Solar cell manufacturer LDK Solar files for bankruptcy

December 2014 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Chinese solar cell manufacturer LDK Solar Co, and a number of its subsidiaries in Hong Kong, the Cayman Islands and the US, filed for Chapter 11 bankruptcy protection in October to implement a wide ranging restructuring agreement which the firm had previously struck with its senior bondholders.

In addition to the company’s Chapter 11 application, filed in Wilmington, Delaware, LDK also simultaneously sought Chapter 15 protection in the same court. The firm filed for Chapter 15 bankruptcy in order to continue its international restructuring which has been ongoing in the Cayman Islands and in Hong Kong since September. However, the company’s financial difficulties have been ongoing for some time. In March, LDK’s stock was delisted by regulators after it filed for a winding up in the Cayman Islands, where the company is incorporated. Accordingly, the Cayman Islands insolvency court is overseeing the company’s international debt restructuring.

In its bankruptcy filing in the US, LDK reported debts of around $1.13bn and listed assets of around $510m, $383m of which comes from equity investments in its operating units. LDK blamed its financial collapse on deteriorating market conditions for its products amid oversupply in a slowing global economy. According to the paperwork, prior to its bankruptcy filing LDK had been forced to suspend much of its production as a result of falling demand, tumbling prices and heavy operating losses. The company’s main facilities for manufacturing photovoltaic cells for downstream solar panel makers are located in China, with its US offices located in Sunnyvale, California.

LDK’s restructuring has been underway for some time. While the company currently employs around 8400 people worldwide, as recently as 2011 it employed more than 24,000.

In February 2014, the firm asked the Cayman court to grant it protection from its creditors and to put two joint provisional liquidators in charge of alleviating its debt load. The subsequent restructuring agreement put forward by the liquidators has proved popular. According to the company’s court documentation, the plan has won the approval of more than 60 percent of the holders of LDK’s 5.5 percent senior convertible bonds due this year. “Confirmation of the plan is one component of the compromise of the senior notes and the related guarantee obligations, which I believe is an essential component to the global resolution of the group’s obligations in connection with the senior notes,” said the firm’s liquidator Tammy Fu. The overarching majority of LKD’s preferred-equity holders, including the Bank of China and the China Development Bank, have pledged their support to the restructuring plan.

Under the terms of the company’s restructuring plan, LDK’s senior convertible note holders will be able to swap their debt, although that swap is entirely dependent on how much cash LDK is able to secure when its restructuring plan comes into effect. In the event that there are insufficient funds to transfer to the note holders, they will receive equity in LDK equivalent to between 8.7 percent and 15 percent of their claim. The remainder of their claims will be satisfied through newly refinanced debt in the reorganised LDK. This new debt is due in 2018. Should LDK have a cash surplus following the restructuring, the firm’s note holders could potentially recover up to 10 percent of their claim in cash. It is believed that the company’s note holders’ overall recovery rate will be between 12.4 percent and 87.9 percent.

Much like LDK, a number of other manufacturers within the solar energy sector have experienced financial difficulty of late. In China in particular, solar firms have struggled. LDK became the fourth Chinese solar company to file for bankruptcy or debt restructuring in a 12 month period. A number of the industry’s notable players include Suntech Power Holdings Co and Zhejiang Topoint Photovoltaic Co, both of which filed for Chapter 15 in 2014.

Richard Summerfield