Evergreen calls foul in Lehman bankruptcy

Marlboro, Mass.-based Evergreen Solar (Nasdaq: ESLR) is diving into the bankruptcy case of New York's Lehman Brothers, announcing today that it filed a lawsuit against Lehman and London-based Barclays (NYSE: BCS). Evergreen, which makes solar power products using a low-cost wafer technology, is challenging Barclays' ownership claim to shares that Evergreen lent to Lehman before the investment bank went under.

Lehman Brothers filed for Chapter 11 protection last month in the U.S. Bankruptcy Court for the Southern District of New York. Barclays, a London-based bank, subsequently grabbed Lehman's North American operations for $250 million in cash, plus the assumption of liabilities.

Barclays is also providing $500 million in debtor-in-possession financing to Lehman, as well as an interim credit facility, to fund Lehman's ongoing operations.

But before Lehman succumbed the effects of the global credit crisis, Evergreen lent 30.9 million of its shares to the bank in connection with a $375 million financing Evergreen completed in July.

"We loaned them the shares. They were our shares," Michael El-Hillow, CFO of Evergreen, told the Cleantech Group. "We believe that these shares never should even have made it into the bankruptcy court."

Barclays is claiming ownership of 12.2 millions shares. El-Hillow said the remaining shares are believed to have been sold. He said said his company first found out about Barclays' claim on the shares when the London bank filed a notice with the U.S. Securities and Exchange Commission on Oct. 8.

"We let them know that we believe they were our shares," said El-Hillow. "They disagreed. We shared with them we would bring suit. They didn't react."

"I'm sure there will be ongoing dialogue, but as of right now it's with the courts."

A spokeswoman for Barclays said the bank would not comment on the lawsuit.

Evergreen's shares, along with much of the solar market, were down in afternoon trading. The shares hit $3.29, down 8.1 percent, and a significant drop from a 52 week high of $18.85.

But overall, the company appears to be doing well. The cash from that $375 million financing is being used to complete the construction of a solar panel manufacturing facility located in Devens, Mass., as well as to begin construction of a plant to produce heat resistant string for its solar wafers.

Evergreen noted in a recent statement that the majority of its cash and short term investments are held by Silicon Valley Bank, not Lehman.

The company has also signed a string a new contracts this year, including two contracts in June that brought the company's contractual backlog to more than $1.7 billion (see Evergreen signs $600M in new contracts).

And the industry received an unexpected boost when an extension of renewable tax credits was added onto a bailout bill for the financial industry. The bill was signed into law on Oct. 3 (see Solar takes stock after tax-credit battle).

"We will be profitable next year," said El-Hillow. "We'll be generating enough cash from operations to run the business."

Although he said there is time and expense involved in pursuing the lawsuit, he said the court case will not have an impact on the company's day to day operations.

Evergreen isn't the only solar company that loaned shares to Lehman. San Jose, Calif.-based SunPower (Nasdaq: SPWRA) disclosed earlier this month that it will record 2.9 million shares loaned to Lehman as issued and outstanding, and China's JA Solar (Nasdaq: JASO) said in September that the 6.56 million shares it loaned to Lehman are also considered issued and outstanding.

Evergreen said it's seeking to ultimately recover all of the shares it loaned to Lehman, about 18 percent of its outstanding shares, but this lawsuit is specifically demanding the return of the shares that Barclays is now holding.

Boston law firm Goodwin Procter is representing Evergreen in the lawsuit. El-Hillow said they filed the suit last night and were in court in New York this morning. Pending a decision by the bankruptcy judge on the return of the shares, Evergreen is asking the court to prevent further transfer of the shares held by Barclays.

Evergreen may also end up pursuing a resolution to some other Lehman dealings. El-Hillow said Evergreen is looking into getting its money back on a derivative it purchased from Lehman, in what's called a capped call transaction, that cost Evergreen $40 million.

"There will be additional lawsuits," said El-Hillow.