A Delaware bankruptcy judge gave Sungevity Inc. the interim OK on Wednesday to tap part of its $20 million post-petition financing package, rejecting objections from the U.S. trustee's office that terms in the loan gave lenders Northern Pacific Group and Hercules Capital too much control over the case.
During a first-day hearing in Wilmington, U.S. Bankruptcy Judge Kevin Gross allowed the rooftop solar company to access about half of the debtor-in-possession financing package and gave Sungevity the green light to start on the path of what the debtor hopes will be a roughly monthlong sale process.
The federal bankruptcy watchdog had taken issue with several terms of the loan, most of which were resolved through negotiations with the debtor and its lenders, but the parties came to loggerheads over a provision that gave Hercules and Northern Pacific control over the loan's budget at their "sole discretion."
U.S. Trustee's Office attorney Linda J. Casey pushed for the language to be changed to "reasonable discretion," arguing that it is the debtor that has the fiduciary duty to the bankruptcy estate, and the provision shifts that role to lenders.
"If they want that level of control over the debtor ... they can do something else," Casey told Judge Gross, adding that such terms would be more appropriate in a procedure like foreclosure than a Chapter 11 case.
Arguing for the lenders, Domenic E. Pacitti of Klehr Harrison Harvey Branzburg LLP said that not allowing Hercules and Northern Pacific control over the DIP loan budget would be tantamount to the court forcing the companies to offer the loan. The debtors could effectively propose changes to the loan the lenders don't approve and then appeal to the court on the grounds that they are reasonable alterations, Pacitti argued.
What's more, Sungevity itself doesn't object to the "sole discretion" clause, the lenders argued.
Judge Gross sided with the lenders, ruling that the language in the terms would remain "sole discretion" as drafted.
"That means, of course, the lender still has to exercise discretion," the judge said from the bench. "I don't know why the lender wouldn't."
The DIP loan is expected to be back before the court for final approval in April, according to court records.
Sungevity filed for Chapter 11 on Monday, about three months after a planned acquisition by Boston private equity firm Easterly Capital — a deal with an initial $350 million price tag — fell through and pushed the rooftop solar company into a liquidity crisis.
The deal was set to allow the company to go public and give it access to up to $200 million in capital that could be funneled back into its growth plans.
Sungevity came into court with a stalking horse deal in hand with a joint venture of Minnesota private equity firm Northern Pacific and prepetition lender Hercules putting in a $50 million credit bid that would include the DIP loan. The debtor is hoping to test the floor bid at a bankruptcy auction, and a sale hearing has been scheduled for April 17, according to court records.
The company listed nearly $170 million in debt, including nearly $23 million in unsecured trade debt.
Founded in 2006 as a startup, Oakland, California-based Sungevity, which has nondebtor subsidiaries in Belgium, the Netherlands and the United Kingdom, provides design, installation, financing and maintenance services for solar energy systems.
Sungevity grew at a 77 percent rate from 2010 to 2015, scoring nearly 32,000 customers and becoming "the largest private company installer of residential solar energy systems in the market," according to a first-day declaration from CEO Andrew Birch.
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 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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