How I did it

Bringing a bankrupt solar giant back from the dark side

Conergy’s 2 megawatt New Caledonia Heart Project, located on the southwest Pacific island of New Caledonia
Source: Conergy

Earlier this month, Andrew de Pass took over as CEO of Conergy. He was the right man for the job. While working as an executive at Kawa Capital, he led the private equity firm's effort to acquire the one-time solar giant when it went bankrupt in 2013.

By the end of 2014, Conergy had near-$500 million in revenue across 300 megawatts of installed solar. In less than two years, the company has returned to profitability (it doesn't disclose the exact level). On Tuesday came the announcement that the energy trading arm of German utility RWE led the investment of a $45 million round of financing for Conergy.

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De Pass, who had served as Conergy executive chairman while still at Kawa Capital, which oversees $600 million in investments, recently spoke with CNBC about why the deal to acquire Conergy almost never happened, why he had faith that a bankrupt solar company would be a good bet during a sector downturn, how the company has returned to profitability, and why it will stay that way. [An edited version of the conversation with the solar-turnaround CEO follows.]

CNBC: What did you see in a bankrupt solar company that made it worth your time and money?

De Pass: Conergy was more than just a panel maker. It was at one time the largest publicly traded renewable-energy company in Europe and had a brand as a downstream [project pipeline and development] company, too—actually, before it got into manufacturing panels and solar inverters. That side of the business is what allowed it to be one of the few turnaround success stories in solar. We were looking at Conergy for its brand and global footprint.

It was clear to us as an asset manager that there would be significant pools of capital moving into long-term ownership of solar. It's real estate without occupancy risk, and it's hard for investors to deploy capital in a meaningful way—negotiating developer by developer, project by project—and we knew Conergy was a global business.

CNBC: You worked a long time on a deal, but things did not go as you planned, so how did you make it happen?

De Pass: I had worked in the renewable-energy area starting with the private equity unit at Citigroup two decades ago and had a deep global network, and I began working with the then-CEO of Conergy in 2012. There was no formal process to sell, but we started a dialogue about a debt-to-equity swap since the company was public but was over-leveraged. We did a lot of work on a potential deal for over a year. One of the 10 banks to which Conergy was indebted said no to the debt-to-equity swap, and then Conergy hit the wall and filed for insolvency in early July 2013.

CNBC: But instead of walking away from the deal at that point, you pivoted and found a way to get another deal done.

De Pass: We thought the deal was a fair one, and the issue wasn't so much what we were paying for the business but how much capital would have to be injected to support the business, given the global cost basis. There is a cost to having operations in 15 countries and 350 people. But there is also a benefit to a global footprint, since you can move resources around, too.

Ultimately, we were ready to put money on the table.

With the work we had done, we were ready to move quickly and negotiate, and we had to move fast.

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Like a lot of companies facing insolvency, I didn't want to see the company disintegrate. When a company goes into bankruptcy, there is a process and credit committees and competition for various assets. We had a deal that we thought was reasonable prior to insolvency, but we had to be ready to pivot from a debt-to-equity swap to acquiring various solvent businesses from the parent. It was unfortunate it went into insolvency, but that made the restructuring easier with regards to manufacturing assets we didn't want. We had more flexibility to right-size.

The end of booms and busts in solar

CNBC: Why have confidence in a sector that had been so prone to booms and busts?

De Pass: You have to break the sector into manufacturing and downstream. Manufacturing was always a 'start-up' and moving around geographies where there were the most attractive government subsidies. That's done. We won't have booms and busts anymore. On the solar installation and service side, if it was only based on subsidies and regulation, it would only be boom and bust, but now we have country after country and state after state getting to grid parity.

CNBC: What did companies like Conergy do wrong that contributed to the brutal shakeout in the solar sector?

De Pass: Conergy moved into vertically integrated upstream (solar manufacturing) at exactly the wrong time. They went there just as the Chinese solar panel producers were getting big. Conergy also vertically integrated into solar inverters and racking, and it had a big debt load, which the banks were willing to bless because it was once the darling of Europe with a high market value. Upstream strategy at the wrong time and excess leverage. Or in other words, bad timing and lack of focus.

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CNBC: Is there a cautionary tale in the solar story for executives across all industries?

De Pass: I think it's easy to try and be an armchair quarterback. The reality is that when you put yourself in the senior management position in solar back in 2006 or 2007, when polysilicon [the raw material for manufacturing solar panels] was a few hundred dollars a kilogram and demand was spiking for solar fueled by German subsidies, lots of companies were jumping into upstream in an attempt to control their own destiny. What they missed was the impact of the Chinese entry and the Chinese pricing tactics. There was good reason to move upstream, and it's easy to look back and say they should have seen the Chinese coming, but it's not that clear.

Having a prudent amount of debt is important. If you are building a manufacturing plant, it's OK to have some amount of debt, but if you are developing solar projects, leverage should be at the project level, not the corporate level. We have no debt at the holding-company level today.

2015 will be an inflection year for utilities. They have to figure out how to put solar on the roof or build a project for a commercial customer. Today, many utilities are not in business to do that. But we won't fight utilities. We will embrace them. Solar is not a fad, and they won't lose customers.
Andrew de Pass, Conergy CEO
Source: Conergy

CNBC: The debate about the utility industry's approach to solar is divisive. And in the U.S., some of the fights over net metering, especially in Arizona, present a portrait of a utility industry very resistant to solar. What's your view?

De Pass: 2015 will be an inflection year for utilities.

[In addition to RWE's investment in Conergy, Duke Energy acquired REC Solar and AES acquired Mainstreet Power earlier this year.]

They have to figure out how to put solar on the roof or build a project for a commercial customer. Today, many utilities are not in business to do that. But we won't fight utilities. We will embrace them. Solar is not a fad, and they won't lose customers. I was at a meeting a week ago with Florida Power & Light, and they are planning a couple of hundreds of megawatts of solar in just the next 12 months. They are hardly a tree-hugger. It makes economic sense. But to have a sustainable business model, utilities do need to have a rooftop solar strategy. And I think net metering will be made more economically viable.

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CNBC: At the same time, some big technology companies are taking more control of their own energy needs, including Apple, which recently announced plans to build a solar power plant for its new data center in Arizona. Do you think more solar projects like these will come from non-utility companies?

De Pass: That's really just what we call the commercial and industrial sector, whether it's on the roof or inside a fence, or virtual metering, but it's a huge, untapped sector.

CNBC: What are your top priorities in 2015?

De Pass: We want to continue to focus on Japan and Southeast Asia, and look for share in the U.S. as well as in new emerging markets for solar, from Mexico to Central America, Chile and Turkey. We can grow from the global footprint because very few first-generation solar companies had operations in 15 countries and a project development business with 350 people. Conergy didn't move into these countries a year ago. More and more countries are doing solar based on grid parity and not subsidies.

[Among the countries where Conergy has operations are Japan, Singapore, Thailand, Philippines, Brazil, Chile, Mexico, Turkey, Australia, the U.K., the U.S., Italy, Canada, Germany and the United Arab Emirates. Conergy, which is now based in Miami, has a global pipeline of solar projects equal to 4 gigawatts.]

Secondly, it's critical to attract talent to execute. Your project pipeline can't get ahead of your talent pool. My No. 1, No. 2 and No. 3 concern is talent, talent, talent. Talent retention and addition is critical in most growth industries. Competitors want to go after our people.

CNBC: Why did you want to make the move to Conergy CEO rather than stay on a private equity team pursuing a broader range of investments after two decades in PE?

De Pass: I was Conergy executive chairman for the past year. The board asked me to move in as CEO. I believe in solar and Conergy and want to be part of an important solar turnaround, and the opportunity is incredible because of the global footprint. Plus, I'm old. [De Pass turns 49 this month.] In finance, when you're old, people say, 'What the heck are you doing?' But you can be a corporate senior executive.

Lessons learned

1. As Warren Buffett said, when others are fearful, be greedy. The time of greatest pessimism within an industry will present opportunities for those who understand its intricacies. Or in other clichéd business terms: Yes, you can make lemonade from lemons, given the right timing and point of view.

2. If you spend a lot of time and resources on making a potential bid for a company—in Kawa's case, a year on the Conergy deal—you must have a plan B and be ready to act on it quickly.

3. Short-term opportunity—especially buffeted by government incentives—is not a long-term strategy. In a high-growth sector, what works today may be obliterated tomorrow, so you had better be prepared for where you think an industry is headed, well before it gets there.

4. Don't believe the hype. There's been a lot written about utility industry resistance when it comes to solar, but when you're in a fast-growing, disruptive industry, better to tune out the headlines and figure out business models that everyone can benefit from embracing.

—By Eric Rosenbaum,