SunEdison Plunges on `Expensive' Plan to Boost Balance Sheet

  • Series of transactions will add $555 million in liquidity
  • Issuing new shares and warrants will dilute existing equity

SunEdison Inc. dropped the most in 14 years after announcing deals that improve its balance sheet, at terms that two analysts said are costly.

The shares plunged 39 percent to $3.34 at the close in New York, the most since September 2001.

In a series of transactions announced Thursday, the world’s biggest clean-energy developer agreed to take on about $950 million in debt and will issue 39.8 million new shares, to extinguish $580.1 million in convertible debt and $158.3 million in preferred stock. It will also pay the remaining $170 million of an existing credit facility.

“It appears expensive at this point,” Mahesh Sanganeria, an analyst at Royal Bank of Canada, said in an interview Thursday. “But if you get into a situation where there could be a liquidity concern, then your cost of capital is going to be significantly higher than what you have today.”

Adding Liquidity

While the deals increase the company’s net debt by about $42 million, they also add $555 million of liquidity. SunEdison spent billions last year to expand on six continents, and having cash on the balance sheet may be reassuring to investors who have voiced concern about how the Maryland Heights, Missouri-based company planned to pay for it all.

SunEdison arranged two second lien secured term loans, for $500 million and $225 million, that will mature in 2018. The loans will pay 10 percent above the London interbank offered rate, and will be used, in part, to pay the $170 million remaining on the second lien credit facility. 

The company is also issuing warrants for 28.7 million common shares and will issue $225 million in convertible notes.

The transactions will improve the company’s balance sheet, “but at substantial cost,” Sven Eenmaa, an analyst at Stifel Financial Corp., said in a research note on Thursday. The deals will add about $40 million a year to SunEdison’s interest expenses, dilute existing shareholders by about 18 percent.

The transactions are expected to close on Jan. 11.