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Sungevity Creditors Oppose 'Loan to Own' Package

The official unsecured creditors committee in the Chapter 11 case of solar panel company Sungevity Inc. objected to a $20 million post-petition financing package Monday in Delaware, saying the lenders are the only party to benefit from the lending facility.
In its objection the committee calls the debtor-in-possession lending facility a “loan to own” strategy where the lenders are also serving as the stalking horse bidder for Sungevity’s assets and the entire case is being run for the bidder's sole benefit.
DIP lender LHSC Solar Holdings LLC is providing $20 million in financing as a joint venture between Northern Pacific Group and Hercules Capital, the latter of which is a prepetition lender of Sungevity's. As a result, the venture will be able to credit-bid up to $50 million in a Chapter 11 auction planned to occur April 12.
“[T]he stalking horse employed the Chapter 11 process to avail itself of the ability to obtain a lien on previously unencumbered assets, shed debt, and limit successor liability, while preserving the company’s going-concern value,” the objection said.
The U.S. trustee also objected Monday to final approval of the DIP, saying the cases will be left administratively insolvent because Sungevity’s secured debt liabilities are more than double the amount of the stalking horse bid. Once a sale is completed, there will likely not be nearly enough money remaining in the estate to pay administrative claims incurred from running the bankruptcy case.
The submitted budget that details spending under the DIP will not cover wind-down expenses for the debtor, and the trustee came to the same conclusion as the committee: The case is being run for the sole benefit of the stalking horse bidder and the lenders.
“Administrative claimants may not be forced to fund a Chapter 11 case for the benefit of secured lenders, with the substantial risk of administrative insolvency and conversion to Chapter 7 after the secured lenders have reaped the benefits of a Section 363 sale,” the trustee’s objection said. “If lenders wish to maximize the value of their collateral through the Chapter 11 process, the cost of that process must be paid.”
Sungevity had filed for Chapter 11 on March 14, about three months after a planned acquisition by Boston private equity firm Easterly Capital LLC at an initial, $350 million price tag fell through and pushed the rooftop solar company into a liquidity crisis.
Representatives for Sungevity declined to comment on the objection Monday. Representatives for the DIP lenders did not immediately respond late Monday to a request for comment.
The company had arrived in 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. The committee objected to Sungevity’s bid procedures last month, saying the process was too quick, with a sale hearing called for barely one month after Sungevity's Chapter 11 petition. U.S. Bankruptcy Kevin Gross approved the plan with modifications that included a limit on the amount of Hercules’ credit bid at $30 million. The entire stalking horse bid comprises credit-bidding, with LHSC bidding against its $20 million in DIP funding. Judge Gross determined that any more credit-bidding in the case would serve to chill bidding ahead of the auction.
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.