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Sungevity Gets OK on $20M DIP Loan Over Trustee Objections

Bankrupt rooftop solar panel firm Sungevity Inc. received court approval Friday in Delaware to gain access to its $20 million postpetition financing package after a judge asked for some changes to the final order and overruled the objections of the U.S. trustee.

During a hearing in Wilmington, a representative for the U.S. trustee told the court she objected to the proposed final debtor-in-possession financing order for several reasons, chief among them the priming of secured liens on the debtor's assets. The trustee said that Sungevity did not follow the requirements of the U.S. Bankruptcy Code in seeking to prime the liens of secured lenders.
"This issue here is notice," Linda Casey said. "[Lenders] have to get notice of the adequate protection they're getting in exchange for the priming of their liens. There has been no effort to inform them of their adequate protection."
Casey said Sungevity failed to properly notify all holders of secured liens of the company's intention to prime them, meaning the lienholders' interests would be of a lower repayment priority than the DIP lenders' new liens. If a party hasn't received notice of the debtor's intention to prime its interests or information about what kind of protection would be granted in exchange for that priming, the interests can't be primed and the party would be able to intervene in the case at a later date seeking repayment.
Attorneys for Sungevity and its DIP lenders said that any valid and perfected lienholders that did not receive notice would not be primed, but disagreed with the trustee's definition of notice.
"The DIP liens would prime everybody," lender attorney Brad Weiland of Kirkland & Ellis LLP said. "That went out on notice and was served on everyone who could possibly have a lien."
In an earlier order approving interim access to the DIP loan, language was inserted that carved out those who did not receive notice of the priming, but Weiland said he didn't think anyone with a valid lien had been left out of the service of the notice. The priming was subject to the final order to alleviate concerns raised by the trustee about due process.
"Now, two-and-a-half weeks later, that concern has been addressed," Weiland said. "Notice has gone out to everyone."
During argument over the priming issue, a technical glitch in the court's computer system led to a brief recess while it was sorted out. During the downtime, attorneys for the debtor, the lenders and the trustee discussed the notice issue and agreed on a definition of notice that satisfied everyone. When court resumed, Casey informed the court of the agreement.
"If it says the order will prime the priority liens who have actual notice or knowledge of the motion, with sort of just a little understanding between all of us ... that there will be some leeway, that is acceptable to the trustee," Casey said.
U.S. Bankruptcy Judge Kevin Gross asked that releases and indemnification provisions in the final DIP order be scaled back to cover just the debtor, its DIP lender and agent, and their shareholders' officers and directors. He overruled other objections from the trustee concerning modification of the DIP order after it is approved.
A broad objection to the DIP lenders' involvement in the case lodged last week by the committee of unsecured creditors was rendered moot by a global settlement between the parties, with the debtors agreeing to retain $2.25 million in its estate following a Chapter 11 auction and sale to pay some administrative claims and provide some amount of recovery to unsecured creditors.
Sungevity filed for Chapter 11 in March, 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.
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.