WASHINGTON — Bill Flores, the Republican challenger who has assailed Rep. Chet Edwards for supporting taxpayer bailouts, once led his company through a bankruptcy that let it avoid a $7.5 million debt to the U.S. government.

The 1992 bankruptcy allowed Marine Rig 200 Inc. to repay just $3 million of $10.5 million owed to the U.S. Maritime Administration, which held the mortgage on a drilling rig the company owned.

“The value of hindsight tells me the deal worked fine for everyone but the federal government,” Flores said, describing his earlier contention about creditors getting back their money as “95 percent” accurate.

The Chet Edwards (right) campaign has seized on a recent story to question the anti-bailout mantra of Bill Flores (left).

On the stump, Flores insists that private companies shouldn’t rely on the government for subsidies or financing. And he campaigns against Washington’s overspending and fiscal recklessness.

Democrats on Friday seized on the case — reconstructed by The Dallas Morning News through court filings, company records and interviews — to question Flores’ anti-bailout mantra.

With the election three weeks away, he’s in a pitched battle against Edwards, the 10-term incumbent from Waco — a Democrat who represents a heavily Republican district.

“What it shows is the hypocrisy of his argument with respect to the bailout,” said Sean M. Theriault, a government professor at the University of Texas at Austin who studies Congress. The Flores “company probably really did need the help when they got the help, and as a consequence it became prosperous.

“That is precisely what happened with the bailout,” Theriault said.

In an interview, Flores rejected the notion that the bankruptcy deal constituted a bailout but acknowledged that the U.S. government received far less than it was owed.

At the time, he was a vice president of Marine Rig 200, an oil and gas drilling contractor based in Sugar Land, and a top executive of its parent company. He personally signed the bankruptcy petition.

In campaign material, Flores cites his role in restructuring the company, though almost always without mentioning the bankruptcy.

“One of his proudest moments — and biggest challenges — came in the early 1990s when Bill was the chief financial officer for Marine Drilling. . . . Bill and some of the Marine Team worked 18- to 20-hour days, and Bill occasionally elected to forgo his compensation, in order to help the company survive another week. In the end, they did more than survive . . . they succeeded,” his website states.

Flores worked for the firm until 1997, when he joined another oilfield services company in Houston.

He routinely criticizes Edwards for supporting the 2008 bailout and 2009 stimulus programs, arguing that both increased the deficit without boosting the economy.

Earlier this week, Edwards conceded to The News’ editorial board that his support for the bailout and stimulus has hurt him with voters in his conservative Central Texas district.

Edwards spokeswoman Megan Jacobs said Friday that Flores had “purposely misled voters” by insinuating that all creditors were repaid in full.

“It sounds like Bill Flores doesn’t think the taxpayers count,” she said, noting that his campaign pitch hinges largely on business experience, including an assertion — repeated Sunday in a Waco Tribune-Herald op-ed he wrote — that unlike Congress and Edwards, he knows how to “borrow and repay debt.”

“Mr. Flores forgot to tell taxpayers that his company’s bankruptcy stuck them with a $7.5 million unpaid debt,” she said.

Flores portrayed the bankruptcy as a necessary evil. The company’s fortunes declined after a prolonged period of low natural gas prices left it unable to service all its debts.

But he said Marine Rig 200 never asked the government for financial assistance, as many banks did through the $700 billion bailout program enacted at the height of the financial crisis two years ago.

Marine Rig 200’s parent company, Marine Drilling Companies Inc., also was troubled during the early 1990s. But it restructured most of its debt outside of bankruptcy.

Private lenders, including Chase Manhattan N.A., agreed to swap more than $200 million in debt they held in the parent company and its other subsidiaries for stock. Those private creditors were fully repaid, Flores said, and made some extra money because the company’s stock rebounded.

Another subsidiary defaulted on $52 million in government-guaranteed bonds in 1992 and turned over seven drilling rigs to the federal maritime agency to wipe out the debt. The rigs were valued at the time at $6.7 million, according to Securities and Exchange Commission filings.

The maritime agency — part of the U.S. Department of Transportation — was the only creditor that declined to restructure debt outside of bankruptcy, Flores said. The government would have recouped its full amount had it gone along with the restructuring plan, he said. The News couldn’t immediately verify that.

Struggling firms often reach deals to pay back less than they owe during a bankruptcy, particularly to unsecured creditors. Most of the $3 million that Marine Rig 200 repaid to the government represented the market value of its sole drilling rig.

“We didn’t ask them to come in like [with] TARP or General Motors or Chrysler. We didn’t ask them to give us any money,” Flores said. “If they would have done what I proposed, they would have gotten 100 percent of everything — principal and interest and possibly made a profit.”

He added, “That is the reason I don’t like when the federal government gets involved in trying to make decisions like that, because it seems like they always make the wrong ones.”

The government debt involved a federal loan guarantee for the drilling rig the company bought in 1980. That was a short time before Flores joined the company.

In his campaign, Flores publicly opposes all federal loan guarantees other than for veterans’ mortgages and to finance construction of new nuclear plants, which generally can’t obtain private financing.

He initially opposed aid for nuclear plants but backtracked after Edwards noted that the district’s Comanche Peak plant is seeking a loan guarantee to expand.

Flores has spoken about the bankruptcy previously, but mostly in the context of describing how he and other company officials rescued the firm and made it profitable again.

In a promotional video for a Hispanic GOP group’s website, he said: “Everybody that participated in the process got all their money back, and with interest. It was neat to see how things can work if you really pull together.”

Thursday, he called that statement “95 percent accurate,” saying that “if the federal government had gone along with us . . . it could have been 100 percent.”

Staff writer Todd J. Gillman contributed to this report.