Solar Trust of America: A Look At The Company In Chapter 11

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Solar Trust of America: A Look At The Company In Chapter 11

The year 2012 may be marked as the year when many, more than 30, green companies that benefited from government  loans were either not performing very well or have already sought protection under Chapter 11 of the U.S. Bankruptcy Code. One of those green companies to file for bankruptcy was Solar Trust of America LLC, holder of the development rights for the world’s largest solar power project, a 1,000-megawatt solar power plant called the Blythe Project, in Southern California. The company sought protection from bankruptcy in April 2012 despite receiving $2.1 billion of conditional loan guarantees from the U.S. Department of Energy after falling short of liquidity when its Germany-based parent, Solar Millennium AG (ETR:S2M) (FRA:S2M), which holds a 70% stake in the U.S. unit, also sought court protection months before.

Solar Trust’s bankruptcy is another failed venture of the U.S. government into capitalism, especially in the green economy sector. Solar Trust failed to make its rent payments on the Blythe project and its parent failed to garner a purchaser of its stake in the U.S. unit. Solar Trust’s projects, which also includes two 500-megawatt solar power plants near Desert Center, California called the Palen Project, and in Amargosa Valley, Nevada, and another one near Ridgecrest, California, are all in the developmental stage and the company has not been generating revenues from it. In order to continue the construction and completion of the plants, Solar Trust relies on loan borrowings. Solar Trust lacked internal funding. In its first-day filings with the bankruptcy court, it disclosed that it had secured debt in the form of a $200,000 letter of credit issued by CitiBank, N.A., and unsecured debt of around $20 million.

Solar Trust initially had difficulty obtaining post-petition financing to help it continue to operate in the ordinary course of business; however, the company has successfully negotiated for a buyer of its assets in NextEra Energy, Inc. (NYSE:NEE), entered into agreements with federal and regulatory agencies, and its parent company has said general unsecured creditors, with $42.5 million in claims, may recover 14 to 20 percent of their claims despite filing a plan that will liquidate its assets.

The positive recovery for general unsecured claims in the parent’s bankruptcy, in addition to the overall positive future of companies in the renewable energy sector, bring a glimmer of hope for investors, especially those who are targeting green companies. In November last year, Solar Trust recorded the first trading of claims filed against its bankrupt estates. Court dockets showed that there were eight claims, with a value of $10,023,597, that were sold to Terrel Ross’s TRC Master Fund LLC.

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