Due to several headwinds, I have been bearish on SunEdison (SUNE, Financial) for quite some time. Despite the stock’s terrible decline over the last few months, SunEdison has more room to fall. SunEdison investors need to be cautious as the probability of SunEdison turning around is a lot less likely than it going bankrupt. SunEdison is still a sell.
SunEdison delays filing its yearly report
SunEdison faced many problems in 2015 and faces more problems this year. Recently, the company delayed filing its yearly report mainly due to accounting problems. Because of prior careless accounting, the company is inspecting the precision of some of its business statements that might shake SunEdison’s liquidity situation. As the company’s accounting problem also affects its yearly report, the company has had to postpone filing its yearly report twice.
Bearing in mind that TerraForm Power (TERP, Financial) relies on SunEdison for some of its information, TerraForm Power has also had to postpone filing its yearly report. The postponements hurt stockholder buoyancy as some of them will obviously fear the worst.
If the company’s investigation concludes that its accounting glitches are not severe and SunEdison files its yearly report, TerraForm Power will be able to file its yearly report, and both of the companies will regain investors’ confidence. However, there is no accurate way of predicting that, which is why investors shouldn’t bet on the stock.
Debt problem
One of the most frightening moves the company made in the previous year was exchanging its convertible debt for new debt with an adjustable interest rate and around 11% floor. This rate is insanely high given the low interest environment.
Moving back to the end of the third quarter of 2015, SunEdison’s prevailing debt was $7.9 billion which had an interest rate of about 5% to 6%. The existing debt was already unmanageable, and taking on more debt at almost double the interest rate makes SunEdison a terrible long-term investment. If SunEdison fails to make progress regarding its debt reduction, it will be in real trouble.
On the other hand, the payment of debt and the selling price of projects depend on a single key factor — creating projects efficiently. Due to this, Hawaiian Electric (HE, Financial) canceled agreements with the company in February.
SunEdison missed multiple projects' deadlines, and it was not clear when the projects would have been finalized. If the company cannot create projects efficiently, it will soon be kicked out of the solar race.
Conclusion
Due to the factors mentioned above, it is likely that SunEdison will run into a wall in the coming months. The company’s debt situation is becoming unmanageable and given its history of loss making, the chances of bankruptcy are high.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
