- SunEdison stock has collapsed since it announced acquisition of Vivent.
- SunEdison has modified terms of that deal and gotten new debt.
- Hedge fund manager David Tepper is suspicious of its deals, and SunEdison stock has become highly volatile.
SunEdison (NYSE:SUNE) has been a great story but a lousy investment.
It was built by CEO Ahmad Chatila , a former Cypress Semi (NASDAQ:CY) executive, from the shards of a failing maker of silicon panel components called MMEC. He turned it into both a maker of panels and a scaled project developer, with utility-scale projects as far away as India, adding a “yieldco” called Terraform Power (NASDAQ:TERP) that could take debt off the books and turn it into investment-grade paper.
Things started going haywire for SunEdison earlier this year after Chatila agreed to buy Vivint Solar (NYSE:VSLR), a residential solar company that had just gone public the previous October, for a price announced at $2.2 billion. This, along with the looming expiration of tax credits on solar installations expected at the end of 2016, sent SunEdison stock down sharply, and the company has lost nearly 80% of its market cap since July 17, with stock price falling from over $31/share to its current price of under $6.
The last month has been different. SunEdison stock bounced off a low of below $4 during December, spurred in part by a deal in Congress to extend the tax credits, and by Chatila’s modifying the terms of the Vivint merger, offering more stock and less cash. The new deal, detailed in the SunEdison’s SEC filings, is for $7.92 in cash and a convertible note said to be worth $3.11 in stock, with the deal said to close in the first quarter. (Vivint still sells at a 10% discount to that $11 price.)
Chatila has also announced a second lien financing of $650 million, cash that is sorely needed to reduce a debt load approaching half the company’s $20 billion in assets. This has helped bring SunEdison stock support from Adage Capital Partners, which bought almost 5% of the equity over the weekend.
The skies are far from sunny, however. There remains enormous short interest, meaning many investors expect the stock to continue to fall hard, and hedge fund manager David Tepper, whose net worth of over $10 billion means he could buy-or-sell the company five times over, has become suspicious over SunEdison’s dealings with both Vivent and Terraform.
SunEdison has $11.7 billion in debt and plans to spend billions more, but Terraform’s ability to take on new projects is in serious doubt, as its books are starting to look more like some master limited partnerships in the oil patch that claim enormous yields but can’t sustain them with earnings.
All of this makes SunEdison what is called a battlefield stock, prone to enormous swings up-and-down. Just this month SunEdison stock gapped up by one-third on December 15, after the tax credits were extended, then plunged by one-third a week later after the Tepper unit started its inquiries.
If you like action, you can play SunEdison stock to rise or collapse. Volatility has its virtues. Investors, however, need to stay away from SunEdison stock until the situation becomes clearer and you can make a calm, rational decision.