It Will SUNE Be Over

According to an analysis published by Zerohedge, Sun Edison is in serious financial trouble. No word from the city as to whether or not they are preparing for Sun Edison's potential non-performance.

"Back in the summer, SUNE was a hedge fund darling and in the portfolio of virtually every aggressive asset manager: a true hedge fund hotel.

Since then it has plunged by 90% on both concerns about fundamentals and hedge fund liquidations and margin calls. Just yesterday, the stock plunged another 34% beginning the question which hedge fund is still long and is about to get another major margin call.

In any event, as @the_real_fly says, "it will SUNE be over" and perhaps catalyzing the ending is a brand new note by Axiom Capital Research titled "The Nightmare Before Christmas” – Credit Event Appears More Likely than Presaged, in which the analyst Gordon Johnson sees at least another 33% of downside before the stock finally stabilizes at something resembling a fair value of $2.00

Here are the highlights:

• Credit Risk Appears Worse-than-Forebode. After some pressure from a number of SUNE pundits following our downgrade of the shares last week (given SUNE’s shrs had already moderated -75% vs. +1% for the S&P 500 over the same timeframe), we decided to do another “scrub” of the company’s 10-Q published 11/9. Following this exercise, we are even more resolute in our subdued outlook, SELL rating, and yr-end C16 PT of $2/shr (34% downside). Why? Five reasons, namely:
  • (1) when excl. cash committed for construction projects, SUNE has just ~$600mn in cash for general corporate purposes (which we now blv may not be enough to sustain SUNE through 2Q16) – Ex. 2,
  • (2) SUNE’s decision to borrow $169mn in 1yr paper from Goldman Sachs (GS; NR) in 3Q15 at a 15.4% interest rate (incl. $9mn prepayment) to put up collateral, we blv, for the 8/11/15 $152mn margin call on its $410mn Deutsche Bank (DB; NC) loan (an addtl. $91mn of collateral was required from SUNE 10/15 [Ex. 3], and we surmise more since then with the fall in Terraform Power’s shrs [TERP; NC]), pointing to emergency cash needs as recently as 3Q15 – who borrows 1yr paper at 15.4%?, (Ex. 4), other than a distressed company,
  • (3) Renova’s right to put 7mn of GLBL shares to SUNE at a price of $15/shr 3/31/16 (a $105mn liability) – Ex. 5,
  • (4) SUNE’s potential obligation to buy ~16% of Renova for $250mn using its own shares (i.e., 83mn shrs), suggesting sig. dilution to equity holders in the offing – Ex. 6, &
  • (5) TERP’s recent revelation that it put up ~27% (i.e., $388mn) of the capital necessary to fund the Invenergy Warehouse, implying SUNE’s aspirations for ~$6bn in Warehouse funds to “house” its ~3GW in projects being developed may require a ~$1.65bn cash infusion (Ex. 7). Barring unforeseen incremental cheap funding in the offing, we see a credit event as likely before 3Q16.
• Valuation. Our yr-end C16 PT remains $2/shr (34% downside). While more valuation detail is below, with acute stress on its core biz at present, & shortcomings selling huge amounts of projects into the secondary mrkt over a short period of time thus far, we blv SUNE will miss ~3.5GW developed in C16. Using ([1.42GW × $0.18 (op. prof.) - $150mn interest × 70% (tax)] ÷ 316mn shrs) = $0.23/shr in dev. co. EPS, & applying a 9x P/E multiple (assumes 15% DevCo GM into perpetuity; likely high given 9.6% 2Q DevCo GM), SUNE is worth $2."