Shares of SunEdison Inc. (NYSE: SUNE) slumped 39% to $3.33 on Thursday after the company announced a series of complex exchanges in order to pay back debt on the balance sheet. This payback is an implausible dilution to shareholders and a new high-cost loan.
According to SunEdison’s announcement, the company is offering $725 million second lien secured term loan at an interest rate of LIBOR plus 10% which will be used to repay approximately $170 million outstanding. As part of the transaction, the loans will include 28.7 million shares warrants, and $580 million of notes will also be exchanged for a $225 million convertible note mature on July 2018. Moreover, 11.8 million common shares are being exchanged to preferred stock for $158.3 million.
SunEdison also announced that the exchange rate may change before the transaction's expected close on Jan. 11, 2016. Therefore, the offer could be even more dilutive than it is currently.
LIBOR plus 10% is a very high-interest rate for a renewable energy developer, particularly considering that SunEdison has been buying projects that paid fewer than 10% in cash yields.
According to Bloomberg, analyst Sven Eenmaa, working at Stifel Financial Corp., estimated that the deal would increase $40 million in interest expense and dilute 18% shareholders’ ownership.
On Friday morning, shares of SunEdison jumped up 8.71% to $3.62 after the company announced that it has signed twenty-year power purchase agreement with Watervliet, New York for approximately 1 megawatt DC of solar power.
"SunEdison solar power is a great way for cities across the U.S. to reduce their exposure to rising utility rates," said Steve Raeder, SunEdison's regional general manager of its Eastern U.S. solar business. "We're delighted to work with Watervliet to help them save money while advancing their sustainability initiatives. And, because we've installed hundreds of solar systems for municipal customers across America, we know how to do it quickly and cost effectively."
"As Mayor, I make it a priority to pursue all efficient, safe and affordable measures to save taxpayers money—now and into the future," said City of Watervliet Mayor Michael Manning. "With the rising cost of energy, the agreement with SunEdison is expected to save the city more than $1 million. It is a perfect example of looking outside the box and creating new initiatives that will save residents money and make us good stewards of our environment."