The End Is Near: Suntech Files for Provisional Liquidation, Seeking Protection from Creditors

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Suntech files an application for a provisional liquidation with the Grand Court of the Cayman Islands, where the firm is incorporated. The filing for a provisional liquidation signals that the company may go out of business after years of steep declines in panel prices.

Suntech (NYSE: STP), once the world’s largest maker of solar modules, has filed an application for a provisional liquidation with the Grand Court of the Cayman Islands, where the firm is incorporated. The filing signals that the company may go out of business after years of steep declines in panel prices. In an article on Reuters, Raymond James analyst Ryan Berney commented, “We do think this is the end for Suntech.”

A provisional liquidation is an emergency procedure that a company can apply for only after a winding-up petition has been presented at court. The main reason for applying for a provisional liquidation is to preserve the business’s assets.

In a press release released by Suntech, the company stated: “If the Grand Court grants Suntech’s application, restructuring professionals selected by the company would be appointed to work with the Company’s Board of Directors to continue progressing a restructuring of the company. By commencing such proceeding in the Cayman Islands, the firm will have the benefit of protection and additional time to complete negotiations and conclude the restructuring in the best interests of all stakeholders.”

According to Suntech, the company will also consider pursuing a Chapter 15 filing in the United States following the grant of the application in the Cayman Islands. This would would allow U.S. courts to recognize a foreign bankruptcy as the main proceeding and protect the company from creditors seizing U.S. assets.

“The idea is to reach a deal through the Cayman proceedings and (Suntech) would try to enforce that in the U.S. through a Chapter 15 and use that to dismiss the involuntary bankruptcy,” commented Ken Coleman, a partner at law firm Allen & Overy LLP, to Reuters.

Suntech reiterated in a press statement released on November 6 that it has reached an understanding with its creditors. According to the company, the agreement includes a recapitalization and restructuring plan, which involves a debt-to-equity swap and the entry of a strategic investor.

Suntech, once the world’s largest solar panel maker, hasn’t been able to recover after a global glut of panels depressed selling prices, and subsidies in top European solar markets were withdrawn. Wuxi Suntech, Suntech’s main manufacturing unit, was pulled into bankruptcy proceedings by Chinese creditors in March, after the Chinese panel manufacturer failed to repay $541 million in bonds.

In October, a group of four asserted bondholders in the U.S. filed a Chapter 7 involuntary bankruptcy petition against Suntech. The four bondholders hold less than 0.3% of Suntech’s convertible senior notes that were due in March and went unpaid. If their petition is granted, a trustee will be appointed to oversee the sale of assets to raise money to repay creditors. Suntech recently announced that it intends to challenge the petition for involuntary bankruptcy.

Last week, Suntech received an investment letter of intent from state-backed Wuxi Guolian Development Group to make an equity investment into the company of $150 million. However, that investment may not be enough. At the end of Q1, the last time Suntech reported earnings, the firm had $2.26 billion in debt.

According to an article on Bloomberg, on November 1 Suntech agreed to sell its main manufacturing unit Wuxi Suntech to Jiangsu Shungfeng Photovoltaic Technology (SF-PV) for $492 million. After the sale, Suntech will be left with not much more than its U.S. sales and distribution business and Global Solar Fund SCA (GSF), an investment company that owns solar power plants in Italy. A number of the solar parks owned by GSF were ordered seized by the Court of Brindisi, Italy, for illegally using state subsidies.

“Shunfeng is buying essentially all of Suntech’s production capacity and technology portfolio, apparently leaving the U.S.-listed holding company a quasi-empty shell,” Berney commented to Reuters.

According to an article on Global Times, Shunfeng also needs to pay $25 million to Wuxi Guolian Development Group Co in the first three months after the acquisition is completed.

Suntech shares were down 16% at $1.26 upon closing of the NYSE. That’s down significantly from the company’s stock price all-time high of $86.28 in December 2007.