Three LDK solar companies seek quick Chapter 11 reorganization

LDK Solar Systems Inc., LDK Solar USA Inc. and LDK Solar Tech USA Inc. on Oct. 21 filed a prepackaged Chapter 11 reorganization plan, featuring the usual debt-for-equity swap in cases like this, with the U.S. Bankruptcy Court for the District of Delaware.

Their ultimate parent company, LDK Parent, is subject to a provisional liquidation in the Grand Court of the Cayman Islands, according to GenerationHub. LDK Parent also intends to commence proceedings in Hong Kong and solicit a substantially identical scheme of arrangement to this prepackaged plan under the laws of Hong Kong.

A key feature of the global restructuring is the compromise of claims arising under and related to the senior notes and senior note documents, said the U.S. companies in a first-day court filing.

LDK Solar USA Inc. is the direct parent of LDK Solar Tech USA Inc., and holds an 80 percent ownership stake in LDK Solar Systems Inc. Historically, LDK Solar Tech USA was the only operating entity of these three companies.

As an operating company, LDK Solar Tech USA historically performed a solar panel module business in the U.S., with its operating activities including sales, marketing, logistics, service and more. However, the last employee of LDK Solar Tech USA left the company in March 2014 and LDK Solar Tech is not currently operating.

LDK Solar USA is also the parent of two other subsidiaries not seeking bankruptcy. It has: a 100 percent interest in North Palm Springs Investments LLC (NPSLLC); and an about 39.41 percent interest in Solar Power Inc.

NPSLLC holds interests in two photovoltaic (PV) systems located in Palm Springs, California, which consist of: a 2.83 MW (dc) single axis tracker, utility-scale PV system; and a 4.96 MW (dc) single axis tracker, utility scale PV system. Both PV systems were commissioned in 2012 and have long-term Power Purchase Agreements with Southern California Edison for a term of 20 years.

Solar Power is publicly traded on the Over-the-Counter Markets and files reports with the Securities and Exchange Commission. It is a vertically-integrated PV solar power developer. Primarily, it partners with developers around the world who hold large portfolios of solar energy facility projects for whom it serves as co-developer and engineering, procurement and construction contractor.

Said the first-day filing about reasons to seek bankruptcy protection for the three companies that did: “As has been widely reported in the mainstream press, the solar power industry encountered significant financial challenges in the years 2011 to 2013 primarily as a result of (amongst other things) reduction in the price of solar panels and the declining price of polysilicon, a key raw material used to manufacture polycrystalline panels.

Since 2011, the company has been significantly impacted by over-capacity and reduced demand in the global PV market. The company has encountered financial difficulties as a result of decreased market demand and depressed market prices for polysilicon. In 2012, the company suspended its polysilicon production due to significant operating losses as the company’s cash cost for polysilicon production was (and remains) well above the market pricing while its PV products were facing decreased market demand and depressed prices.

“In an effort to lower the company’s production cost for polysilicon, the company commenced the installation of hydrochlorination systems to two of its three production lines at its Mahong plant in order to make them fully closed-loop production lines and to reduce production costs. The decreased market demand and depressed pricing for PV Products resulted in continuous pricing pressure throughout the value chain and culminated in a substantial market price reduction for solar power components.

“Due to the ongoing deteriorating PV market condition and overall global economic slowdown, the company also encountered challenges in manufacturing and selling solar wafers. Additionally, the company had initially intended to (i) develop a LED sapphire wafer manufacturing facility in Nanchang City, Jiangxi Province; (ii) add units to its existing polysilicon production facilities at the Mahong plant; and (iii) to establish a new manufacturing line to produce silane gas at its Mahong polysilicon production plant. These plans were halted due to the deteriorating PV market conditions.

“The impact of the reduced demand for PV products and the scaling back of subsidies in various European markets has had a material adverse impact on the company’s operational performance and resulted in the deterioration of the company’s financial performance. In response to these adverse market conditions, the company was forced to reduce production and in some instances suspend the operations of certain plants.”

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Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy's Coal Report. He was formerly with Coal Outlook for 15 years as the publication's editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor's degree from Central Michigan University.

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