MANHATTAN (CN) - Vivint, a residential solar energy company, promised long-term clear skies to investors before going public in October, despite its directors and underwriters being well aware of the brewing storm clouds that have since cut its stock's worth by almost a third, an investor claims in court.
Investor Brennen Hyatt sued the company, its underwriters and directors for compensatory damages on behalf of hundreds of others in a class action securities lawsuit filed in the Southern District of New York on Friday.
Vivint Solar first got its idea for finding customers through a door-to-door sales pitch from an ex-Goldman Sachs managing director, Hyatt says in a 15-page complaint.
Customers who sign up for the company's 20-year purchase agreement can have solar panels installed and maintained in their homes for free, as long as they pay a fixed rate for the energy for the life of the contract.
Through this model, Vivint boasted an expansion to seven states to rise last year to the second largest solar power provider, next to SolarCity.
The company prepared to go public this year with a May 14 draft registration statement declared effective on Sept. 30, according to the complaint.
Hyatt claims that this document was "negligently prepared" by the company's 10 directors and powerful financial services companies like The Blackstone Group; Goldman, Sachs & Co.; Merrill Lynch, Credit Suisse, Citigroup Global Markets, Deutsche Bank, Morgan Stanley and Barclays Capital.
Of the underwriters, Blackstone was the controlling shareholder with 97 percent of pre-IPO interest in the company and 78 percent of the post-IPO, according to the complaint.
"Long-term, highly visible, recurring cash flow" was all but assured by Vivint's business model, the registration said, the lawsuit says.
In particular, Vivint said in its registration that its 20-year contracts meant "predictable, recurring cash flows," but it did not disclose that "ownership trends had changed and that the tax credits that Vivint had relied upon to drive its revenue growth were no longer as readily available," the complaint says.
Calling existing solar-power markets "significantly underpenetrated," Vivint's registration allegedly proposed "to grow in these markets at lower customer acquisition and installation costs relative" to its competitors.
But "ownership trends had changed," Hyatt claims in his lawsuit.
"[R]esidential solar customers were increasingly seeking financing relationships that led to direct ownership (and retention of tax and related benefits) rather than entering into long-term leases," his complaint states. (Parenthesis in original)
While asserting that its direct-sales approach drove "cost efficiency," the registration did not state that Vivint's expenses "had actually grown substantially in the third quarter of 2014, without a proportional growth in revenues, significantly increasing losses in the quarter that had ended on September 30, one day before the IPO," the complaint states.
The poorly performing quarter also belied statements that Vivint had been "[c]apitalizing on opportunities to ... lower costs" through investments that would "continue to improve [its] operating efficiency" and "cost structure," according to the complaint. (Brackets in original)
Selling 20.6 million shares to the public at roughly $16 per share, Vivint raised about $329.6 million in gross proceeds at its IPO, Hyatt says.
"At the time of the filing of this action, Vivint common stock was trading at below $11 per share, a more than 32% decline from the IPO price," the complaint states.
It remained below that price on Monday morning.
Hyatt is represented by Samuel Rudman of Robbins Geller Rudman & Dowd LLP.
Vivint Solar said it believes "the allegations are without merit and the company will defend itself vigorously." Blackstone declined to comment.
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