Sunedison Inc, a hot hedge fund stock, tanked 39.56 percent today to $3.33 a share. What happens next? No one knows, but here is what the “smart money” is saying.
Credit Suisse on Sunedison :
In typical SunEdison fashion, a set of rather complex and optically onerous transactions were announced this morning. The company raised a second-lien term facility and exchanged a portion of the existing convertible debt for equity. The headline figures were not great, including an effective >20% cost of debt and 21% dilution from share issuance, and natural hedging of the newly placed $225m 2018 convert…
SUNE announced the pricing of its previously disclosed second lien credit facility refinancing, as well as exchange agreements to lower the principal of its convertible debt and preferred stock. We believe the transactions help resolve the company’s near-term liquidity challenges, and allow the company to execute on the DevCo strategy in 2016. The refinanced debt carries a high LIBOR+10% interest rate and shareholders are being diluted in exchange for debt relief.
Complexity of the deal coupled with double digit dilution does not simplify the story and will likely be viewed negatively by existing holders, but could open up new entry point for longer term buyers who have been expressing interest in the name. The primary rationale for doing this transaction was to improve the near term liquidity situation which was impacted by the First Wind payout ($270M) and margin loan repayment ($404M) in Q4’15. Moreover, the company also had to address the $169M second lien loan repayment which was due later this year and this transaction effectively removes that overhang. This transaction basically enables management to execute on the near term business plan (pro forma the transaction, cash position increases from $600M to $1.15B) and while investors may point to the higher interest cost (LIBOR+10%), the implied value per share for dilution of $10.78 is a positive compared to existing share price.
1. SunEdison priced a $725M second lien term loan at an interest rate of ICE LIBOR+10%. $170M of the proceeds will be used to repay the current second lien term loan, with the remainder for general corporate purpose.
RBC Take: we like the transaction as it effectively provides SunEdison $550M additional liquidity. While the LIBOR+10% interest appears high for the new loan, it is lower than the effective interest rate of the current $170M second lien term loan.
2. SunEdison is issuing $225M new senior convertible notes due 2018 to exchange a total of $336M convertible notes due between 2020 and 2025.
RBC Take: While the effective interest rate is increasing, the net debt outstanding is reduced by ~$110M (or 33%) after the transaction. It serves the purpose
of balance sheet deleverage.
3. SunEdison is issuing 28M common stocks to exchange for an aggregate amount of $244M convertible notes due between 2018 and 2025. The Company is
issuing 11.8M common shares to exchange for $158M worth of perpetual Preferred Stock.
RBC Take: Effectively, shares are issued at significant premium to SUNE’s current stock price. The common stock issuance effectively deleverages SUNE
balance sheet and reduces interest payment.