Sunedison Inc Tanks As Analysts Question Future

Sunedison Inc is increasingly coming under pressure as the future of the company itself becomes more uncertain. The company is down 12% to $1.31 in early market trading (only 32 cents from the penny stock mark), part of the drop is on this note from Axiom as we noted earlier. The analysts state:

Debtwire (“DW”) Report Suggests SUNE in Debtor-in-Possession (“DIP”) Negotiations with $725mn LIBOR +1,000bps A-1 & A-2 2018 Second Lien Term Loan Holders. Yesterday, DW (link) reported that SUNE, after talks failed to reach an out-of-court solution with second lien holders around resolving liquidity/leverage problems, entered into DIP discussions with creditors. By way of background, in general, we remind our readers that DIP financing is typically “put into play” after out-of-court resolutions fall apart. That is, if a company needs a loan, but a potential lender is unwilling to make it (due, mainly, to concerns around legal challenges), the Bankruptcy Code offers a way in which the lender can circumvent legal challenges from other creditors. This is typically done via a Chapter 11 Bankruptcy, whereby the lender(s) is granted a first priority security interest, a market/premium interest rate, approved budget, and other lender protections. Stated differently, via a Chapter 11 Bankruptcy filing, a distressed company who is unable to obtain a new loan outside of bankruptcy, may use DIP financing to get the liquidity necessary to run a sale process or finance a formal Chapter 11 restructuring. In our view, assuming SUNE is successful in acquiring DIP funding, we believe this likely shifts lower the priority of the majority of their capital structure (with equity holders the least likely to be made whole); it also suggests, as we’ve warned extensively, that SUNE’s current cash position is dire, if not completely compromised. We maintain our SELL rating and adjust our price target lower.