Sunedison Inc (OTCMKTS:SUNEQ) has been having an overwhelmingly hard time in market recently, and for a very good reason. Unfortunately, the company has been drowning in debt, and is now in the first stages of bankruptcy. However, there’s still a glimmer of hope for its investors. Today, we’ll talk about what happened to the company, where the hope is, and what we can expect moving forward. So, let’s get right to it.
Sunedison has an interesting business model. You see, the company builds massive solar power plants. To make money from these solar power plants, the company signs power purchase agreements with utility companies, effectively selling the power that is generated at wholesale rates to utility companies. However, there is a massive upfront cost associated with building these power plants. As a result, the company had to take out large amounts of debt to get them rolling.
On top of the debt from the solar power plants, Sunedison has been taking part in large acquisitions for quite some time now. Unfortunately, the company didn’t have the billions of dollars laying around to cover these acquisitions, leading to even more debt.
However, the straw that broke the camel’s back was the cancellation of the Vivint Solar acquisition. When this deal was canceled, investors lost all hopes that the company would be able to revive itself. On top of that, a lawsuit was filed against the company for not keeping its word when it came to the acquisition. Unfortunately, this eventually drove Sunedison to the first stages of filing for bankruptcy.
There’s Still A Glimmer Of Hope
While things are looking overwhelmingly bad at the moment, there’s still a bit of hope for those investing in the company. There are a few reasons for the hope that many have at the moment:
- $300 Million In DIP Financing – The courts recently granted Sunedison with $300 million in Debtor in Possession financing. According to recent statements, this financing should make it so that Sunedison is cash-flow positive throughout the year.
- VSLR Lawsuit – As mentioned above, when the deal for Sunedison to acquire VSLR was canceled, VSLR decided to file a lawsuit against the company. However, it can be argued that the cancellation of the deal was the final straw that pushed Sunedison into filing bankruptcy. As a result, the lawsuit may be dismissed, taking the weight off of the shoulders of the company and its investors.
- Historically Speaking – Historically speaking, bankruptcy doesn’t always mean that investors will not get their money back. In fact, throughout history, viable companies that have filed for bankruptcy in order to avoid legal ramifications pay shareholders about 40% of the time. In this particular case, the chances of investors being paid seem quite a bit higher than that.
- David Einhorn – David Einhorn, the mastermind behind Greenlight Capital is an insider at Sunedison and understands the situation better than most analysts probably do. With that said, it’s important to pay close attention to his stake in the company. At the moment, Einhorn has retained about 40% of his stake in the company, which equates to a massive amount of money. Being on the inside, if Einhorn believed that he would not be paid back, he wouldn’t leave his money sitting in a dying stock.
There’s no doubt in my mind that SUNE has a tough, uphill road to climb. However, that doesn’t mean that the company won’t make it through the issues. At the moment, things are a bit concerning, but given all of the facts surrounding the story, I do believe that Sunedison will make it out of this. With that said, I maintain a relatively bullish long term view on the stock. However, if you do plan on getting involved, trade with caution, it is incredibly risky at the moment.
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