ with Abound’s loan

LOVELAND – The Department of Energy had “weaknesses” in a program administering a $400 million loan guarantee to Loveland-based solar panel manufacturer Abound Solar Inc., according to a report from the Office of the Inspector General.

The 23-page report comes nearly two years after Abound Solar declared bankruptcy in July 2012, confirming what BizWest reported in November 2012: The company had filed reports with the U.S. Department of Energy that revealed a history of defective products, equipment problems and repeatedly missed revenue and production goals. Abound Solar also faced stiff competition from Chinese, who had subsidized the nation’s solar industry.

But the inspector general’s office report reveals for the first time that the administrators of the energy department’s program failed to consult with a credit review board responsible for reviewing the loan’s terms and conditions about a change in a credit subsidy after the board’s recommendation to approve the loan.

Specifically, program administrators lowered the potential recovery in the event of a default from 38 percent to 8.3 percent before the loan closed.

Loan-program administrators also failed to resolve conflicting opinions of advisers regarding the company’s ability to solve technical problems.

In January 2011, a month after issuing the loan, the energy department learned that Abound’s solar panels were underperforming.

“One of the most significant of these issues was the potential for panels to spark or catch fire,” according to the report.

As a result, Abound reported its second-largest customer had returned $2.2 million of product and canceled an estimated $3.8 million in orders for December 2010, the month the loan was issued.

The energy department’s independent engineer believed that Abound’s plans to address the problems were achievable and that project funding should continue, but the program’s internal solar expert recommended the energy department not approve additional disbursements.

Additionally, the energy department did not adequately document assumptions in financial modeling used to support loan approval and monitoring. The energy department also did not conduct ongoing, formal financial and industrial analyses as part of its monitoring activities for the loan as required by a policy manual.

“As a result of the issues we identified, it did not appear that the program had adequately managed the risks associated with the Abound loan,” the Inspector General report said.

Energy department spokeswoman Dawn Selak responded in an email that the agency conducts “rigorous due diligence,” establishing protections in its agreements and closely monitoring projects.

“Independent reports have noted that the program’s due diligence is as rigorous – or more so – than that of the private sector,” she said. “But as today’s report makes clear, we have also made significant improvements to the administration of the program since its inception.

“While the ultimate outcome for Abound Solar was unfortunate, it is important to note that the performance of the portfolio as a whole remains very strong with total losses to date of only about 2 percent,” she added.

The energy department manages a portfolio of more than $30 billion in loans, loan guarantees and commitments covering more than 30 projects nationwide.

Abound Solar had drawn down $70 million on the $400 million energy department-backed loan supported by members of Congress from both parties. Taxpayers were expected to lose $40 million to $60 million in the company’s bankruptcy.

Abound’s Chapter 7 bankruptcy also resulted in the layoffs of 125 people, on top of the 280 it had laid off earlier in 2012, and the closure of facilities in Larimer and Weld counties. The company left behind contaminated facilities along with cadmium solar panels deemed by the state of Colorado as hazardous waste.

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