U.S. Energy Loan Program Back in Black

[Alcoholic Actuary]

But this one project alone is not reflected in the numbers. That's not how the accounting works. If we were to include this program as defaulted and deduct all of the $1.6b, then we should also get to count all future interest payments (even those not received yet) on programs that are in good standing as revenue.

aa

I understand the whole portfolio concept.

I'm not sure if people are missing this important point: The government is giving these projects money to repay the loans.

Yes, in some (at least one) instances, the dept of treasury is issuing a cash grant in lieu of a tax credit, that they were going to get anyway. If the company uses the cash grant to pay down a loan from the dept. of energy, the taxpayer is still benefiting from the company paying more in taxes, right?

The second point is a less important one, but still I think valid: It does not appear they are applying traditional standards in writing down problem loans. If you are a bank, you don't write a loan from par to 0% when it defaults. You start it write it down as there are signs it is in trouble.

http://cpaclass.com/gaap/sfas/gaap-sfas-114.htm

If you want more detail:

https://www.fdic.gov/news/news/press/2006/pr06115a.pdf

Well, it's certainly true that they aren't applying traditional FASB standards in writing down the loans, but that's because it is the GASB that applies to government accounting.

There is a brief description of the differences here. (This website is for college and university business officers who frequently have to know the difference in accounting for public vs private schools).

Asset impairment: FASB requires that future cash flows be measured to determine impairment losses. GASB’s measurement of impairment focuses on an asset’s service utility. The result of the differing approaches is that the same event may result in the reporting of a different amount of impairment loss.

I'm not sure that this even makes a difference in the Ivanpah case, but obviously the government does not feel that the service utility of the facility is impaired (yet).

aa

 

[dismal]

Yes, in some (at least one) instances, the dept of treasury is issuing a cash grant in lieu of a tax credit, that they were going to get anyway. If the company uses the cash grant to pay down a loan from the dept. of energy, the taxpayer is still benefiting from the company paying more in taxes, right?

Without the loan guarantee the project does not get built. No project, no grant.

No effing way this project pays taxes. a) they don't appear to be making any money B) they have a crapton of debt and huge depreciation to writeoff.

Indeed their investors are probably using the tax losses from this project to avoid taxes on projects they have that actually do make money. It's costing the IRS tax receipts.

I'm not sure that this even makes a difference in the Ivanpah case, but obviously the government does not feel that the service utility of the facility is impaired (yet).

aa

Because they're getting ready to hand them $500+ million dollars.

Woohoo, profit!

 

[Horatio Parker]

Shall we count QE as a govt loan program? How is that paying off?

 

[dismal]

Shall we count QE as a govt loan program? How is that paying off?

Why would you say it's a loan program?

I'm not sure it's a loan program but I suppose it's reasonably profitable to print money and buy assets with it. Or really just to print money because buying crappy assets with it probably hurts the profits. In the old days you had to worry about stuff like the copper being worth more than the penny, but now it's just some keystrokes and bam, you've got a billon dollars in your account. Yes, I'd say that's profitable.

Unless you've got Uttermensche running your payroll because he'll probably say the worker who typed the keystrokes deserves most of the billion dollars.

 

[Horatio Parker]

Maybe there's less to private equity than meets the eye:

Private equity continues to make headlines, and not in a good way, despite industry efforts to spin otherwise. The latest shoe to drop is that private equity firms are trying to rewrite some well-established fund terms to allow them to continue to rake in egregious profits even as the returns of most funds have underperformed the stock market.

One of the recent dirty secrets in the industry is that returns aren’t what they used to be. That’s before you get to the fact, as we’ve discussed at some length, that conventional measures of private equity returns overstate them, and properly measured, private equity doesn’t outperform. Not only is that true on a risk-adjusted basis, widely-used approaches fail to incorporate the cost to investors of accommodating private equity’s requirements that investors accommodate its not-predictable investment timing demands. Incorporating that cost would likely show that private equity underperforms.

Govt loan programs do have that disadvantage of transparency.