Bearish Analyst Who Nailed The Downside In SunEdison Upgrades The Stock

• Shares of Sunedison Inc SUNE have declined 88.96 percent over the past six months, dropping almost down to their 52-week low on November 20 at $2.82.
• Axiom's Gordon L. Johnson II has upgraded the rating on the company from Sell to Hold, with a price target of $2.
• Johnson stated that the stock was down 32 percent since Axiom had downgraded it to Sell on November 12, with significant volatility. Johnson prefers to move to the sidelines for now.

Analyst Gordon Johnson mentioned that on January 7, Sunedison announced that “it had priced its $725mn 2nd lien term loans and that it had entered into a series of exchange agreements w/ certain holders of its: (a) convertible sr. notes due ‘18, ‘20, ’22, & ’25, and (b) perpetual convertible preferred stock.”

Related Link: Credit Suisse: SunEdison Will Quintuple, Still Worth $19

Johnson believes that the deal has left Sunedison's shareholders “out in the cold,” given that the company refinancing its debt through shorter term maturities and at substantially higher borrowing costs does not serve the interests of its existing equity holders.

According to the Axiom report, the would have several effects on the company's earnings potential, such as debt balance would rise by $196 million, “(a) a net increase of $551mn in 2nd lien loans & (b) a net decrease of $355.1mn from the exchange transactions.”

Non-op expenses would also increase by $50.8 million per annum, including increase in debt services of $61.5 million and decrease in preferred dividends of $10.7 million. Johnson also expects equity dilution of 17.8 percent.