My SunEdison (SUNE) shares continue to get beaten upon like a knotty pine to a red-headed woodpecker. And like the woodpecker, investors are left to decide whether they should nest up in one of the hollowed burrows or take the remaining worms that are left in the tree and go peck elsewhere.
But I wouldn't be thinking of selling my shares if I were not continually barraged with negative sentiment that keeps getting republished using the same dated information from the most previous article.
For instance, SunEdison has seen no less than six negative headlines emerge from the single and speculative headline that originated from Debtwire, which, granted, is a respectable outlet for financial information. But shortly after they published that article, SunEdison was blasted by several additional financial news reporting agencies working directly from the speculative headline that said, "SunEdison engages in DIP talks with second lien holders".
If any of the other journalists would have at least provided some additional insight, or even perhaps named some of their own "sources that are familiar with the situation", I could have at least taken the information and given it some credence. And from there, would have reevaluated my investment position.
But to no avail. The only message investors, and apparently the rest of Wall Street, received is that numerous financial services are reporting that based on a source, SunEdison is in debtor in possession discussions. The problem with all of these headlines is that they are all based on a single speculative argument reported by Debtwire. All of the articles that piled on contained the relative same information and did not add much, if any, additional editorial insight.
I find it ironic that when articles are published by Seeking Alpha, almost all of which contain hours upon hours of research that can be fully vetted for accuracy, get very little attention, if any, by the news feeds, but a negative article gets republished almost instantly.
Yes, I know SA has some exclusivity to their publications, but these financial reporters that borrow a headline and repeat the same stale argument to investors that serve to freshen up an unproven and speculative headline need to be held more accountable. For instance, there are many contrarian arguments that can be made from the same Debtwire piece.
First, it is quite possible that SUNE is talking to second lien debt holders to restructure $700 million in debt. However, if the company is looking to rework that part of the loan, I find it appropriate to consider that it might have already completed the restructure of the remaining first lien debt. If restructuring of the first lien debt is indeed complete, it makes sense that the company would be working with the second lien lenders as the final pieces of an out-of-court financial restructure that would allow SUNE to continue operations badly bruised, but alive.
Second, the timing of the article also makes it plausible that the company is working diligently to right the ship. It would take significant time to rework billions in debt, thus when SUNE put many investors into the mindset that it would be releasing its 10-K filing within the fifteen-day extension period, I believe the company intended to do so. Because the potential restructuring with the primary lenders would be a complex transaction, it makes sense that it is running longer than expected. Thus, when the Debtwire article mentioned the word "restructure" as well as a potential "DIP", I believe that a straight restructure is a viable conclusion, and the "DIP" reference to be an "if all else fails" scenario.
Third, a debtor in possession agreement makes little sense, because the amount in question is simply too inconsequential to the overall balance of debt. But that is not to say primary lenders are not requiring SUNE to get a deal done before they decide to sign an amended agreement. Lenders will likely want all potential legal issues put to rest prior to signing a restructure in excess of $10 billion, and a $700 million overhang would need to be addressed and settled, even though the amount is immaterial in both dollar amount as well as in the lenders' order of available recovery if SUNE were to file a petition for bankruptcy.
Fourth, SUNE has been actively engaged in continued operations. The company has restructured debt in January, has terminated contracts with Vivint Solar (NYSE:VSLR) and has been announcing new deals and agreements throughout the world. True, companies continue business as usual in most instances of a court-appointed re org, but not to the extent that SUNE has been doing. They have added new board members, who, I believe, have the financial means to assist in restructuring the company's debt in a friendly manner.
Fifth, SUNE settled the LAP case and appears close to providing a remedy to the HECO situation, with D.E. Shaw prepared to close on the original terms of the contract. This adds credence to my thesis that SUNE is putting out fires in compliance with creditor demands.
Where Is The Balance?
From my arguments above, why won't authors and newswires pick up on the plethora of information that is put out by the SA team and start some new headlines that can build confidence in the market? I can take information from a piece by Morningside or Aurelien and state that "SunEdison has a viable path free from the debt stranglehold". And many writers could make a substantial bullish case for SunEdison, based on that research. But lately, the only information that is getting repeated is the negative.
Oh, it's okay to be cynical. Wall Street will play a stock in any direction it wants. It can beat a stock to a dollar and then instantly change the headline and bring the stock back to ten times that much within a week. It did so with Wynn Resorts (NASDAQ:WYNN), McDonald's (NYSE:MCD), and now, has even begun to change direction and news flow on Valeant (NYSE:VRX). The headline today reads: "Despite today's sell-off, Valeant ends up nicely positive on the week". All is now well with Valeant?
Another example. Six months ago, the analysts on the Street had told us all that McDonald's was dead, having been blasted off the planet by the powerful Millennials who opt for humane treatment of animals and a somewhat healthier way of wife, similar to my vegan daughter. Then, the company announces "all-day breakfast", and it's like the seas have parted for McDonald's to emerge as the all-time greatest restaurant chain to ever grant us the opportunity to invest in. It brings the stock up 30% because people like breakfast, and even though so many other chains have offered various forms of breakfast for years, it thinks that MCD will be the ultimate winner in the fast food business. Soon, the Street will remember that MCD is actually part of the real world, and the young and influential Millennials still shy away from meat, want free range chickens and want to eat fresh eggs that have been provided by chickens that have not been genetically engineered to weigh fifteen pounds and forced to stand on legs designed to hold six pounds. No need to modify the legs, just the meaty parts.
But the point is that Wall Street "makes" a story, and the investor relies on that story as a solemn promise that the information provided is accurate and correct in its premise. Do you ever wonder why a stock can begin a volume run five minutes prior to a report being published? I am sure you know the answer, but I will tell you my thoughts. The only field that is level in the investment world is the field that the professionals are playing on. The retail field is a nuisance, and the issue of whether or not the information provided to them is accurate or simply a headline designed to distort, confuse or even confound a reader is the reality of investing in this day and age.
Even the "set it and forget it" machine trading algorithms do more to scare out the small investor than they do the large player. The large player who knows the rules calls it a buying opportunity, and they can also route trades in directions to skew the bid/ask volume and conceal large market purchases or sales. Take a few minutes and read up on the ADF (Alternative Display Market) to get a grasp of dark pool trades or the excuse of providing "liquidity" to a stock issue. Please, let me rely on good old supply and demand for my purchases and sales. If I am investing in a stock and use a Level ll service, I expect that the current quotes are correct, and do not see hundreds of thousands of shares trade under the ADF market and completely ignore the ten thousand shares that were shown to be available.
Hey, I am not griping on the market. I don't hate the player or the game. But I do get frustrated when news outlets recycle the same speculative headline without adding a morsel of new information. When they do this, they take a seven-day old headline and refresh it for the next week, just in case investors did not catch it the first three times.
But I am still an investor in SunEdison and am subjected to all of the headlines on a daily basis. So, when I finished reading the Debtwire article that started the recent panic and hysteria, I read it differently than many of the others have and can actually see light at the end of the tunnel, and no, I do not believe it is another train.
I reiterate a point - I believe that SunEdison is restructuring a debt obligation, a smart and prudent move by management. The $700 million of debt that has raised so much concern is not only negligible in the whole of the balance sheet, it is not even senior to the remaining billions of dollars in a complicated accounting structure. Further, the "total" debt is hardly understood by the market, but many authors have done a good job of explaining it.
The debt is complex. There is non-recourse debt, there is debt surrounding the yieldcos, and then there is the debt that people who don't have the training or intellectual capacity to analyze. But many still offer opinions for the market to swallow. I see the whole tone of recent headlines as a misguided hit on SunEdison. I don't like articles when a "source close to the action" has provided the information on condition of anonymity. It just bothers me that such a material piece of information can be released for thousands of readers and not be obligated to disclose the level of confidence in that source.
To me, the Debtwire article is more useful to me as a further piece of evidence to go contrarian to the words they scribe. Hundreds of millions of shares are being bought up at market prices and, to me, signals a takeover rather than a bankruptcy. Since the short position held steady at a little over 100 million shares, I see little reason for institutional money to be scooping up shares if a BK were imminent. If a BK were imminent, the bid for shares would have dried up weeks ago, because retail investors don't have the swag to purchase hundreds of millions of shares in blocks of 50-100 thousand shares.
SunEdison can be easily secured and allowed time for divestiture of non-core assets. With less than a billion dollars in new loans and a 90-day window, SunEdison, in my opinion, can emerge stronger, leaner and have time to refocus on building a business, guided by a new Board of Directors, and, of course, a new CEO. Sorry, Ahmad.
I am going rogue contrarian and am purchasing SUNE shares that fit within my risk tolerance. Based on the piling on by Wall Street financial news agencies, this whole thing is setting up to be one big load of hogwash that is being disseminated upon an unsuspecting retail class. Greenlight, Blackstone and Appaloosa know what is going on. I have not seen a disparaging word from any of them. They stand to lose billions, and in my opinion, it ain't gonna happen.
Disclosure: I am/we are long 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.