Thursday, April 11, 2013

Solyndra, Claiming Foul Play, Sues Its Chinese Rivals

Bankrupt solar panel maker Solyndra has filed a $1.5bn lawsuit against Suntech Power Holdings Co. STP -4.09% and other players in the Chinese solar industry, Bloomberg reports today, with the U.S. company claiming it was driven out of business by an illegal cartel agreement among its rivals.

The defendants schemed with each other, raw material suppliers and certain lenders to flood the U.S. market with solar panels at below-cost prices, the Fremont, California-based company said in the complaint. Panel prices for Wuxi, China- based Suntech, the biggest solar-panel maker, and two other companies moved in tandem, falling 75 percent in four years in the U.S. market, Solyndra said.

Debra Grassgreen, an attorney with Pachulski Stang Ziehl & Jones, which represents Solyndra, confirmed to Corporate Intelligence that the company had filed the complaint, but said it had no further comment to make.

Since falling into bankruptcy in mid-2011, Solyndra has become a political hot potato, as opponents of the Obama administration highlight the company and its $535m government loan guarantee as an example of failed industrial policy and, they say, political cronyism.

But it has also struggled to recoup even a fraction of the $950m in equity it raised from investors. After Clearwire, Solyndra raised more venture capital than any other American company, ever. What’s left of all that cash? So far, the company has sold off some assets worth around $13m, and might be able to get about $90m more when it sells its headquarters and manufacturing facility.

Part of that vast gap is due to the nature of the company’s business: it invested big in a state-of-the-art factory that used a lot of custom-designed equipment to make solar panels according to its own secret recipe. As you can imagine, one-of-a-kind precision manufacturing equipment designed to work within a proprietary factory formula doesn’t hold its value well on the second-hand market. Even the more versatile stuff, like electron microscopes and robotic arms, got sold for a fraction of the sticker price.

As the WSJ’s Yulia Chernova tells us, Solyndra’s basic premise was to produce low-cost solar panels using better technology and design. All that expensive custom gear was meant to create a factory that could make solar panels at a price that would undercut the expensive product coming out of China. It is ironic, to say the least, that the company is now suing those same rivals for undercutting its price so badly that it was driven out of business.

What went wrong? Solyndra bet big on an expensive factory making a kind of solar panel that didn’t need silicon as an ingredient. Back in 2008, the kind of silicon needed in solar panels was in short supply, and its high price made Chinese panels expensive. But within four years, thanks to big investments in new polysilicon manufacturing facilities, the price dropped from around $400 a kilogram to just $20. Chinese-made panels using silicon plummeted in price. Solyndra, and a whole bunch of solar panel makers around the world, went out of business.

Next Wednesday, a Delaware bankruptcy court will decide on a plan from Solyndra to partially repay creditors and emerge from Chapter 11 protection — a plan that the federal government is not happy about, and which could provide a nice little tax upside for Solyndra’s private equity backers. The WSJ’s Jacqueline Palank reports:

Most of Solyndra’s $528 million in federally backed loan debt would go unpaid under the plan, and the department is objecting to the plan on the grounds that it allows its claim to go unprotected.

Also raising its hand to object is the Internal Revenue Service, which says the plan’s main purpose is “tax avoidance.” The IRS is referring to the nearly $1 billion in tax benefits Solyndra may be able to obtain after it exits bankruptcy as a shell company, which the tax agency said “dwarfs” the $7 million to $8 million that general unsecured creditors can expect to be paid under the plan.
According to the IRS court filing: “The undeniable conclusion is that tax benefits drive this plan.”


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