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Sungevity Creditors Say Ch. 11 Auction Plan Chills Bidding

28 March 2017

Unsecured creditors of Sungevity Inc. objected Tuesday in Delaware to the rooftop solar company’s planned auction and bid procedures, saying the timeline is too short to allow entities other than a stalking horse venture to make offers.

In its objection, the official unsecured creditors committee argued that the accelerated pace of the sale process is too fast to permit bidders to perform due diligence analyses of Sungevity’s assets, and that breakup fees, credit bidding rights and expense reimbursements skew for the benefit of the stalking horse bidder.

“The proposed sale process would be so fast that no other potentially interested party could reasonably be expected to conduct the necessary due diligence to submit a bid for the assets,” the committee said. “But even if the estate professionals could find such a party, the proposed bid protections ... are so great that the playing field is hopelessly tilted in favor of the stalking horse bidder.”

The debtor had come to court with a floor bid from a joint venture of Minnesota private equity firm Northern Pacific Group and prepetition lender Hercules Capital that would allow the entity to credit-bid against $50 million of the debt it holds. The credit bid would include amounts borrowed under a $20 million debtor-in-possession facility provided by the venture.

The bid procedures, which are up for approval Wednesday before U.S. Bankruptcy Judge Kevin Gross in Wilmington, envision an auction taking place next month with a sale hearing set for April 17.

In its objection Tuesday, the committee said that it is keenly aware of the debtor’s need to balance its wish for a rapid sale process with other stakeholders’ desire to maximize the value of the assets, but that the bid procedures as proposed would achieve only one of those goals.

The asset purchase agreement with the Northern Pacific-Hercules venture that serves as the stalking horse offer provides little certainty to the committee, the objection said, because the venture has broad rights to walk away from the deal under certain circumstances. The point of a stalking horse bid, the objection said, is to provide a firm baseline price for the assets ahead of an auction.

Representatives for Sungevity and for the committee did not immediately respond late Tuesday to requests for comment.

Sungevity had filed for Chapter 11 this month, about three months after a planned acquisition by Boston private equity firm Easterly Capital LLC — 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.

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 U.K., 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 company 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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