A public and private equity joint venture won approval Monday to buy rooftop solar firm Sungevity Inc. out of its Delaware Chapter 11 with a $50 million credit bid, after a last-minute flurry of compromises or postponements of disputes.
Judge Kevin Gross approved without objections the lone offer submitted by Minnesota private equity firm Northern Pacific Group and prepetition creditor Hercules Capital Inc. Northern Pacific had provided a $20 million debtor in possession loan through LSHC Solar Holdings LLC, while Hercules was a senior secured lender.
The sale order, handing over the company in exchange for the combined debt claims, cleared the court little more than a month after Sungevity opened its Chapter 11 following a failed buyout.
“This has been a difficult case, and a speedy case like this one generally is,” Judge Gross said. “These debtors were in real extremis, and required a quick sale.”
Company attorney Jonathan I. Levine of Morrison & Foerster LLP said that “a bucket of concerns or objections” had been adjourned to a later date involving adequate assurance for creditors, amounts required to cure claims or the assumability of contracts.
Judge Gross said that some issues could still arise in coming weeks as the buyers determine which contracts they will assume or reject.
“If it’s decided now that the company won’t be assuming them, then we have a rejection damages issue, don’t we?” Judge Gross asked.
Levine said that, although purchasers pay the costs of curing agreements that they assume, the majority of damages for rejected contracts will become part of the unsecured claims of Sungevity’s Chapter 11, potentially diluting the recoveries estimated for the current pool of unsecured creditors.
“I think the committee is well aware that there will be rejection damages for some claims,” Levine said.
Scott Honour, a director and managing partner of Northern Pacific Group, said in a declaration filed with the court Monday that Northern Pacific has the ability to provide additional funds if needed, and said that LHSC would establish a $5 million to $10 million working capital credit line for Sungevity’s business after the sale closing.
LHSC, Honour said, bid for Sungevity based on expectations that the acquisitions would be protected from being unwound on appeal, under bankruptcy law provisions for good faith agreements.
“LSHC entered into the sale agreement on an arm’s-length basis, in good-faith, and without collusion with any other party,” Honour said in his declaration adding later that “Without the protections afforded a good-faith buyer, LSHC would not pursue the sale transaction.”
The buyers concluded that it was necessary to have senior lender Hercules’ support for the sale, Honour said, leading to inclusion of a portion of Hercules first lien debt in the credit bid. Neither LSHC nor NPG , would likely have bid without Hercules participation.
Although the sale cleared the court easily, Linda Casey, attorney for the Office of the U.S. Trustee, expressed concern to Judge Gross that Sungevity had requested an additional waiver of requirements for protecting a bankrupt company’s estate, cash and collateral. An initial 30-day waiver expired on Friday, Casey said, adding that Chapter 11 cases ordinarily require immediate establishment of separate bank account and related protections.
“Obviously the grant of a 30-day waiver is not intended to create a process where that waiver can be extended for an extended period,” Casey said.
Judge Gross encouraged the company and U.S. Trustee’s office to work the issue out. Levine said the company was working quickly to establish the required accounts.
Sungevity filed for Chapter 11 in March, s after a planned $350 million acquisition by Boston private equity firm Easterly Capital LLC fell through. That deal had been 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.
The company began as a startup in 2006, providing or design, installation, financing and maintenance services for solar energy systems.
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 and stalking horse bidders are represented by Domenic E. Pacitti of Klehr Harrison Harvey Branzburg LLP and Brad Weiland and Cristine Pirro of Kirkland & Ellis LLP.
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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