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Law360 (December 22, 2020, 11:23 AM EST) -- Home improvement financing company Renovate America sought Chapter 11 protection on Tuesday in Delaware bankruptcy court, saying tightened legislation, a wave of lawsuits and the COVID-19 pandemic had crippled its business.
California-headquartered Renovate America Inc. and its affiliate, Personal Energy Finance Inc., reported more liabilities than assets, saying they had $50 million to $100 million in assets and over $100 million in liabilities.
Renovate America focuses on financing home improvement projects, particularly environmentally sustainable updates. The company has two business units: its Benji unit, which provides home improvement financing for contractors and homeowners; and its Home Energy Renovation Opportunity unit, dubbed HERO. HERO originated clean energy assessments through a state and local government program known as Property Assessed Clean Energy, or PACE, CEO Shawn Stone said in first-day declarations.
Its business, particularly its HERO unit, ran into trouble when legislation tightened and COVID-19 hit, Stone said.
"[April 2018] legislation tightened credit underwriting criteria and made the underwriting process more cumbersome, drastically reducing the debtors' pool of potential HERO customers, and made it more difficult for contractors to participate in the HERO program," Stone said. "[Renovate America] also incurred significant expenses to defend against and settle growing litigation against it stemming from its HERO business. Finally, the global COVID-19 pandemic had a considerable negative impact on the debtors' revenues."
Renovate America said it has found a stalking horse bidder for its Benji business. Finance of America Mortgage LLC has lobbed a bid for all of the company's Benji assets, and Renovate America said it will soon seek approval for its proposed bidding procedures.
Finance of America bid about $5 million in cash for the Benji assets, according to the declarations, and has agreed to $50 million in debtor-in-possession financing.
Renovate America's HERO business, on the other hand, has been wound down, Stone said. The unit operated in California, Florida and Missouri, working with contractors to provide homeowners with PACE financing, which covers energy-efficient upgrades such as solar power, energy-efficient windows and HVAC system units, Stone said. PACE programs are authorized by state and local governments but are administered through private companies.
The HERO business faced litigation over its PACE assessment practices. Renovate America is fighting 56 cases, including three class actions, Stone said. Two of the class actions involve Renovate America's business in Los Angeles, including one in which the the complaint accused Renovate America of "overcharg[ing] virtually every cost, fee and amount due from borrowers."
A more recent Florida suit filed in May claims that Renovate America has an unfair policy that allows customers to skip out on paying contractors.
In 2017, the state of California sued Renovate America over its HERO business and sought an injunction as well as civil penalties, Stone said. Renovate America inked a settlement agreement without admitting fault, and currently owes about $2.7 million to the state, according to its Chapter 11 petition.
Also in 2017, new legislation was passed that created new underwriting guidelines for PACE that tightened the ability-to-pay standard for borrowers and added a training requirement for contractors, Stone said. The new ability-to-pay standard crippled HERO's California operations, with revenues falling by about 81% from 2016 to 2019, according to Stone.
The HERO litigation has cost the company over $15 million to date, Stone said, and numerous law firms appear among its unsecured creditors.
Renovate America said its legal costs include more than $891,000 owed to Larson O'Brien LLP, nearly $833,000 to Reed Smith LLP, over $220,000 to Squire Patton Boggs (US) LLP, more than $144,000 to Hunton Andrews Kurth LLP, over $113,000 to Goodwin Procter LLP, and roughly $111,500 to Best Best & Krieger LLP.
Other firms, including Winston & Strawn LLP, Hudson Cook LLP and Littler Mendelson PC, are owed less than $50,000, the petition said.
Renovate America has inked deals to liquidate HERO's assessment and bond portfolios, selling them to an affiliate of asset manager Kawa Capital Partners LLC, Stone said. Renovate America also assigned some of its contracts to Ygrene Energy Fund Inc., a fellow PACE financing business, according to the declarations.
Representatives for Renovate America did not immediately respond to a request for comment Tuesday.
Renovate America is represented by Mette H. Kurth of Culhane Meadows PLLC and by Sharon Z. Weiss and Timothy R. Bow of Bryan Cave Leighton Paisner LLP.
The case is In Re: Renovate America Inc., case number 20-13172, in the U.S. Bankruptcy Court for the District of Delaware.
--Additional reporting by Y. Peter Kang and Sierra Jackson. Editing by Alyssa Miller.
Update: This story has been updated with more details from the company's filing.
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