Sunedison Inc (NYSE: SUNE)
Sunedison may be down, but don’t count the company out just yet. The reality is that there’s a glimmer of sunshine here, even through the dark clouds. You see, there’s no denying the fact that SUNE may be forced to file for bankruptcy. However, there’s also no denying the fact that if smart moves are made, this entire thing can be avoided, leaving a massive potential upside for the bulls that stuck around during the hard times. Today, we’ll talk about the problems the company is facing, the silver lining that surrounds the dark cloud, and what I think we’ll see from SUNE stock moving forward. So, lets get right to it…
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Sunedison Is Deep In Debt
The big problem for SUNE is debt. Over the years, the company was dedicated to growing its empire. To make more money, Sunedison built several solar power plants and made several power purchase agreements with utility companies. These agreements guarantee SUNE income from the power plants, but there is some ying to this yang. The reality is that in order to build these power plants, SUNE needed money. So, the company went to the banks with a crystal clear credit rating and borrowed everything it needed, borrowing billions of dollars – and going out of control in the process. It was almost like an 18-year-old who never talked to her parents about money getting a credit card with a $25,000 limit. The bottom line is that no-holds-barred spending got SUNE – and the investors in its stock – into a pickle.
After financial documents showed just how much debt the company was dealing with, it’s stock dropped like a brick from the Empire State Building. No one seemed to want to bet on SUNE anymore; and that seems to be the case now as well. In fact, Greenlight Capital just offloaded the majority of its stake in the company. Nonetheless, all is not lost just yet. Like that 18-year-old now with $25,000 in credit card debt, it’s going to be hard, but SUNE can fight its way out of this rough time.
Management Set The Stage With A Grim Outlook On April 2nd
On April 2nd of this year, management at Sunedison made a scary prediction. Starting with only $34 million left in cash, the company would likely run out of funds in the second quarter of 2016. Because of additional cash requirements, SUNE would see its cash balance fall into the negative by $240 million, requiring the company to take advantage of DIP financing. That is a bit of a sticky situation. However, now that you know about the dark cloud, let’s get to the silver lining.
There Is A Silver Lining For SUNE… It All Comes Back To Power Purchase Agreements
Remember how the company got into debt? It’s almost impossible to forget! Sunedison borrowed billions of dollars in order to build solar power plants, making agreements with utility companies along the way. These agreements guaranteed that SUNE would realize income from these solar power plants; and while everyone seems to be bashing the company, few people seem to be taking the time out to look into the possibility that these power plants – the very reason for the debt – may be the hero that breathes life back into the company. This is where things get very interesting.
You see, on April 3rd, SUNE announced that it had about 282 mega-watts of completed solar projects. That is a massive amount of completed projects, and that has a big value. In fact, this represents about $423 million in asset value. That is, considering that the average selling price per watt is $1.50 net of 25% tax equity according to what we saw in the business update in December. If Sunedison made the decision to sell these projects to third parties, it could generate a significant amount of cash. Believe it or not, the amount would be significant enough to move SUNE into a cash flow positive space. Of course, this would move the company and its stock holders away from the danger of being involved in debtor in possession loans.
There Is Another Possibility As Well
There is also another way that SUNE can stay above water here. That possibility is an acquisition. Because of the massive declines that we’ve seen on the stock as of late, Sunedison is priced competitively for a big acquisition, and there are billionaires that are likely interested in purchasing the company and taking it private. For instance, I could see David Einhorn or Elon Musk taking advantage of this opportunity, or even a combination of the two! If these investors did purchase the company and take it private, bulls on SUNE would get an incredible return on investment.
Where Is SUNE Headed Moving Forward?
Moving forward, things are really up in the air at this point. While it seems as though all signs are pointing toward bankruptcy, I don’t quite see it that way. In fact, there are two clear possibilities that the company may avoid bankruptcy all together. Moving forward, I’ve started to expect the worst and hope for the best. So, I’m expecting declines, but I’m hoping for a SUNE miracle.
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What Do You Think?
Where do you think SUNE is headed moving forward and why? Let us know your opinion in the comments below!
[Image Courtesy of Wikipedia]