Strategy

SunEdison Shares Plunge on Restructuring

Analysts are concerned about the cost of the company's moves to extinguish $580.1 million in convertible debt and $158.3 million in preferred stock.
Katie Kuehner-HebertJanuary 8, 2016

SunEdison’s shares plunged 39% to $3.34 on Thursday — the most since September 2001 – after the company announced deals to improve its balance sheet that analysts contend are costly.

The Maryland Heights, Mo., developer of clean energy is taking a series of steps, including taking on about $950 million in debt and issuing 39.8 million new shares, to extinguish $580.1 million in convertible debt and $158.3 million in preferred stock. It would also pay the remaining $170 million of an existing credit facility.

SunEdison’s interest expense is likely to grow by $40 million a year and existing shareholders are being slapped with about 18% dilution to the value of their shares.

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In trading Friday, SunEdison stock was up more than 8% at $3.61.

“It appears expensive at this point,” Royal Bank of Canada analyst Mahesh Sanganeria told Bloomberg. “But if you get into a situation where there could be a liquidity concern, then your cost of capital is going to be significantly higher than what you have today.”

The deals would increase SunEdison’s net debt by about $42 million, but the company also gains another $555 million of liquidity, according to Bloomberg. Having cash on the balance sheet should assuage investors who have voiced concern about how the company was going to pay for the billions it spent last year to expand on six continents.

SunEdison arranged two second lien secured term loans, for $500 million and $225 million, that would mature in 2018. The loans would pay 10% above the London interbank offered rate, and would be used, in part, to pay the $170 million remaining on the second lien credit facility.

The company is also issuing warrants for 28.7 million common shares and will issue $225 million in convertible notes.

The transactions will improve the company’s balance sheet, “but at substantial cost,” Sven Eenmaa, an analyst at Stifel Financial Corp., said in a research note on Thursday.