Bankruptcy Tracker

Solar Bankruptcies Highlight Credit Risks of Green Energy

Image Group
pvtech photo
The Solyndra corporate office in Fremont, California. Solyndra had $970 million in debt on annual revenue of $140 million.

The recent slew of bankruptcies in the solar energy field, culminating with the Chapter 11 filing of Solyndra last week, underscore the high risks of so called "green" companies.  "An insane business model."

In May of last year, the President of the United States, Barack Obama, gave a speech at a solar facility in Fremont, California run by Solyndra, Inc. in which he touted the benefits of renewable "green" energy and the jobs it would create by claiming "the future is here to hire a thousand workers." But around that same time, according to public filings, Solyndra's auditors at PricewaterhouseCoopers (PWC) had arrived at a much different conclusion: Solyndra was not a viable business.

On September 6, Solyndra joined solar companies Evergreen Solar, Inc., a $340 million publicly-traded company based in Marlboro, Massachusetts, and SpectraWatt Inc., a former Intel Corp spinoff, in filing for reorganization under Chapter 11 bankruptcy.  Thus, instead of creating new jobs, the Solyndra bankruptcy will result in the loss of approximately 1,100 full-time and temporary employees, according to a company press release.

The sudden bankruptcies of three solar panel manufacturers within a two month period send an unequivocal message about the credit risks inherent in many renewable energy start-up companies that seem to generate more media hype than profits and cash.  In more and more cases, renewable energy companies that have been formed since 2004 are folding because they were initiated from a seemingly new breed of socially-inspired private investment capital that seems to be driven more by politics than economics.

Not all solar companies are in trouble.  One company that represents a good credit risk is the industry leader, First Solar, Inc., a $2.56 billion solar panel manufacturer based in Tempe, Arizona.  First Solar was ranked first out of 2,117 publicly-traded companies in the 2007 Credit Standards Index (CSI) and was featured in an October 7, 2009 article in CreditPulse.

In its audit report, PWC cited Solyndra's weaknesses in the core areas of profitability, cash flow and shareholder value in determining that the company was likely on its last leg.  "The company has suffered recurring losses from operations, negative cash flows since inception and has a net stockholder's deficit that, among other factors, raise substantial doubt about its ability to continue as a going concern," the PWC report said.

At the start of 2011, Solyndra had assets of approximately $859 million and liabilities of approximately $749 million, according to bankruptcy filings, for a debts-to-assets ratio of 0.88.  Annual revenue for the year 2010 was approximately $142 million.  For its part, Evergreen Solar had a debts-to-assets ratio of 1.15 with $486 million in debts and and $424 million in assets.

However, Solyndra's total liabilities figure, as reported in the bankruptcy filing, does not include a $535 million loan guarantee that the company received from the U.S. Department of Energy to fund 63 percent of the cost of a new Fab facility in Fremont, California.  Although called a guarantee, the $535 million was actually a government loan as it was issued directly from the U.S. Government via the the U.S. Federal Financing Bank, according to bankruptcy documents reveiwed by CreditPulse

The government's high risk venture with taxpayer money has thrust the Solyndra bankruptcy squarely into the poltical spotlight as evidenced by the outrage shown by some Republican lawmakers.  "We smelled a rat from the onset," said Rep. Fred Upton (R-Mich.), chairman of the House Energy and Commerce Committee in a joint statement issued on August 31st with fellow Congressman Cliff Stearns (R-Fla.), as reported in the Washington Post.  "For an administration that parades around the banner of transparency, they fought us tooth and nail all summer long in turning over relevant documents related to the credit approval, and today we found out why."

The Department of Energy issued a statement that seems to suggest that credit risk and business solvency don't factor into their loan decisions.  "We have always recognized that not every one of the innovative companies supported by our loans and loan guarantees would succeed," said spokesman Dan Leistikow.  "But we can't stop investing in game-changing technologies that are key to America's leadership in the global economy."

So if Solyndra was not a good investment for even the government then who did get the company started?  Once again, the source is private equity capital.  Private equity money continues to be unregistered and unregulated and can come from anywhere but in most cases it typically comes from pension funds, endowments and wealthy families.  The principle investor in Solyndra is a private equity firm known as Argonaut Ventures, based in San Francisco, California, which owned 39 percent.  Argonaut is followed by Madrone Partners at 13 percent ownership; USVP Venture Partners at 9.2 percent; and Rockport Capital Partners at 7.3 percent. 

Solyndra's trade creditors seemed to be captivated by blind faith too as evidenced by the size of their losses.  The largest is Schott North America, Inc., a specialty glass and material manufacturer based in Elmsford, New York, which is on the hook for $7.69 million dollars (see above), according to bankruptcy filings.  MGS Mfg. Group in Germantown, Wisconsin is next at $7.51 million.  CreditPulse attempted to speak to the responsible parties at both companies.  Schott, responding to an inquiry from CreditPulse, issued a statement on Sept. 9th through its spokesman Matthew Kraft, that it "is saddened by the announcement this week that our valued customer, Solyndra LLC, has filed for bankruptcy.  We hope that the company will be able to successfully emerge from bankruptcy in one form or another and continue as a strong player in the renewable energy industry." 

Messages left for Jeff Kolbow, the credit manager for MGS Mfg. Group and Robert Duncan, the owner of Certified Thermoplastics Co. were never returned.  Two different sources put Certified Thermoplastics annual revenue at around $10-15 million.  If so, that company won't collect on at least 17 percent of current revenue and will be without that revenue in the future.

In its filing, Solyndra says the bankruptcy was due to a dramatic reduction in solar panel pricing world-wide and a reduction or elimination of governmental subsidies and incentives for the purchase of solar energy, particularly in Europe.  Solyndra also alluded to its inability to timely collect on its accounts receivables as a factor saying "foreign competitors offered extended payment terms, resulting in Solyndra's customers refusing to honor their previously agreed payment terms," according to the filing.

In the end, Solyndra, Evergreen and SpectraWatt are the latest in a growing line of high-tech "green" energy companies that have an abundance of financial backers but not enough unsubsidized customers.  Solar industry analyst Peter Lynch told the Washington Post that Solyndra struggled from the beginning with an imbalanced financial model.  "You make something in a factory and it costs $6, you sell it for $3, but you really, really need to sell it for $1.50 to be competitive," Lynch said of Solyndra.  "It was an insane business model.  The numbers just don't work, and they never did."