When Greenlight Capital's David Einhorn announced a long position in SunEdison (SUNE) in 2014, the hedge fund manager said the company had a "complicated financial situation but simple story." As the renewable energy company continues to falter, the reverse is true: SunEdison's financial situation is simple but its story is complicated.
Put simply, SunEdison took on too much debt too quickly. At the end of 2014, SunEdison had $6.9 billion in debt. Nine months later, at the end of the third quarter, SunEdison's debt rose 68% to $11.6 billion.
The story of SunEdison's debt, however, is decidedly more complicated, which could make matters difficult should the renewable energy company ultimately file for chapter 11 bankruptcy protection, as has been widely reported.
Representatives from SunEdison confirmed third quarter debt figures but declined to comment further.
At the end of the third quarter of 2015, SunEdison had $1.8 billion in senior, unsecured convertible notes. (SunEdison has not yet provided its financials for the fourth quarter, the most recent audited financial information is now more than six months old.) The notes are currently quoted for pennies on the dollar, according to data compiled by Thomson Reuters. While the notes are senior to some of SunEdison's other debts, they are not backed by collateral, which makes the ability of shareholders to recoup much of their investment in the event of a restructuring tenuous.
Perhaps as a sign of SunEdison's weakening financial position, when the company announced a $225 million offering of convertible notes in January, the notes were secured and the interest rate was 5%, which is more than double the weighted average interest rate of its existing notes.
The balance of SunEdison's $11.6 billion debt load consists largely of term loans, some of which were used to provide financing to SunEdison as it developed projects that would later be dropped down to its yieldcos. Many of these loans -- $8.6 billion, according to SunEdison's filing -- are held with little to no recourse to SunEdison. This means that in the event of default, creditors would only be able to go after the assets -- or, projects -- used as collateral for the loan.
As many of the projects are in development, creditors may find that the assets are of little value should SunEdison be forced to file for chapter 11 protection. SunEdison's creditors span Wall Street, with a combination of Deutsche Bank, Goldman Sachs, Macquarie Capital, KeyBanc and Wells Fargo frequently listed among the bookrunners on its loans. As the potentially toxic assets are spread across several large banks, no single bank is expected to bear the brunt of a default. That said, a default still wouldn't be pleasant for any of the creditors.
Most recently, Deutsche Bank was listed as the administrative agent as well as joint lead arranger and joint lead bookrunner on SunEdison's $725 million second lien credit facility, which was announced in January. The purpose of the facility was to pay off existing indebtedness and to cover general corporate purposes. Debtwire reported last month that SunEdison was talking to its creditors on these notes about securing debtor-in-possession financing. (Debtor-in-possession financing is typically used by companies that are in financial distress. The debt is typically senior to existing debt and other claims and it provides the troubled company with liquidity as it restructures.)
The reported talks are a slight departure from the slightly more optimistic tone SunEdison had with regard to its liquidity in the third quarter. It made the following statement in the filing with the SEC:
"While we continue to incur significant indebtedness to fund our operations and acquisitions and have significant pending obligations, we believe that the sources of liquidity ... will be sufficient to support our operations for the next twelve months, although various factors could affect our liquidity position, including changes in the anticipated timing and terms of pending and completed acquisitions and the availability of project capital."
If SunEdison's stock price is any indication, it appears that the company's timing couldn't have been worse.
(For more on SunEdison's financial struggles, check out this timeline.)
