A Delaware bankruptcy judge reworked orders for rooftop solar company Sungevity Inc.’s $50 million minimum Chapter 11 sale Wednesday, saying from the bench that the changes would help prevent a debtor insolvency and improve prospects for competing bids in a fast-moving stalking horse sale.
Judge Kevin Gross’ orders capped at $30 million the amount of Hercules Capital Inc.’s secured credit claims that can be assigned to an affiliated company for use in a $50 million “stalking horse” credit bid for Sungevity.
The orders also limited debtor-in-possession lender and stalking horse bidder LHSC Solar Holdings LLC’s allowable share of the bid to the outstanding balance of its DIP loan of up to $20 million, excluding cash still held by Sungevity that might have originated from the DIP.
“I think that more [credit-bidding] would be very chilling” to other prospective bidders, Judge Gross said after acknowledging that some of his limitations on expenses in the case “may be considered a little unconventional.
The rulings included a reduction in Sungevity’s proposed termination and expense fees to $500,000 each if LHSC gets outbid, down from $1.25 million each, and a later-amended proposal that any winning bidder would be required to cover remaining uncovered administrative costs of the case.
“I don’t want to have an administratively insolvent case. That’s important to me,” Judge Gross said. “So at the very least, that’s what the DIP procedures should provide.”
The administrative cost order was later changed to assure that $2 million is retained for post-sale administrative expenses, following objections from LHSC and others to the open-ended amount.
LHSC's attorney Domenic E. Pacitti of Klehr Harrison Harvey Branzburg LLP said Wednesday that the administrative expense assumption amounted to a potential blank check for attorneys representing unsecured creditors of the company.
“It’s certainly not something we’ve agreed to,” Pacitti said before a court recess and negotiations that produced the $2 million set-aside.
Sungevity had filed for Chapter 11 on March 14, about three months after a planned acquisition by Boston private equity firm Easterly Capital at an initial, $350 million price tag fell through and pushed the rooftop solar company into a liquidity crisis.
The company arrived in Judge Gross’ court with nearly $170 million in debt and a proposed mid-April stalking horse sale with LHSC, a joint venture of Northern Pacific and Hercules. Not included in the plan, however, was the proposal for buyer-shouldering of bankruptcy expenses
Sungevity’s official unsecured creditors committee already had objected to bid procedures as too fast, too favorable to LHSC and likely to discourage any other offers. The committee also warned that the case could fizzle into insolvency under current plans.
Timetables approved Wednesday added three days to some deadlines but still call for an April 10 bid deadline, an April 12 auction and a sale hearing on April 17, a month after the start of the case.
Sungevity’s attorneys said the company had been marketed extensively during sale efforts before the bankruptcy filing and was in dire straits.
“Every week we sit in bankruptcy and we can’t close a sale, we’re burning hundreds of thousands of dollars,” Jonathan I. Levine of Morrison & Foerster LLP said. “Absent a sale, the option is to shutter the doors.”
The committee's attorney Steven D. Pohl of Brown Rudnick LLP said that questions remain about the value and status of the company’s assets and that more review time would benefit unsecured creditors.
“What we have here, as the court knows, is a DIP-to-sale, where a creditor is a DIP [source] and credit bidder,” Pohl said. “They’re in effect using the process to grab whatever unencumbered assets might have been available for the [committee] before the DIP went in for their own benefit.”
Pacitti disputed that description, saying, “What’s going on here is the debtor had an opportunity — and there was only one opportunity — to maximize value. It seized upon it.”
Sungevity is represented by M. Blake Cleary, Jaime Luton Chapman and Kenneth A. Listwak of Young Conaway Stargatt & Taylor LLP and Jonathan I. Levine, Jennifer L. Marines, Melissa A. Hager and Erica J. Richards of Morrison & Foerster LLP.
The DIP lenders are represented by Domenic E. Pacitti of Klehr Harrison Harvey Branzburg LLP and Brad Weiland and Cristine Pirro of Kirkland & Ellis LLP.
The Official unsecured creditors committee is represented by Jeffrey R. Waxman and Eric J. Monzo of Morris James LLP and Steven D. Pohl, Sunni P. Beville and Christopher M. Floyd of Brown Rudnick LLP.
The U.S. trustee's office is represented by Linda J. Casey.
The case is In re: Sungevity Inc. et al., case number 1:17-bk-10561, in the U.S. Bankruptcy Court for the District of Delaware.
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