Massive swings in SunEdison’s (SUNE, Financial) share price have become a common occurrence. The swings are one of the many reasons why I don’t think SunEdison is a good long-term bet. However, the swings are the smallest of investors’ concerns as SunEdison faces many bigger problems.
Is it too late?
During the past few years, SunEdison business model has become unsustainable, as the company has spent much of its energy and time buying companies and crafting out a tremendously comprehensive renewable energy portfolio. Moreover, to enhance its presence in nearly all the biggest solar markets, the company also built a massive wind portfolio.
But much of the company’s renewable energy ambitions have fallen apart, and SunEdison is sensibly shifting its attention back to its core business of manufacturing and selling solar projects. While shifting the focus back to its core business is likely the finest move, the lifespan of its core business is dubious keeping in mind the company’s prevailing condition.
SunEdison is one of the most indebted solar companies globally, and it will probably have a painful time accomplishing sustainable profit levels. Because of the huge interest rates linked with the company regarding debt, it will prove to be a challenging task for SunEdison to sell its projects at adequate margins.
Apart from the company’s financials, the market condition has also lessened buyer interest for its significant projects. It is unclear whether SunEdison will be able to sell its projects at gainful levels. Major companies are losing interest in SunEdison’s projects, and if it continues falling, the company will find itself in an unsustainable state.
Another problem
SunEdison has not been able to file its 10-K with the SEC, and it is now also trifling with a Financial Statement Covenant default as mentioned in Section 6.01(a) of the LC Facility and Second Lien Credit Agreement, and Section 5.04 of the Convertible Senior Notes Indenture.
The company will default under these numerous agreements on March 30 and there is no remedy period under the LC Credit Facility and Second Lien Credit Agreement.Ă‚
Conclusion
I have been bearish on SunEdison and there are many reasons why I would still recommend staying away from the stock. The inability to file the 10-K is another red flag and investors should stay cautious going forward.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
