Crashing Solar's Convertible

Plunging stock prices make them look increasingly like debt.

Convertibles are cool in the sunshine but little more than bathtubs with wing mirrors when it rains (yes, you can put that roof up, but then it's just a boring, regular set of wheels). And what’s true for cars also holds true for bonds -- particularly when sunshine is your business.

SunEdison Sets

"Converts" are attractive to firms that burn cash but are fast-growing. They pay coupons like traditional bonds or preferred shares but can also be converted into common stock in the company at some point. Issuers like them because they get treated more like equity by credit rating providers. Buyers like them because they offer a yield and the promise of big gains down the road -- provided the share price rises enough to make converting worthwhile.

U.S. and Canadian firms in the renewable energy sector have issued about $5.2 billion of convertibles with $100 million or more outstanding on each, according to data compiled by Bloomberg. About three-quarters of that pertains to just two issuers: SolarCity and SunEdison. Both stocks have run into a ditch, with SunEdison down 84.5 percent this year and slumping by a third on Tuesday alone, as even dogged fans like David Einhorn revealed they had cut their stakes in the company.


Which means a lot of convertibles are looking ever less likely to, well, convert, even when adjusted for the big declines in the prices of the instruments themselves. Of the issues shown here, $2.9 billion mature by the end of 2020 -- which equates to almost 40 percent of the combined market capitalization of the companies involved. Share prices could yet recover, of course, but the rallies needed by some are huge. Bath time beckons. 

-- Data visualization by Rani Molla

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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