Thursday, March 8, 2012

Auburn Hills-based ECD Files for Bankruptcy

Energy Conversion Devices Inc., a 50-year-old company known for innovations in making solar panels and advanced batteries, became on Tuesday at least the fourth U.S. solar manufacturer to file for bankruptcy protection within the past year.

The Auburn Hills-based company, which just months ago downplayed analyst talk of bankruptcy, plans to sell its United Solar Ovonic subsidiary, its 39 percent stake in memory technology business Ovonyx Inc. and other intellectual property and assets.

"What would happen to Energy Conversion Devices is that it would be wound down," company spokesman Michael Schostak said of ECD, a holding company. "It's essentially a break-up of the company."

The ailing firm, which lost $763 million during the past two years and hasn't posted a profit since early 2009, is a stark contrast to the growing company that drew a 2006 visit from President George W. Bush and the praise of former Gov. Jennifer Granholm. It got stimulus money from the Obama administration and three state tax breaks during the Granholm administration.

The filing in the U.S. Bankruptcy Court Eastern District of Michigan was expected, but bittersweet for Stan Ovshinsky, who co-founded the firm with his late wife Iris in 1960 and who in 2007 said the company's costs were too high to compete. Ovshinsky created the company's thin-film solar panels and nickel-metal hydride rechargeable batteries used in hybrid and electric vehicles.

"They literally didn't change anything for years," said Ovshinsky, 89, who left the company in 2007 and now runs two other businesses in Bloomfield Hills. "And then about a year or two ago, they knew they were facing a tremendous crisis they couldn't avoid, and they started working on what they should have been working on, that I wanted to be working on, to make the costs come down so that they could be competitive."

ECD didn't adjust in an industry plagued by declining prices, excessive inventory and reduced government subsidies across the globe.

A bankruptcy filing was predicted by several analysts worried that the Auburn Hills company would not make a June 2013 debt payment, totaling more than $263 million. Some, though, thought the company could survive another year.

Losses doom company

In 12 of its last 13 quarters, ECD consumed more cash than it generated, said Morningstar Inc. analyst Stephen Simko.

"The reality is that $260 million being due next year was just impossible," he said.

ECD in November halted production at its United Solar Ovonic plants because it had too much inventory. It furloughed 400 manufacturing workers and planned to lay off 500 employees by the end of last year.

The company now has 750 workers — about 60 percent of whom are in Michigan — including the 400 furloughed employees. It owns two facilities in Auburn Hills, a Greenville campus, a site in Battle Creek, a plant in LaSalle, Ontario, and a plant in Tijuana, Mexico, and has sales offices in the U.S. and Europe.

Limited United Solar production restarted in January in Michigan and Mexico, with a handful of employees working on large customer orders, Schostak said.

In the past two months, it became apparent "we needed a clean financial slate" to attract capital and get more flexibility to operate the firm, he said.

ECD said its United Solar subsidiary also filed Tuesday for Chapter 11 bankruptcy. Investment banking firm Quarton Partners LLC has been hired to manage the sale of United Solar, which will continue to operate until a sale, expected within 90 days, Schostak said.

"We expect to fully find a home for this business, whether it is a new investor or a large company," he said.

Energy Conversion's technology in its solar panels is much different than that of its competitors and potentially would be difficult to integrate into another solar company, said David Epstein, an analyst with CRT Capital Group in Stamford, Conn.

Morningstar's Simko said he doesn't anticipate the United Solar sale to generate much interest given the company's costs and poor profitability. He said he also doubts a purchaser would run it as a continuing business. "This is going to be a pennies-on-the-dollar kind of sale," Simko said.

On Monday, ECD sold its Ovonic Battery Co. Inc. subsidiary to BASF Corp. for $58 million cash, before fees. All 35 employees of the Rochester Hills-based unit have been hired by BASF as part of the deal, Schostak said.

ECD's early years

The company and co-founder Ovshinsky were the epitome of innovation during the early years. The New York Times reported in 1968 about Ovshinsky's scientific papers predicting that cheaper glass semiconductors could eventually lead to smaller, desktop computers and flat, tubeless televisions. The company created thin-film solar panels and the nickel-metal hydride batteries used in hybrid cars.

Energy Conversion Devices in 1995 hired former General Motors Corp. CEO Robert Stempel to run the operation. But by 2007, investors wanted bigger returns on their investment, leading the late Stempel and Ovshinsky to leave while the company focused more on the then-booming solar energy business.

Tax breaks and subsidies

Over a decade, the state granted tax breaks worth potentially tens of millions of dollars to the company, plus incentives from local governments, for United Solar Ovonic expansions and plants in Auburn Hills, Greenville and Battle Creek. Most of the tax breaks, though, required specific investment and job growth targets that weren't realized.

The company received a $13 million tax break in early 2010 from the federal stimulus plan to help boost production in Auburn Hills and create up to 600 jobs. It applied for a U.S. Energy Department loan, but didn't get to finish the process before the program expired, Schostak said. He would not comment on how much money the company requested or when, but said the amount was "materially less than what others may have asked for or received."

ECD's United Solar unit applied for a $193 million loan in 2009, according to a congressional source.

ECD will not file its quarterly report for the three months ending Dec. 31, but Schostak said it posted a "substantial loss" for the period.

Energy Conversion's stock price fell more than 80 percent to close at 29 cents a share on Tuesday, as stockholders sold shares in a frenzy.

The solar market remains massively oversupplied. Many analysts predict more solar company bankruptcies this year.


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