A Texas bankruptcy judge on Thursday approved Mosaic Sustainable Finance Corp.’s Chapter 11 reorganization plan, clearing the way for the residential solar financing firm to transfer control of its loan servicing arm to its secured lender after a failed auction drew no bidders.

U.S. Bankruptcy Judge Chris Lopez said the plan represented the best possible outcome under the circumstances, even as he acknowledged the disappointment. “I don’t think anyone leaves the room high-fiving, but I cannot think of what more the debtors and each of their professionals could have done,” he told the parties.

From Auction to Debt-for-Equity Swap

Mosaic had initially sought to sell its assets through a Chapter 11 auction after filing in June with more than $264 million in debt, but with no acceptable offers, the company pivoted. The revised plan hands ownership of the reorganized loan servicing business to its debtor-in-possession lender, Fulbright Bank, through a debt-for-equity swap, while winding down Mosaic’s installation operations.

The plan also preserves customer rights to pursue claims tied to faulty solar panel installations against third parties, including lenders who purchased Mosaic-originated loans.

Settlement With Creditors and Objections

A settlement with Mosaic’s unsecured creditors committee smoothed the way for approval. The company agreed to contribute an additional $2.5 million to the estate and subordinate some secured claims, allowing unsecured creditors to receive partial recoveries.

Still, the plan faced pushback. The U.S. Trustee’s Office objected to how creditor release opt-outs were counted, arguing that silence should not be treated as consent. Meanwhile, a coalition of state attorneys general raised concerns about inadequate notice and enforcement powers. Those objections were resolved after Mosaic agreed to exempt all 50 states and U.S. territories from the release provisions.

A Decade of Solar Lending Unravels

Founded in 2010, Mosaic once partnered with more than 2,000 solar installation contractors, issuing home improvement loans later sold to capital markets while retaining servicing rights. But industry headwinds—including looming Congressional cuts to solar tax credits—pushed the firm into insolvency, mirroring the collapse of several other solar companies this year.

Chief restructuring officer Mark A. Renzi testified that despite Mosaic’s once-booming business model, the broader downturn left the company with no choice but to restructure.

Next Steps

Judge Lopez confirmed the plan but ordered the debtors to disclose more details on the affiliations of the reorganized company’s board of directors. While declining to mandate further reporting on creditor release opt-out numbers, he signaled a preference for greater transparency in future Chapter 11 confirmations.

Mosaic is represented by Paul Hastings LLP attorneys Charles Persons, Schlea Thomas, Matthew M. Murphy, Geoffrey M. King, and Michael Jones.
The states are represented by Abigail Rushing Ryan of the National Association of Attorneys General, while the U.S. Trustee’s Office is represented by Ha Minh Nguyen.