By Parke Shall
For our last offering on SunEdison (SUNE), we want to reiterate that now, even more so than ever, the equity stands to essentially be wiped out completely.
It was just days ago that we wrote our piece entitled "The Real Reason David Einhorn is selling SunEdison". In this article, we concluded that he was selling because the company would be filing for bankruptcy and that there was no crazy conspiracy theory that would proved to be fact-based explaining it in any other fashion. Here's what we said three days ago,
Hoping for some "too good to be true" conspiracy theory? Sorry, we can't offer one. David Einhorn is selling his shares because the company is going to be filing for bankruptcy really soon. Probably within just hours or days.
Nevertheless, we got articles yesterday, just hours before bankruptcy, stating that his sale of stock was an indication that the company would not be going bankrupt. We found this to be a fascinating non sequitur and we eagerly awaited the next material news we would receive.
It was only a matter of hours before SUNE filed for bankruptcy yesterday. Trading was halted in the morning on the news and looks to reopen today on the over-the-counter market under the SUNEQ ticker.
We had also recently predicted that SUNE stock would be trading for under $0.10, given all of the events surrounding the last few months. On March 29, we stated,
In an equity restructuring, the initial common equity can sometimes escape at pennies on the dollar. Based on this alone, we think SUNE will be under $0.10 relatively soon. There is still, however, the chance that current equity holders are 100% wiped out, even from this morning's prices well under $1. We don't see a scenario where common equity finds its way back.
We continue to hold firm to that belief, but wanted to write one last article talking about what may happen next and what we think the best way to handle it is.
Judging from social media posts that we have been reading, we actually wouldn't be surprised to see a small bounce in the company's stock as it starts training today. Anytime a company goes bankrupt and their stock is relegated to the over-the-counter markets, it is a queue for daytraders and momentum players to step in and try to make a quick buck. It is likely that volume is going to be significant today, as the remaining SunEdison holders looking to get out rush to sell shares and daytraders try to call a temporary bottom and make it quick buck on a swing trade.
We wanted to write one final article talking about why we think holding the stock here into bankruptcy is a terrible idea. During most bankruptcy restructurings the previous equity class is completely wiped out and is offered very little on a go forward basis. Many times debtholders convert to equity and the company will completely recapitalize itself leaving the former shareholder class with nothing, or close to nothing.
We believe this is definitely going to be the case with SUNE and we think that the equity likely heads to $0.10 or likely lower in the coming days. We would not be trying to daytrade the stock, nor would we be buying in hopes of some type of equity recovery going forward.
It seems foolish, but one final push from daytraders and momentum traders could actually give SUNE holders a chance to exit, even if it is with 90% or 95% losses. We know that it seems foolish to try and protect what little is left of many investments, but it is better than taking an imminent total loss which is likely going to be the next step for those that try to cling to the equity.
We hope that our series of articles on SUNE, dating back a few months now, are lessons in common sense for investors. When it was reported that the company was in DIP financing talks, and then the company posted slides of an investor presentation with an area reserved for bankruptcy costs, the decision was all but clear.
Although sometimes it is easier to construct a narrative that fits your position, it is also sometimes the prudent thing to do to cut your losses, just the way David Einhorn did, and go home. Mr. Einhorn saved what little capital he could, when he could do it, and will take his loss on the name. Investors could learn from Mr. Einhorn's actions of recent.
Sometimes when it walks like a bankruptcy and it talks like a bankruptcy, it's just simply a bankruptcy.
We will look to identify whether or not the new, restructured SunEdison becomes an opportunity many months from now when the restructuring is complete.
Disclosure: I am/we are short SUNE.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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