SunPower Corporation - Revolving Credit Agreement Covenant Non-Compliance

| About: SunPower Corporation (SPWR)
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Summary

SPWR - Warning of liquidity event within 12 months potentially not priced in.

Tax-loss harvesting opportunity.

Institutional activity, short interest and insider trading are not rosy.

About SPWR, I refer to this excerpt from the liquidity discussion Q3 2016 released on November 10th, 2016.

"On February 17, 2016, we entered into an amendment to the credit agreement with Credit Agricole to expand the available borrowings under the revolving credit facility to $300.0 million and to add a $200.0 million letter of credit sub-facility, subject to the satisfaction of certain conditions. As of October 2, 2016, we had $295.3 million available to us under the revolving credit facility. Proceeds from our revolving credit facility with Credit Agricole may be used for general corporate purposes. Our revolving credit facility with Credit Agricole requires that we maintain certain financial ratios, including the ratio that our debt at the end of each quarter to our EBITDA for the last 12 months, as defined, will not exceed 4.5 to 1. We expect to not be in compliance with this covenant at some point in the next 12 months, and it is possible that we may not be in compliance with other covenants in the future, which could affect the availability of borrowings under the line, if not remedied."

The stock price moved a lot between November 8th and 9th possibly because Trump won the presidency and SPWR released summary Q3 numbers on November 9th. But it is on November 10th that the covenant potential breach was slipped in the full Q3 10-Q filing in the liquidity discussion and the market did not react adversely. So, either that warning is inconsequential or market participants did not do their homework.

It looks like the market focused on superficial numbers released the day before on November 9th and completely moved on, ignoring a rather important detail buried in a next day release.

I did a quick Google search restricting search results to any links after November 9th, 2016 for "Sunpower covenant" and "Sunpower liquidity" and I did not see any public treatment of that issue.

Here's a link to the original agreement Revolving Credit Agreement, July 3rd, 2016. Followed by three amendments:

First Amendment to Revolving Credit Agreement, August 26th, 2014

Second Amendment to Revolving Credit Agreement, February 17th, 2016

Third Amendment to Revolving Credit Agreement, March 18th, 2016

Institutional activity, insider trading over the last 12 months, and short interest are all pointing in the same direction.

Have the analysts missed that? Or is it simply not significant? Is it possible that the market has not yet priced in that information? I invite the crowd to comment on the materiality of this.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have no intention of taking a position in that stock unless the market does something really stupid.