Tuesday, November 17, 2015

Sun Edison disclosure practice

I have - on the grapevine - been sent a research report from Credit Sights on Sun Edison. "The title: Sun Edison and Terraform: Dual 10Q cut. Recourse?"

It is complete with the usual suggestion that there is debt at Sun Edison that is both (a) recourse to the parent company and (b) does not have sufficient and allocated cash left to settle it.

That is the central question with Sun Edison. Bears suggest that Sun Edison has parent company debt that they do not have the wherewithal to pay. The company has steadfastly denied this. They state all debt is either (a) non-recourse or (b) has well determined cash flows that will be used to pay it. Alas certain debts have shifted from the non-recourse to the recourse column.*

I confess I am concerned with the Credit Sights note. I own Sun Edison stock which I purchased in distress (about $9). This was after it lost two thirds of its value.

Proving my ability to pick stocks that halve it halved again.

The line in the Credit Sights report that concerns me most however is not assertions about recourse versus non-recourse. That is the bet I have taken.

My concern is this:
SUNE stopped returning our emails and phone calls over a month ago so we are unable to confirm this new recourse status with the company as the missing one letter footnote could just be a typo.
Sun Edison is a financial institution. It requires the trust of financial markets to do business.

Credit Sights is a highly reputable (if somewhat bearish) debt research shop.

Not returning their calls is simply unacceptable. The management of Sun Edison (as this blog has stated) have to start sounding like and behaving like the management of a mortgage REIT.

They are not doing so. Financial institutions do not ignore the people who analyse their debt.

So Mr Ahmad Chatila (CEO Sun Edison), how about you return Credit Sights' phone call?

Or, failing that, will the board of Sun Edison please fire the CEO now.

John Hempton
Disclosure: Long Sun Edison (unfortunately)

* One reclassified debt: a margin loan on Terraform stock was once classified as non-recourse and is now classified as recourse.


Nemo Incognito said...

Not to mention Carlos saying they'd be "opportunistic" going forward. Someone needs to tell that guy that "opportunistic" is something you can be when not levered to the hilt after an orgy of M&A. Carlos and Ahmad have got to go. It is absolutely unbelievable that Einhorn et al are not putting serious pressure on the board to get rid of this confederacy of dunces in the C suite.

Wilfried said...

John, I've often admired the brilliance of your analysis, particularly when it comes to discover discrepancies between balance sheets and reality or outright fraud. But catching falling knives is not for nothing strongly warned against. As a (moderate)chess player I avoid lines where my stats are poor. Take care!

Umtaliboy said...

I am also a modest long, having tried to catch the falling knife. My palm is scarred.
The issue needs to be addressed and more openness required.
I suspect that there is a lot of table banging going on behind closed doors.

GCJ said...

The reclassification was made clear in the Investor Presentation along with the call. I'm not sure the dropped footnote is that sinister. Material to value, obviously.

Anonymous said...

re the exchangeable notes this was already in the text of the 6/30 10Q so not really "new news": The Exchangeable Notes are fully and unconditionally guaranteed by SunEdison. The Exchangeable Notes and the guarantees are pari passu in right of payment to the SunEdison’s obligations under its outstanding convertible debt.

Unknown said...

Have to agree with you. Management needs to go.

Anonymous said...

As GCJ mentioned, the reclassification of the Exchange Notes for FirstWind is mentioned both in the 10Q and the 3Q Investor Presentation. I'm not sure Management was trying to hide anything, though clearly they could be going out of their way right now to help shareholders.

Anonymous said...

Ouch. Who blew out of their position today? Einhorn? Did you sell as well?

I think there is 99% chance this goes BK. Even if they can avoid bankruptcy until next yr, there is zero chance of the assets covering the cost of debt in the long run. This is going to burn for sure. Probably wise to cut your losses.

Matt said...

The company has still not done enough to communicate with anyone let alone their investors. You cannot continue to say "we will be positive in cash-flow in the future" yet continue to take measures in the immediate that contradict that statement. CEO needs to be gone and the business plan needs to be seriously restructured because although the future may look bright long term wayyyy down the road, they will never make it that far if they don't fix something in the immediate.

Anonymous said...

Interesting how bearish most of the comments are from John, yet he still holds. What do you still see in this John? Just using the equity as a call option? Meaning, if it somehow scrambles through next yr it goes 20?

On the flip side, it is likely a 0. Huge debt. Complex structure. Terrible management. drawing on expensive credit. falling price. Hedge fund hotel. Bad acquisitions. low energy prices for forseeable future. Lost faith from wallstreet. Yields spiking.

Do you just see it as a decent risk/reward on the lotto ticket? 95% chance goes to 0, but 5% it goes to 20?

Guy Wiggins said...

Just saw this on another message board. Looks legit. Can you verify by any chance? Would love to know what they said. Thanks very much.

SunEdison: One-on-One with CFO/CEO Brian Wuebbels
COMPANY ANALYSIS: 23 NOV 2015, 4:52 PM ET - On a 1:1 call with CFO Wuebbels after the market closed on Friday night, he confirmed there’s no way out of the Vivint Solar acquisition. We also discuss how our view has changed given today's yieldco mgmt shakeup.

Anyone with access to this subscription ? Management responded to CreditSights' apparent loss of communication - this was Bronte Capital's deepest concern. Wuebbels opening to an interview did not get reported on by any mainstream media outlet.

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