The Beginning Of The End For Sunedison? Axiom's Gordon Johnson Speculates

Axiom’s Gordon L. Johnson II maintained a Sell rating on Sunedison Inc SUNE, while the price target has been reduced from $0.39 to $0.22.

Sunedison In Negotiations

According to a Debtwire report, the company is in Debtor-in-Possession (DIP) negotiations with second lien load holders, following the failure of out-of-court talks in reaching a resolution regarding Sunedison’s liquidity and leverage problems.

The stock plummeted on March 22, following the Debtwire report. This share price decline followed a 33 percent surge earlier in March, driven by news reports that the company has terminated the potential acquisition of Vivint Solar Inc VSLR.

Potential Chapter 11

Johnson explained that DIP financing is usually resorted to once out-of-court talks fail. At this point, “via a Chapter 11 Bankruptcy filing, a distressed company who is unable to obtain a new loan outside of bankruptcy, may use DIP financing to get the liquidity necessary to run a sale process or finance a formal Chapter 11 restructuring.”

In case Sunedison does get DIP financing, Johnson believes that the priority of most of the company’s capital structure would move lower.

“It also suggests, as we’ve warned extensively, that SUNE’s current cash position is dire, if not completely compromised,” the analyst cautioned.

Johnson also noted that if Sunedison is forced to liquidate projects of its 5.5GW backlog due to bankruptcy, it would adversely impact the fundamentals of U.S. solar market projects.