Solar Trust gets approval for $109 million sale of two energy projects

By Jim Witters

Wilmington, Del., June 27 - Solar Trust of America, LLC received approval of the sale of its Blythe and Palen solar energy generating projects during a hearing on June 27 in the U.S. Bankruptcy Court for the District of Delaware.

Solar Trust attorney Michael R. Nestor said all the objections, except one by debtor-in-possession lender Mason Capital Management, LLC, were resolved before the hearing.

Stalking-horse bidder Brightsource Energy, Inc. emerged as the successful bidder for the Palen project, with a bid of $10 million cash and as much as $20 million in payments as milestones are reached.

The Palen project is a 500 megawatt solar power generating facility near Desert Center, Calif.

NextEra Energy Resources, LLC, was the successful bidder for the Blythe, Calif., project - the world's largest solar energy array - with a bid of $10 million cash and as much as $40 million in milestone payments.

The buyers also agreed to replace $24 million in letters of credit and assume liabilities of $5 million, bringing the combined sale price to $109 million for the two projects.

Nestor said that Solar Trust received no bids for its Amargosa Valley, Nev., and Ridgecrest, Calif., projects. The company plans to abandon those.

Mason Capital objection

The approval of the two sales came after strenuous objections by Mason Capital, which sought to ensure that the DIP facility would be paid in full when both sales close.

Dennis C. O'Donnell, representing Mason Capital, said the DIP agreement and the approved sale procedures call for full payment of the DIP facility at closing. He said the outstanding DIP balance, plus the amount budgeted, could place the amount due at $13.2 million or more when the NextEra sale closes on July 16.

The problem lies in the fact that Brightsource is unable to close at the same time, and may delay closing until mid-August.

The DIP facility matures July 15, and O'Donnell said the loan must be fully repaid for the sales to be valid.

Judge Kevin Gross asked whether Mason wanted to be responsible if the judge decided not to approve the two sales during the hearing.

O'Donnell declined.

"You can't have it both ways," Gross said. "The lender has to take a position. I am prepared to approve these sales. And I see this as a fly in the ointment that shouldn't be there."

Gross said Mason's position placed the purchasers and the court in an awkward situation.

"I don't know how to provisionally approve these," Gross said.

After a recess during which the parties discussed possible solutions, Gross approved the NextEra sale and told Mason it can raise its issues when the DIP matures.

A status conference is scheduled for 3 p.m. ET on July 12 concerning how Solar Trust will secure funding to continue operations until the Brightsource sale closes.

Donald J. Detweiler, representing the official committee of unsecured creditors, said about $8.5 million is outstanding on the DIP, and other remedies are available to secure Mason's claim.

Mason could cap its lending at $10 million, the amount of cash that will become available to the debtors' estate when the NextEra deal closes, Detweiler said. Or Mason could pursue claims against the Amargosa Valley and Ridgecrest projects, which are not part of the sale.

"Mason has more than adequate protection here," Gross said.

Chevron objection resolution

Chevron Energy Solutions Company, a division of Chevron U.S.A. Inc., had objected to the sale of Solar Trust assets, claiming a $35 million stake in at least one of the projects.

Nestor said the dispute involved "a lot of thorny issues" that resulted in uncertainty on both sides.

Rather than litigate the dispute, the debtors and Chevron agreed on the following:

• Solar Trust will pay Chevron $500,000 on the effective date of the debtors' plan of liquidation, which is expected to occur in September;

• Chevron will receive a first-priority administrative claim of $500,000 against the liquidation trust. The claim is to be paid within six months of the plan effective date. If the claim is not paid on time, the amount rises to $750,000;

• Chevron will receive a $10 million general unsecured claim;

• Chevron will support the plan of liquidation; and

• If a plan is not confirmed or the second payment is not made, Chevron may pursue damages against the estate or the liquidation trust. But Chevron will have no claim against the assets being sold to NextEra and Brightsource in these transactions.

Resolution of SMAG objection

Solar Millennium AG, Solar Trust's parent company, asserts intercompany claims related to 16 letters of credit, with drawdowns of about $7.6 million, said R. Martin, attorney for Volker Bohm, who is the administrator for Solar Millenium's German insolvency case.

To allow the asset sales to occur, Bohm and the debtors agreed that

• The purchasers of the Blythe and Palen projects will replace the letters of credit;

• Assign to the general unsecured creditors the proceeds of any successful claims against Southern California Edison Co. for "wrongful drawdowns" on one of the letters of credit.

A dispute between Solar Trust and Edison is in mediation and may continue to arbitration. Edison attorney Curtis Miller said his client made no wrongful drawdowns.

• On the cancellation of the Solar Millenium letters of credit, "priority distribution buckets" will be established for general unsecured creditors. The first funding of that bucket will be the $1.935 million due under two letters of credit connected to the Blythe project, and Solar Millenium will not assert its intercompany claim against that funding; and

• Solar Millenium will not assert its intercompany claim on $4.5 million due under other letters of credit.

Martin said Solar Millenium is not agreeing to subordinate its claim, but merely agreed not to assert its claim against the two priority distribution buckets.

Solar Trust, an Oakland, Calif.-based unit of solar company Solar Millennium AG, filed bankruptcy on April 2 in the U.S. Bankruptcy Court for the District of Delaware. Its Chapter 11 case number is 12-11136.

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