An ad-hoc group of creditors to Sunnova is discussing a proposal to provide the residential solar company with a USD 20m new money bridge loan to shore up liquidity ahead of an expected bankruptcy filing, said two sources familiar with the matter.
The bridge loan, along with USD 40m of existing unsecured debt, is expected to be rolled into a debtor-in-possession facility to finance the liquidity-strapped company in bankruptcy, said the sources. Discussions, which are in flux, contemplate a USD 100m new money DIP loan in addition to the rolled-up debt, said one of the sources.
Multiple parties are expressing interest in providing capital to support Sunnova, said a third source familiar with the matter.
Current negotiations for the bankruptcy plan revolve around using the Chapter 11 process to hand control of the company to holders of Sunnova’s USD 2bn in convertible bonds and senior unsecured notes led by Oaktree and reorganizing the company around Assetco and ServiCo businesses, the first two sources said.
The company is expected to take a step back from originating new solar deals with homeowners until the regulatory environment changes.
Sunnova’s business model historically has relied on reaping the benefits of solar tax equity financing and securitizations to raise cash from long-dated lease agreements with homeowners, but the Trump administration has taken a skeptical stance on government support for renewable energy.
Creditors are incentivized to not sell Sunnova’s service rights on solar leases and loans that are currently funded using warehouse credit facilities ahead of securitization, said the sources. Keeping these rights in the newly reorganized entity will give the group more leverage in negotiations with stakeholders including Sunnova’s warehouse lenders led by Apollo affiliate Atlas SP, the sources said.
While the negotiations are still ongoing, all parties involved have a common goal: avoiding pushing the company into liquidation, said the sources.
“A liquidation would be worse for Oaktree and not a good day for Apollo, so everyone will need to find a way,” to work consensually, said the first source.
Another point in negotiations is whether creditors will shore up liquidity to back the completion of unfinished projects funded by the warehouse financing, said the first source. If Apollo is left footing the bill alone for the completion of the projects, Sunnova creditors won’t benefit from the potential equity when the warehouse loans are securitized.
Sunnova owes hundreds of millions of dollars to dealers that install and repair its solar systems for homeowners. If the dealers aren’t paid, solar projects funded by its warehouse credit facilities won’t be finished and the collateral in the facilities won’t be fully completed, as reported.
KKR conundrum
Some of the dealers recently received some payments with proceeds from a KKR-led USD 185m mezzanine securitization financing, which sits in a bankruptcy remote entity.
Sunnova secured the KKR facility in early March to shore up liquidity, but it was forced to pledge most of its assets as collateral and agree to an expensive prepayment fee in the event the loan is redeemed prior to maturity. Terms of the KKR facility created immediate problems for creditors as they debated how to rescue Sunnova after it warned it lacked the resources to address upcoming debt maturities.
The KKR loan is expected to be addressed as part of Sunnova’s exit facility when it emerges from bankruptcy, said the second source.
Sunnova faces a 1 May deadline for a 30-day grace period to make a USD 23.5m interest payment on its USD 400m unsecured notes due 2028. Atlas SP, meanwhile, has been continuously agreeing to provide Sunnova more time to address a maturing EZOP warehouse credit facility.
Sunnova has already stopped originating any new business and furloughed many employees with no pay, as reported.
Paul Weiss and Evercore are advising the Oaktree led creditor group. Kirkland & Ellis, Moelis and JP Morgan have been advising Sunnova, which recently brought on two new members of its board of directors with restructuring experience.
Atlas Partners has tapped long-time counsel at Kramer Levin while the agent for the warehouse facility is working with Chapman and Cuttler and Alix Partners, as reported.
Sunnova and Oaktree declined to comment. Apollo representatives did not return requests for comment.
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