Photo: SunCommon technicians install rooftop solar panels in Barre. Photo: Courtesy SunCommon.
by Timothy McQuiston, Vermont Business Magazine
Williston-based iSun Inc. filed for Chapter 11 bankruptcy in June and was subsequently delisted by the U.S. Securities and Exchange Commission. This followed a significant financial loss in 2023, leadership changes in April including the hiring of a restructuring officer, and the cancellation of a reverse stock split. Pending court approval, the company’s assets would be acquired by an affiliate of Siltstone Capital, a Texas-based energy investment firm.
ISun, formerly Peck Electric, reported 275 employees and $95.7 million in revenues in 2023. However, facing financial challenges, the company laid off 26 employees at the end of May and now reports a total of 196 employees.
The company reported a $19.4 million operating loss in 2023 and was accumulating debt at an unsustainable rate. According to its bankruptcy filing, iSun is losing $250,000 per week and relied on new loans from investment firms to avoid liquidation.“
Photo: Jeff Peck, CEO of iSun, in 2021. ISun photo.
Jeff Peck, CEO of iSun, sent this statement to VermontBiz on June 12:
“After careful consideration, we have determined that a Chapter 11/363 reorganization is the best path forward for iSun. This process will enable us to restructure our finances and operations to ensure our long-term sustainability and competitiveness. We are committed to minimizing any disruption to our employees, customers and vendors during this period. Our operations will continue as usual, and we remain focused on providing the high-quality products and services that our customers expect from us.“
ISun subsidiary SunCommon, the Waterbury-based solar panel installer, will also continue operations as usual.
ISun did not respond in April when VermontBiz asked via email whether a failed reverse stock split and hiring of a restructuring officer would result in a bankruptcy filing.
For now, the loan by Siltstone affiliate Clean Royalties of $1 million and a “stalking horse“ acquisition price of $10 million should allow the firm to continue to operate and avoid liquidation.
ISun stated in its June 3 SEC filing that they “expect to continue their operations in the ordinary course of business during the pendency of the Chapter 11 cases.“
The largest creditors listed are Green Mountain Electric Supply of Colchester ($1.8 million) and Tesla Energy of Utah ($1.7 million).
All this followed a tumultuous early spring, as iSun re-installed Jeff Peck as CEO in April and hired a restructuring expert as chief financial officer. It was also sued by the founders of the firms it acquired three years ago: SunCommon and Hudson (NY) Solar.
Peck was reappointed as CEO of iSun on April 23. Additionally, Rob Vanderbeek was appointed as interim chief financial officer. A press release stated that the restructuring was aimed at driving innovation, enhancing operational efficiency and ensuring sustained performance in a rapidly evolving market landscape.
Bob Zulkoski relinquished his role as CEO, which he held for just over a month. Zulkoski, a management expert from Middlebury was appointed on March 12.
“I’m excited to step back into the role of CEO and continue the remarkable journey that Bob has paved for us, Peck said at the time. “Together with our dedicated team, I am committed to driving our company forward, embracing new opportunities and delivering value to our customers and stakeholders. Our focus remains on innovation, growth and ensuring that iSun remains a leader in our industry.“
On April 23, iSun shares were trading near its one-year low, at 15 cents. Its 52-week range was $0.1253/$0.7478. Its market cap was $7 million. Its earnings per share was $3.19. Its 2023 revenues (Annual Report 10-K) were $95.7 million, up from $76.5 million in 2022, but with a loss of $19.4 million (-$53.8 million in 2022).
In its June 3 Chapter 11 filing in the U.S. Bankruptcy Court for the District of Delaware, which is written as a detailed, first-person request by Peck, several details came to light:
ISun approached restructuring consultant in August 2023.
As of Dec. 31, 2023, iSun had approximately $34.3 million in trade debt, contract liabilities and lease liabilities.
During the years ended Dec. 31, 2023, and Dec. 31, 2022, iSun incurred net losses of $19.4 million and $53.8 million, respectively, and used cash in operations of $8.9 million and $6.3 million, respectfully.
ISun is currently operating at a deficit of $250,000 per week, and was forecasting a loss of $10 million for 2024.
The majority of iSun cash flows to date have been from the sales of solar energy systems. Rising interest rates have had the effect of depressing the sales of solar energy systems because many consumers finance their purchases. As a result, increased interest rates have negatively affected the debtors’ costs and reduced their revenues, which have had an adverse effect on their business, financial condition and results of operations.
The company entered into the “Decathlon Loan,“ which closed in December 2023, and provided for an $8 million capital infusion at an effective interest rate greater than 20%.
Clean Royalties is also a small, recent shareholder of iSun, owning approximately 1% (615,000 shares) of the debtors’ stock.
ISun secured a commitment from Clean Royalties, an entity affiliated with Siltstone Capital, to serve as a stalking horse bidder in a sale of substantially all of the debtors’ assets. Siltstone is an energy-focused alternative investment and advisory firm based in Houston.
The sale will provide for a continuation of iSun’s businesses as currently operated, thus ensuring their customers will have in-process and contracted-for-work completed, that iSun’s existing workforce will continue to be employed, various contracts and leases will be assumed and cured, and iSun’s trade creditors have an ongoing business partner, thereby avoiding the resulting claims that would arise should these various things not occur.
To facilitate the sale, Clean Royalties (in such capacity, the Debtor in Possession (DIP) lender, agreed to provide iSun with up to $4 million of new money capital. This included $1 million advanced on a senior secured priming basis (the “Bridge Loan“).
Clean Royalties has also agreed to provide an incremental $3 million of new money through a senior secured priming debtor in possession financing facility.
ISun’s full-time employees include 143 hourly employees and 53 salaried employees, of whom four are senior executives.
ISun estimates that, as of the Petition Date, they have approximately $463,112.68, inclusive of payroll taxes, outstanding in total accrued prepetition employee compensation obligations.
As of the petition date, iSun is aware of one employee who is individually owed wages ($21,655.13) greater than the $15,150 cap established by section 507(a)(4) of the bankruptcy code.
On May 29, 2024, iSun laid off 26 employees as part of their efforts to reduce costs in preparation of the filing of these cases. Per certain state’s involuntary termination guidelines, these employees are entitled to certain payments, including, inter alia, outstanding wages and accrued vacation time. The total amount owed to these employees is approximately $57,350.06.
Prior to the petition date, debtors (iSun and affiliates) offered their employees various health and welfare benefits, including medical, dental, vision, life and disability (long- and short-term) insurance. Employees are eligible to enroll on the first day of employment. Debtors contribute approximately $152,774.16 per month towards the employees’ insurance premiums. Employee premiums are deducted pretax.
ISun estimates that before the final hearing on this motion, prepetition employee obligations totaling approximately $520,462.74 will be due and payable.
ISun requested and was granted permission by the court to pay employee, tax, utility, shipping, insurance and critical vendor obligations before the bankruptcy case is finalized in order to keep operating.
In August 2023, England Securities was referred by the board and then hired by iSun as their financial adviser to advise on strategic alternatives and to help iSun find a financial or strategic partner that would help the company grow to the point that it was logical to remain public, and if not feasible, to consider going private.
Around the time the engagement commenced, iSun received notice from a lender stating that the company had breached a covenant. As a result, the emphasis of England’s engagement became refinancing the lender to address the ongoing covenant breach and related short-selling of iSun’s stock, which further impacted its access to capital.
Throughout the fourth quarter of 2023, England identified three potential strategic alternatives: (1) the revenue-based Decathlon Loan, with an effective interest rate of 23-25%; (2) a merger of equals with another publicly traded solar installer, and (3) a go-private transaction with Clean Royalties via a two-step tender offer and sale.
Upon further analysis, England identified the Decathlon Loan as the best option for the company, given the circumstances at the time.
With the covenant breach behind iSun, throughout 2024 England focused on obtaining a value maximizing transaction for iSun and their stakeholders, which may have taken the form of a recapitalization, merger or take-private transaction.
During that process, the company continued to struggle to generate free cash flow, and the capital infusion was quickly depleted.. As the company’s cash position continued to deteriorate, England was asked to (1) advise on filing for extension with regard to a NASDAQ delisting notice and (2) canvas the market for additional strategic alternatives.
Upon a thorough search, England found two options: (1) a potential strategic transaction with another party and (2) Clean Royalties’ go-private proposal. However, the strategic transaction ultimately did not move forward, leaving the Clean Royalties’ offer as the only option available to the company.
On May 9, 2024, the debtors received notice from the prepetition lender, of an “Event of Default“ under the Decathlon Loan, with respect to (1) iSun’s failure to deliver deposit account control agreements to the prepetition lender as required by the applicable loan agreement, (2) iSun’s incurrence of indebtedness not permitted under that loan agreement, and (3) iSun’s grant of liens on its assets in violation of that loan agreement.
The notice stated that the prepetition lender demanded the immediate payment of all obligations owed by the debtors to the prepetition lender, including the prepetition lender’s costs of collection.
At the same time, during a site visit by Clean Royalties, England, iSun and Clean Royalties determined that the traditional M&A path was unrealistic due to the considerable obligations burdening the company. As a result, it was mutually agreed that a transaction via a 363-asset sale was the only viable option for iSun’s business to continue as a going-concern.
Previous Lawsuit from SunCommon and Hudson Solar Owners
ISun is also involved in a lawsuit from the principles of companies it acquired in 2021: SunCommon and Hudson Solar (those firms had merged in 2018).
Regarding the litigation, iSun stated in its annual report: “On Feb. 13, 2024, the company became aware of pending litigation in the U.S. District Court for the District of Vermont, entitled Duane Peterson, James Moore and Jeffrey Irish, solely in their capacity as Shareholder Representative Group v. iSun Inc., alleging breach of contract/collection. iSun Inc.’s responsive pleading was made on March 15, 2024. ISun Inc. plans to vigorously contest this litigation. At this stage, it is not possible to evaluate the likelihood of an unfavorable outcome or provide an estimate of the range of potential loss.“
Duane Peterson is a SunCommon co-founder with James Moore, and Jeff Irish is the founder of Hudson Solar. SunCommon is based in Waterbury and the SunCommon Hudson Valley Office is based in Kingston, New York.
Also on April 25, iSun Inc. (NASDAQ: ISUN) announced that its board of directors approved the rescission of the previously announced reverse stock split that was planned for April 26. The reverse stock split had been announced only two days prior.
On April 25, shares opened at 10 cents per share ($0.10) and opened Friday, April 26, at 25 cents ($0.25); the 52-week range is $0.0890 - $14.9560.
“We have always prioritized shareholder value and transparency in our decision-making process,“ Jeff Peck, CEO of iSun, said at the time. “After thorough evaluation and discussions with our shareholders, we have determined that rescinding the reverse stock split is the appropriate course of action at this time. We remain committed to executing our strategic initiatives and delivering long-term value to our shareholders.“
Background
US Securities & Exchange Commission, June 3, 2024:
Delisting Determination, The Nasdaq Stock Market, LLC, June 3, 2024, iSun, Inc. The Nasdaq Stock Market LLC (the Exchange) has determined to remove from listing the securities of iSun, Inc., effective at the opening of the trading session on June 13, 2024. Based on review of information provided by the Company, Nasdaq Staff determined that the Company no longer qualified for listing on the Exchange pursuant to Listing Rule 5550(a)(2). The Company was notified of the Staff determination on May 14, 2024. The Company did not appeal the Staff determination to the Hearings Panel. The Company securities were suspended on May 23, 2024. The Staff determination to delist the Company securities became final on May 23, 2024.
US SEC, May 31, 2024:
On May 15, 2024, iSun, Inc., a Delaware corporation (the “Company“) and its wholly-owned subsidiaries and entities entered into a Senior Secured Promissory Note (the “Note“) and a Security Agreement (the “Security Agreement“) with Clean Royalties, LLC (“Clean Royalties“), an affiliate of Siltstone Capital, LLC, providing for a loan to the Company in the maximum amount of $1.0 million (the “Loan“).
On May 15, 2024, the Company, Clean Royalties, and the Company’s current senior lender, Decathlon Growth Credit, LLC (“Decathlon“) entered into a Letter Agreement (the “Letter Agreement“) in connection with the Loan. Under the Letter Agreement, the parties agreed that the Loan, in the amount of up to $1 million will be secured by Clean Royalties’ first-priority security interest in the Collateral, as defined in the Security Agreement. Clean Royalties retains the option to provide debtor-in-possession (“DIP“) funding to the Company should the Company become a debtor-in-possession in a Chapter 11 bankruptcy proceeding seeking a sale under Section 363 of the Bankruptcy Code. The Loan, plus any approved DIP funding may not exceed $4 million in total principal, and the amount of the Loan will be treated as if it was initially included in the DIP funding. The DIP funding will bear interest at the Secured Overnight Financing Rate, plus 18%, accrued monthly. The Company will reimburse up to $150,000 of Clean Royalties’ legal and professional fees and out-of-pocket expenses in connection with the Loan. The Letter Agreement further provides that Clean Royalties may submit a “stalking horse bid“ to the applicable Bankruptcy Court in the amount of $10 million.
The Note requires payment in full of all principal and accrued interest on Dec. 31, 2024. The principal amount of $500,000 was advanced to the Company on May 15, 2024, and an additional principal amount of $500,000 was advanced to the Company on May 24, 2024. Advances of principal under the Note are secured by all property of the Company and the Company’s wholly owned subsidiaries and entities pursuant to the Security Agreement. The Security Agreement includes customary representations and warranties, covenants and events of default. Amounts outstanding and otherwise due under the Note may be accelerated for typical defaults including, but not limited to, the failure to make payments when due, or the failure to perform any covenant.
The foregoing summary of the Note, the Security Agreement, and the Letter Agreement does not purport to be complete and is qualified in its entirety by reference to the text of the Note, the Security Agreement, and the Letter Agreement copies of which are filed as Exhibits 10.1, 10.2, and 10.3, respectively, hereto and incorporated herein by reference.
The Company and its wholly owned subsidiaries and entities have retained bankruptcy counsel and are conducting the necessary preliminary activities to prepare to file a Chapter 11 petition in the U.S. Bankruptcy Court for the District of Delaware if the Board of the Company approves the filing of a Chapter 11 petition.
iSun SEC K-8 Filing June 7, 2024:
Item 1.03. Bankruptcy or Receivership
Voluntary Petitions for Bankruptcy
On June 3, 2024 (the “Petition Date“), iSun, Inc. (the “Company“) and certain of its subsidiaries (such subsidiaries, each a “Debtor,“ and together with the Company, the “Debtors“) filed a voluntary petition for reorganization under chapter 11 of title 11 of the U.S. Code (the “Bankruptcy Code“) in the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court“) (the “Chapter 11 Cases“). The Debtors are seeking to jointly administer the Chapter 11 Cases under the caption “In re: ISUN, INC., et al.“ Case No. 24-11144. The subsidiaries that are Debtors in the Chapter 11 Cases are Hudson Solar Service, LLC; Hudson Valley Clean Energy, Inc.; iSun Corporate, LLC; iSun Energy, LLC; iSun Industrial, LLC; iSun Residential, Inc.; iSun Utility, LLC; Liberty Electric, Inc.; Peck Electric Co.; SolarCommunities , Inc.; and Sun CSA 36, LLC.
The Debtors expect to continue their operations in the ordinary course of business during the pendency of the Chapter 11 Cases. To ensure ordinary course operations, the Debtors have filed motions seeking orders from the Bankruptcy Court approving a variety of “first day“ motions. No trustee has been appointed and each Debtor will continue to operate its business as a “debtor-in-possession“ (DIP) subject to the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.
Item 2.04. Triggering Events that Accelerate/Increase Direct Financial Obligation or Off-Balance Sheet Arrangement Obligation
The text set forth in Item 1.03 of this Current Report on Form 8-K regarding the bankruptcy filing is incorporated into this item by reference. The bankruptcy filing described above constituted an event of default or otherwise triggered or may trigger repayment obligations under a number of instruments and agreements relating to direct financial obligations of the Company and certain of its subsidiaries (the “Debt Instruments“).
The Debt Instruments provide that, as a result of the Chapter 11 Cases, the principal, accrued and unpaid interest and certain other amounts due thereunder shall be immediately due and payable. Any efforts to enforce such payment obligations under the Debt Instruments are automatically stayed as a result of the Chapter 11 Cases, and the creditors’ rights of enforcement in respect of the Debt Instruments are subject to the applicable provisions of the Bankruptcy Code.
Item 3.01. Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing
As previously disclosed, The Nasdaq Stock Market, LLC (“Nasdaq“) suspended trading in the Common Stock of the Company on May 23, 2024, due to noncompliance with Nasdaq Listing Rule 5550(a)(2). On June 3, 2024, Nasdaq filed a Form 25 Notification of Delisting with the Securities and Exchange Commission to complete the delisting. The delisting becomes effective ten days after the Form 25 is filed.
Beginning on May 23, 2024, the Company’s Common Stock had been trading over the counter on the OTC Pink Market under its current trading symbol “ISUN.“
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. Appointment of Rob Vanderbeek as Chief Restructuring Officer
Effective June 3, 2024, the Board of Directors (the “Board“) of iSun, Inc. (“iSun“ or the “Company“) appointed Rob Vanderbeek to serve as Chief Restructuring Officer of the Company. Mr. Vanderbeek will not receive any direct compensation from the Company other than indirectly in connection with the fees paid by the Company to Novo Advisors, LLC in connection with Mr. Vanderbeek’s services as the Company’s Interim Chief Financial Officer, as described in the Company’s Current Report on Form 8-K filed April 22, 2024.
Item 8.01. Other Events
On June 5, 2024, the Bankruptcy Court approved a variety of “first day“ motions seeking customary relief intended to enable the Debtors to continue ordinary course operations during the Chapter 11 Cases by, among other things, making payments upon, or otherwise honoring, certain obligations that arose prior to the Petition Date.
Cautionary Note Regarding the Company’s Securities
The Company cautions that trading in the Company’s securities during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks. Trading prices for the Company’s securities may bear little or no relationship to the actual recovery, if any, by holders of the Company’s securities in the Chapter 11 Cases. The Company expects that holders of shares of the Company’s Common Stock could experience a significant or complete loss on their investment, depending on the outcome of the Chapter 11 Cases.
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