All posts tagged 'IPO'

Sunrise, Sunset - The Parable of the Two Solar Companies

November 7, 2012 19:27
by J. Wylie Donald
"A Rare Solar Success Story" trumpets the American version of The Wall Street Journal today in an article about LDK Solar, a Chinese solar wafer manufacturer.  We agree with "Solar" and "Story" but the rest of the headline does not match reality.  (In fact, the Asian version is a little less over-the-top:  "Despite Troubles, China's LDK Solar to Keep Humming.")     First, let's consider whether LDK Solar is rare.  As described in the article it has a $500 million government loan guarantee. That sounds like something we remember about Solyndra LLC. Second, it is embroiled in allegations about dumping and production overcapacity, which are attributes that beset all of the solar panel and component producers whether their subsidies are coming from Washington, Brussels or Beijing. Third, while it soared early, it is now struggling, as have many American and European solar  "darlings." Which segues nicely into the question of success. According to the article LDK Solar had a $609 million loss last year (down from a net profit a year earlier of almost $300 million) and its depositary shares have dropped 77%. For those with a visual bent, Barron's does a nice graphical presentation.   To stay afloat LDK Solar is renewing its loans, selling real estate and other assets, and accepting investment from state-owned funds.  The article concludes, "Analysts said LDK could fall into the arms of a larger, healthier company."  These are certainly not the terms we would use to describe a successful company. But every cloud has a silver lining, and the travails of LDK Solar and its brethren are a large part of the reason for the success of solar panel installers:  their raw materials, panels, are available at bargain basement prices. The current darling (number 10 on Fast Company's list of the 50 most innovative companies in the world) in this group is Solar City, which is imminently making its initial public offering to raise $200 million, although Superstorm Sandy has delayed that some.  What does Solar City do?  First and foremost, its people think.  They have thought deeply about how to build a successful business and reached a few unsurprising conclusions.  Consumers want to be "green" but do not want to be bothered with having to contact building inspectors, general contractors, panel manufacturers, lenders, warranty companies, and state and federal tax authorities; they want their solar contractor to handle it all.  Leasing to stable and economically secure individuals (i.e., not subprime borrowers) will generate a steady stream of revenue over the long-haul (typically 20 years).  Long-term maintenance contracts can do the same, and can also provide opportunities for continued marketing and sales to the consumer.  Tax credits, state rebates and leasing and maintenance revenue streams can be bundled together to form the asset base supporting an investment fund, which large institutional investors will invest in.  The investment fund can then be used to finance growth. If this sounds like a successful business model, it is (so far). Second, Solar City executes.  The foregoing ideas are the basis for its rocketing success in the last few years.  As stated in its S-1, It has raised almost $300 million dollars from private equity. Its revenues have grown year on year.  It has come to dominate the residential solar market.  It has just entered the commercial utility space with a 12 MW installation in Hawaii.  To sum it up, it is seeking "world domination."   Our point? Take heed of these two darlings, one now struggling, the other feasting on the struggler and its fellows.  Together they form a parable, not just for the solar market, but for the entire renewable energy space. We counsel our clients where government money is  ubiquitous, innovative technology rampant, competition cut-throat, and winners and losers can change overnight. The sun may rise and shine for our clients, but it also sets.  Our counsel should reflect that.

Renewable Energy | Solar Energy | Utilities

Solyndra Takes the Fifth and Mascoma Prepares for an IPO: A Down-and-Up Day for Renewable Energy

September 26, 2011 19:50
by J. Wylie Donald
  It was a sobering moment Friday. Two executives of Solyndra LLC, after being honored by the President, receiving vast sums of money from investors, and earning kudos and accolades from industry and government,  asserted their Fifth Amendment right against self-incrimination and refused to testify before a congressional committee investigating the solar cell manufacturer's bankruptcy and potential improprieties in the procurement of loan guarantees.  We are not privy to the corporate planning but are comfortable stating that that was definitely not in the business plan. A more successful business model (for the moment anyway) appears to be that of cellulosic ethanol entrepreneur Mascoma Corporation, which on Friday filed its S-1 in anticipation of its IPO seeking $100 million in investment. As one blogger reported:  "the numbers continue to look strong, and the timelines continue to point toward commercial volumes of cellulosic ethanol in the 2013-14 time frame, at affordable prices."  We shall see.  Mascoma describes itself as follows:  "Using its proprietary consolidated bioprocessing, or CBP, technology platform, Mascoma has developed genetically-modified yeasts and other microorganisms to reduce costs and improve yields in the production of renewable fuels and chemicals."   While the holy grail is commercial success using any biomass resource, Mascoma is hedging its bets and touting application of its "bugs" to ethanol producers. It asserts that its "consolidated bioprocessing" is better than current processes and that it can help ethanol manufacturers produce more cheaply. This resort to established product lines is becoming a trend. An article in Scientific American, The False Promise of Biofuels by David Biello, reports that many in the biofuel area, where the lack of success in commercialization of biofuel applications has been discouraging, are seeking to use their proprietary technologies in other areas such as pharmaceuticals and cosmetics. Internet commentators draw parallels between Mascoma and Solyndra based on the government support each received. Frankly, we find it not much of an insight. Government support is an enticement for investors.  If you have it, it will be easier to locate private financing. If you don't, it is just the opposite.  Still, federal and state involvement is eye-opening.    Mascoma's S-1 reveals that it has yet to turn a profit over the past five years and in fact has lost almost $140 million so far. It has been able to do this with a little over $100 million in private investment, $30 million in debt and $34.5 million in revenue. Eighty-six percent of Mascoma's revenue in 2010 came from government sources, which is substantial; government grants exceed $65 million.  The Department of Energy has provided separate grants of $20 million and $4.3 million, New York's Energy Research and Development Authority and Michigan's Strategic Fund have contributed $14.8 million and $20 million, respectively, in return for facilities in each state. A few million ($6.3 MM) has come from the BioEnergy Science Center at UT-Battelle. And somehow, for less than a million dollars, the Province of Alberta has a commitment for the construction of a facility in Alberta.  We hesitate now as we write our conclusion, for fear of jinxing Mascoma. We hope and trust that the its economic trajectory is 180 degrees from that followed by Solyndra. But just in case, we offer this small bit of advice: pay close attention now to the D&O policy. The next shoe to drop for Solyndra and its officers and directors will be lawsuits alleging various forms of misfeasance as individuals and entities that were financially burned seek to shift their loss.  We could write much regarding D&O policies. It will suffice here to counsel for focusing on pursuing coverage extensions for government investigations and for a requirement of "final adjudication" in any species of fraud exclusion.  The market is reportedly soft (except for Chinese reverse mergers) and there is no time like the present to establish the most favorable coverage terms.  Stated differently, when your executives are taking the Fifth and the litigation sharks are circling is no time to be parsing your coverage.

Renewable Energy | Solar Energy

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