All posts tagged 'loan guarantee'

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

Bad Karma for Fisker Automotive: Of Loans and Lawsuits

February 21, 2012 19:59
by J. Wylie Donald
As if it wasn’t hard enough trying to displace the internal combustion engine as the motive force of the automobile, then this happens.  First the plug-in hybrid Chevy Volt’s battery starts catching fire.  Then battery-maker Ener1 files for bankruptcy protection.  Last Thursday, the electric vehicle arena acknowledged more bad news.  Fisker Automotive, maker of the electric sport coupe Karma and promisor of the Nina, issued a press release following a set of disquieting reports from various outlets.  The sour news:  “As a prudent business measure, project Nina has been temporarily put on hold until financing, either from the DOE or elsewhere, can be secured.” Fisker is the high end of electric vehicles.  Its “plug-in extended range” Karma sedan seats four and retails between $96,000 and $109,000.  It can do 0-60 in 7.9 seconds in full electric (Stealth) mode (the plug-in part).  But turn on its gasoline engine, which turns its electric generator, and you’re down to 5.9 seconds (Sport Mode) (the extended range part).  Motor Trend calls it “a sweetheart to hustle.” Nina is (was?) the more consumer-friendly version of a Fisker. It is to be (according to reports) a compact or midsize sedan, priced in the $40,000 range (after the $7,500 federal tax credit).  It is to be built in a refurbished GM plant in Delaware, which Fisker bought out of GM’s bankruptcy in 2009.  Predicted production levels were 100,000 vehicles per year.  That goal is currently not realizable. Fisker has raised a lot of money.  Besides over $850 million in private financing, in 2009 “Fisker Automotive closed a $529 million loan arrangement under the Department of Energy’s Advanced Technology Vehicles Manufacturing Loan Program for the development and production of two lines of plug-in hybrid electric vehicles. The project is expected to create about 2,000  jobs in Wilmington, Delaware.”   Times change.  In May, after providing $193 million to Fisker, DOE stopped lending because various milestones in Karma sales and production had been missed.  Or as Fisker put it in its recent press release:  “In May 2011 Fisker Automotive opted to stop taking reimbursements from the DOE while the company entered negotiations to implement more realistic and achievable milestones.” Fisker's financial difficulties are not being kept secret.  The tip of the proverbial litigation iceberg made its appearance earlier this month in the form of a lawsuit filed in California Superior Court: Wray v. Fisker Automotive Holdings et al. (Complaint attached below.)  In the suit Mr. Wray, an investor in Fisker and various Fisker investment entities, claims he was deceived into buying Fisker securities because he was unaware that a subsequent "pay to play" offering could require him to increase his investment or lose the beneficial position he had procured by virtue of his earlier contributions. Mr. Wray put over $200,000 into Fisker. In return he received preferred stock with various benefits such as "conversion price discounts", "anti-dilution protection", and "liquidation preferences." While risks of investing were disclosed, nowhere, it is alleged, did the offering memoranda inform Daniel Wray, or any other investor, that if he did not participate in future forced financing of Fisker, as Fisker and Advanced Equities [the broker/dealer] dictated, he would suffer a significant dilution of all of his earlier investments; conversion of the convertible preferred stock to common stock loss of all the rights, preferences and privileges that his ownership of preferred stock conferred, including liquidation preference, anti-dilution protection and initial public offering discounts/special conversion rights. Complaint ¶ 26. But on January 18, 2012 the broker/dealer wrote Mr. Wray (and presumably others) seeking money: "Due to Fisker's urgent need for equity capital, the Financing now contains a "pay to play" provision that requires all holders [of certain securities] to purchase Series D-1 Preferred Stock in an amount equal to at least 40% of such holder's aggregate dollar amount invested ...".  Id. ¶ 28.  Mr. Wray had slightly over $200,000 invested, and was now on the hook for another $83,922.32. In his complaint, Mr. Wray alleges breach of fiduciary duty, fraud, negligent misrepresentation, and various violations of the California Corporations and Business & Professions Codes, among other things. The greencarreports blog did a little investigating and is not overly sanguine about Mr. Wray’s chances on the merits.  We look at it from a different perspective.  We are not privy to Mr. Wray's thinking but his suit may be an astute way to buy time before committing to the next $80,000. If the DOE funding hurdles are cleared, or private sources come through, then the investment, particularly for one in preferred status, may be particularly fruitful. And if the big money is not forthcoming, then throwing good money after bad might be avoided.  In that case, Mr. Wray might not find himself alone on the tip of the iceberg any longer either. 20120207 Complaint, Wray v. Fisker Automotive Holdings, Inc..pdf (707.64 kb)

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