Yesterday, Solyndra LLC, a California-based manufacturer of solar cells, filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware. Less than one month ago, another solar cell manufacturer, Evergreen Solar, also filed petitions for bankruptcy in Delaware (my prior post concerning the Evergreen bankruptcy is available here for review). According to papers filed by Solyndra in its bankruptcy proceeding, several factors attributed to its bankruptcy filing. Like Evergreen, Solyndra suffered from a worldwide drop in solar panel prices. This post will look at Solyndra's business, why it filed for bankruptcy, as well as what the company hopes to achieve through the bankruptcy process.
Based in Fremont, California, prior to bankruptcy Solyndra manufactured and sold photovoltaic solar power systems designed for commercial and industrial users. See Declaration of Solyndra's CFO in Support of First Day Motions (the "Declaration" or "Decl.") at *3. A copy of Solyndra's Declaration is available here for review. The company began in 2005, focusing on research and development of its products. By 2007, Solyndra entered into a lease for its first production facility and by July of 2008, it began shipping product. Decl. at *5
Solyndra raised initial funding for its operations through a series of preferred stock offerings. In addition to the preferred stock, the company also received funding in the form of loan guarantees. In March of 2009, Solyndra received a conditional commitment from the U.S. Department of Energy for a $535 million loan guarantee. Solyndra used these funds to construct a second production facility which came on line in January of 2011. Decl. at *5.
Events Leading to Bankruptcy
Solyndra attributes its bankruptcy, in part, to low market pricing, a drop in demand and an inability to collect on accounts receivables. Decl. at *11. Overall poor economic conditions, combined with and oversupply of panels on the market, has reduced the price for solar panels. Solyndra notes that the oversupply in the market resulted from a growing capacity of foreign manufacturers. Id. Demand for the company's products fell as countries around the world, but especially in Europe, cut back on their subsidies and incentives for the purchase of solar energy. Id.
Objectives in Bankruptcy
Several months prior to filing for bankruptcy, Solyndra implemented a restructuring with its secured creditors. Although the restructuring generated an additional $75 million in cash, it also left the company with over $780 million in secured debt. Decl. at *12. On the eve of bankruptcy, Solyndra sought additional funding from investors, however, it was unsuccessful, due in part to the size of its debt. Id. In August, last minute attempts at bridge financing also fell through, leaving Solyndra with few options other than shutting operations and filing for bankruptcy. Decl. at *13.
Now that it is in bankruptcy, Solyndra believes it has two options - find a buyer of the "turn key" business or liquidate. Certain of the company's investors agreed to extend $4 million in debtor in possession financing and authorize the use of cash collateral. Using the DIP facility, Solyndra will seek to find a buyer. Decl. at *14.
Solyndra is represented by the law firm of Pachulski Stang Ziehl & Jones LLP. This bankruptcy proceeding is before the Honorable Mary F. Walrath. A copy of Judge Walrath's Chamber Procedures is available here. A copy of Solyndra's Bankruptcy Petition is available here for review.
Jason Cornell practices with the law firm Fox Rothschild LLP. Jason practices before the United States Bankruptcy Court for the Districts of Delaware and South Florida. You can reach Jason at (302) 427-5512, or firstname.lastname@example.org.
For those readers who are generally unfamiliar with the bankruptcy process, below are some of my prior posts that address common issues that arise in Delaware bankruptcy proceedings: