New Issue: SunEdison Inc. (SUNE) 2.375%, $350 million Convertible Bond due April 15, 2022

SunEdison is coming to market with its fourth convertible bond to help fund its recent First Wind acquisition equipment. With pro forma $7.1 billion in debt, the initial HOCS slash line summarizes the SUNE story well: Overall 55/Growth 73/Safety 20.

SunEdison has its roots in the old MEMC silicon wafer manufacturer which road to fame during the solar boom last decade and then endured a similar bust as overcapacity swept through the silicon wafer market. MEMC changed its name to SunEdison two years ago to signify the company’s transition to a global solar developer. Then, SunEdison announced its acquisition of First Wind for $2.4 billion last November, diversifying the company’s projects beyond solar and into the wind power generation space.

Under the SunEdison umbrella, the company also created a publicly traded entity, TerraForm (TERP), to purchase completed projects from SunEdison. TERP acts as an income vehicle for investors as cash is generated by the renewable energy projects under fixed power purchase agreements with third parties.

In addition to diversification, one rationale for the First Wind to move beyond its United States base and piggyback off of SunEdison’s international footprint.  SunEdison currently has solar development projects underway on every continent.

The catch to SunEdison’s rapid expansion has been the need for cash and the ensuing leverage on its balance sheet. Adding in the new convert issue and taking into account the First Wind acquisition, pro forma debt will top $7.1 billion, as noted above. That is against negative LTM EBITDA of $224 million. The company has a net loss of over $1 billion in the last 12 months. The highly leveraged balance sheet and red ink can be seen in HOCS scores for the existing SunEdison issues, all using $18.56 as a stock reference:

SUNE 0.25% 2020/01/15

Price (Bond) = 93.25

YTM = 1.67%

Premium= 35.0%

HOCS-Overall = 52

HOCS-Growth = 69

HOCS-Safety = 19

 

SUNE 2.75% 2021/01/01

Price (Bond) = 144.25

YTM = -3.82%

Premium = 13.7%

HOCS-Overall = 52

HOCS-Growth = 75

HOCS-Safety = 6

 

SUNE 2% 2018/10/01

Price (Bond) = 141.25

YTM = -7.50%

Premium= 11.3%

HOCS-Overall = 49

HOCS-Growth= 71

HOCS-Safety = 6

On the flipside of the leverage is the “retained value” or net present value of the income from operating the solar and wind projects and the incentives associated with operating renewable energy plants. SunEdison estimated its retained value in Q3 2014 to be $466 million. With strong global backlogs for both solar and wind projects, the most optimistic on the street expect SunEdison to realize a small profit in 2015.  Consensus, though, is that SUNE will continue losing money through 2016.

SunEdison is aggressively pursuing its renewable energy development strategy, but with a highly leveraged balance sheet and falling energy prices, the terms of the new convertible bond issue seems suitable for only the most ardent renewable energy believers.