Hillside Intraday Update (SPWR)

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Hillside Intra-Day Update
 

 
New Issue Analysis: 
SunPower Corp. (SPWR) Convertible Notes Due 2023

 

December 10, 2015

Jeffrey Alton, CFA
jeffrey@hillsideadvisors.com

Introduction

SunPower has issued $400 million of 4% senior convertible bonds due 2023.  The Total S.A. group, through its subsidiary Total Energies Nouvelles Activites USA (Total USA), has committed to purchasing $100 million of the deal. Total USA owns 57.5% of the common stock of SunPower.  Proceeds from the issue will be used mainly for general corporate purposes, including solar panel manufacturing and constructing and operating solar power plants.  Proceeds may also be used for the company's planned Yieldco funding vehicle strategy. 

More on the Bond...

Priced at 4% up 32.5%, the bond comes in with an initial HOCS slash line of 71 overall/74 growth/65 safety.  SunPower has generated steady top-line growth over the last year and the safety score is acceptable despite the rising debt as SunPower pursues its solar project construction strategy.  That debt appears well contained compared to SunEdison, which has pursued debt accumulation with zeal and paid the price recently in drastically lower security prices. 

A HOCS comparison of SunPower’s new and existing convertible deals are:
 

  4.00% 1/15/23 (pro forma) 0.875% 6/1/21 0.75% 6/1/18
Amount Outstanding $400 million $400 million $300 million
Current Price 100.00 81.25 112.50
Yield to Maturity 4.00% 4.82% -4.03%
Conversion Premium 32.5% 72.0% 21.8%
Conversion Price $30.53 $48.76 $24.95
Stock Price $23.04 $23.04 $23.04
HOCS (overall/growth/safety) 71/74/65 67/64/72 53/50/58

 
More on the Credit...

SunPower's credit remains solid on a few fronts. First, the 57.5% ownership by the Total Group implies strong backing despite the current state of affairs in the oil industry. SunPower's operating results have also been strong on its own with consistent profitability and EBITDA on gradually rising revenues.  SunPower has grown both its commercial and residential project business and residential was the fastest growing segment last quarter.

Despite First Solar providing guidance below expectations last night, 2016 should be a solid year for the solar industry in general as developers race to finish projects before the US tax incentives are lowered in 2017.  Industry growth in 2017 may slow as those tax investment incentives fall from 30% to 10%, but renewable energy growth forecasts remain solid over the medium term as countries all over the world, especially China, struggle with global warming.

Summary Financials
(LTM Pro Forma)                              ($MM)
Revenues:                                             2,366
EBITDA:                                               253.3
Cash:                                                     902
Total Debt:                                          1,363.9
Market Capitalization:                      3,146.9