November 4, 2012

Customer seeking to freeze Clipper Windpower assets, including Cedar Rapids factory

Dave DeWitte | The Gazette | 3 November 2012 |

A major Clipper Windpower customer is seeking to freeze the recently sold company’s assets – including its Cedar Rapids factory and equipment – to ensure it can pay a possible arbitration settlement.

Wind project developer and owner First Wind Energy LLC said Clipper accepted $59.5 million in advance payments for wind turbines it no longer produces in the lawsuit filed last month in Linn District Court in Cedar Rapids.

Clipper manufactured its huge Clipper Liberty 2.5-megawatt wind turbines in Cedar Rapids from 2006 until earlier this year. The Carpinteria, Calif.-based company has been sold twice in the last two years.

Clipper’s leaders were tight-lipped this past summer as Clipper suspended turbine production and laid off 76 employees after the company was sold by United Technologies Corp. to a private equity firm, Beverly Hills, Calif.-based Platinum Equity LLC.

Warranty claims, according to the lawsuit, have been a huge financial problem for Clipper Windpower. The company’s previous owner, United Technologies Corp., indicated it was setting aside $91 million to pay for warranty claims on Clipper’s products.

First Wind, based in Boston, said the undelivered turbines and related issues are now part of an arbitration proceeding in Chicago. It is seeking a writ of attachment on Clipper’s Iowa assets because it is worried that Clipper Windpower will dispose of them, making it impossible for First Wind to collect any award it receives in arbitration.

“Clipper has not only ceased production of these turbines, but has wrongfully refused to return the advance payments, even though it has no plans to meet its contractual obligations to produce and deliver the turbines to first wind,” the lawsuit said.

“Indeed,” the lawsuit continued, “Clipper even turned down First Wind’s proposed order for 20 turbines earlier this year.”

Clipper began producing turbines in Cedar Rapids in 2006. The lawsuit claims that as early as early as March 24, 2008, because of Clipper’s financial difficulties, First Wind and another customer had to provide secured financing to Clipper so that it could meet its repair obligations.

The lawsuit also details difficulties by First Wind in trying to obtain project financing for wind development in which it planned to use Clipper Windpower turbines because of Clipper’s financial instability.

First Wind had expected the acquisition of Clipper by United Technologies about two years ago to ease the financial problems, but it did not, the lawsuit said.

As evidence of Clipper’s non-production status, the lawsuit detailed a series of email exchanges last March.

First Wind was seeking clarification of Clipper’s production capabilities because it was interested in buying 41 turbines to take advantage of the possibility of receiving U.S. Treasury grants to assist in financing a wind development. It believed its prior deposits with Clipper might serve as owner equity in qualifying for the grants.

Clipper’s chief commercial officer, Robert Gates, confirmed in the exchanges that Clipper was rebuilding turbine gear boxes for warranty purposes and no longer building new turbines. In fact, he said, Clipper had recently “passed” on a 16-turbine sale to have more gearbox components to serve existing customers.

In the same email exchange, the lawsuit says, Gates indicated another turbine model slated for production by Clipper likely would not be available until 2014 or 2015.

“By May 2012, First Wind was informed by Clipper that it had ceased all manufacturing of wind turbines and had no intention of resuming manufacturing them,” the lawsuit said.

First Wind has purchased 150 of the 2.5-megawatt Clipper wind turbines since 2006, according to the lawsuit. The importance of having Clipper continue to honor parts, service and maintenance agreements on the turbines is one of the critical concerns for First Wind and other Clipper customers.

Clipper Windpower’s attorneys have been granted an extension to respond to the lawsuit. CEO Michael Reed declined to comment on the lawsuit, saying the company does not comment on litigation.

Platinum Equity, Clipper’s new owner, did not respond to a request for comment.

Clipper Windpower’s $22 million investment in Cedar Rapids was one of Iowa’s first victories attracting wind power manufacturers in 2005. At least five other states had been courting the promising California company as it got ready to launch production.

A basket of state incentives included a $500,000 forgivable loan, $2 million short-term loan, $346,000 infrastructure assistance grant and enterprise zone benefits.

Clipper is facing a similar lawsuit to freeze its assets in California courts. Much of that lawsuit in Santa Barbara Superior County Court is under seal, according to the Pacific Coast Business Times.

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