Evergreen Solar files bankruptcy; noteholders submit bid for assets

By Caroline Salls

Pittsburgh, Aug. 15 - Evergreen Solar, Inc. filed Chapter 11 bankruptcy Monday in the U.S. Bankruptcy Court for the District of Delaware.

According to a company news release, Evergreen entered into a restructuring support agreement with holders of more than 70% of the outstanding principal amount of its 13% convertible senior secured notes under which the supporting noteholders have agreed to implement the restructuring to be completed through one or more sales of the company's assets.

Evergreen said the assets to be sold include its String Ribbon wafer technology business assets.

As part of the restructuring, the company said ES Purchaser, LLC, an entity formed by the supporting noteholders, has entered into an asset purchase agreement and will serve as the stalking horse bidder for the assets.

ES Purchaser will provide a credit bid for the assets being sold.

According to the bid procedures motion filed with the court, the assets will be sold in lots, and bidders can submit offers for one or all of the lots.

Under the asset purchase agreement, ES Purchaser's purchase price would be $60 million.

Competing bids will be due on Oct. 26. The auction will be held on Nov. 1.

Bids at auction will be made in minimum increments of $500,000 per lot.

Evergreen said in the release that it has the required funding in hand to operate in Chapter 11 and will continue to operate but with additional operational changes necessary to continue to reduce expenses.

"Since January, Evergreen Solar has been aggressively repositioning itself to fully leverage the potential our String Ribbon wafers can bring to high volume solar cell and module manufacturers as these customers are facing severe pressure to further reduce their total cost of manufacturing and particularly their wafer supply costs," president and chief executive officer Michael El-Hillow said in the release.

"The actions we are taking today enable the continued development of an industry standard wafer using Evergreen's differentiated technology and thereby provide the lowest cost wafer to the growing solar industry.

"Chapter 11 will provide Evergreen Solar with the ability to maximize returns for our stakeholders through the proposed sale process. Importantly, we expect to continue our technology development without interruption during Chapter 11 and the sale process."

Workforce reduction

As part of Evergreen Solar's reorganization activities, the company will reduce its United States and European workforce by about 65 people, including suspension of operations at its Midland, Mich., filament facility, and will have 50 people supporting development, 10 people in administration and 25 people supporting industry standard wafer development in Wuhan, China.

The company said its Wuhan China manufacturing business is expected to continue depending on market demand while Evergreen engages in discussions with its investors in China regarding possible changes to that operation and its sources of financing, including the possibility of transitioning its operations to the company's new industry standard wafer technology.

Based on the estimated value of the company's assets, Evergreen said the assets are not expected to be sufficient to satisfy all its obligations to its creditors.

As a result, the company said it does not expect to make distributions to holders of common stock, and the common stock will be extinguished when a Chapter 11 plan takes effect.

Cash collateral use

In connection with the bankruptcy filing, the company has requested court approval to use the cash collateral of its pre-bankruptcy secured noteholders to fund its operations while in bankruptcy.

Evergreen is also seeking court approval to make an immediate $12.5 million cash payment and turn over sale proceeds to the pre-bankruptcy secured parties upon the closing of any asset sales.

Debt details

According to court documents, Evergreen Solar had $424.47 million in total assets and $485.6 million of total debt at April 2.

The company's largest unsecured creditors include:

• US Bank of Charlotte, N.C., with a $208.56 million 4% convertible note claim and a $4.59 million 4% convertible subordinated additional cash notes claim;

• Jiawei Solar (Wuhan) Co., Ltd., of Wuhan, China, with a $6.45 million trade claim;

• MassDevelopment, based in Boston, with a $1.55 million rent claim;

• Lazard Capital Marketing of New York, with a $1.47 million professional services claim; and

• OCI Co. Ltd. of Seoul, with a $1.22 million trade claim.

Aristeia Capital LLC of New York owns 7.89% of Evergreen Solar's shares, OCI of Seoul owns 6.78%, and The Vanguard Group, Inc. of Malvern, Pa., owns 5.12%.

Director payment changes

According to an 8-K filed with the Securities and Exchange Commission, the company modified its director compensation arrangements in anticipation of its bankruptcy filing to eliminate the annual cash retainers paid in advance to each director and chair of each of the principal committees of the board of directors and eliminate the annual restricted stock grant.

Instead, Evergreen will pay each director a fee of $5,000 per month, with the chairman of the board receiving an additional fee of $1,200 per month and the chairman of the audit committee receiving an additional fee of $1,000 per month.

The company said it expects to incur $14 million to $17.5 million in fees for company and non-company advisers, including bankers, legal counsel and other advisers, in connection with the bankruptcy case.

Employee incentive plan

Evergreen has also adopted a key employee incentive plan, providing for the allocation to key employees of an amount equal to 5% of gross cash sale proceeds from a third party.

The allocation would not be made under the supporting noteholders' credit bid or an acquisition vehicle in which management has an equity interest of more than 20% or has committed more than $1 million.

The incentive plan allocation amount will be at least $1 million, the 8-K said.

Interest payment update

Evergreen said it began the process for making the interest payments on its 4% senior convertible notes due 2013 and its 4% convertible subordinated additional cash notes due 2020 on Aug. 10.

As previously reported, the payments were originally due on July 15.

However, the company said it decided not to make the payments shortly after launching the process.

Evergreen said it learned that the funds had not been transferred to the noteholders, and it asked the trustee to return the funds. However, the company said the funds had not been returned as of Monday.

Financial projections

Evergreen gave its financial projections through 2015 in a June investor presentation.

The company expects to have negative $91.09 million in EBITDA in 2011, negative $38.79 million in 2012, $29.05 million in 2013, $277.01 million in 2014 and $711.4 million in 2015.

Expected revenue for this year is $113.25 million, expected 2013 revenue is $43.04 million, expected revenue for 213 is $175 million, expected revenue for 2014 is $780.65 million, and expected revenue for 2015 is $1.74 billion.

Evergreen expects to have $77.68 million in cash at the end of 2011 and $36.34 million at the end of 2012.

The company is represented by Pachulski Stang Ziehl & Jones LLP.

Evergreen Solar makes solar-power products and is based in Marlboro, Mass. The Chapter 11 case number is 11-12590.

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