Credit Suisse: SunEdison Will Quintuple, Still Worth $19

• Sunedison Inc SUNE shares plunged 40 percent on January 7.
• Credit Suisse’s Patrick Jobin maintained an Outperform rating for the company, while reducing the price target from $25 to $19.
• While cash infusion has increased flexibility, high financing costs and dilution are concern areas, Jobin stated.

Analyst Patrick Jobin mentioned that SunEdison had recently announced debt restructuring, which included a set of “rather complex and optically onerous transactions.” The company raised a second-lien term facility and exchanged a portion of the existing convertible debt for equity.

Related Link: Sunedison Crashes After 'Expensive' Restructuring, Now 90% Off 52-Week High

The transactions imply a cost of debt of more than 20 percent, 21 percent dilution from share issuance, and “natural hedging of the newly placed $225m 2018 convert.” This resulted in a steep decline in SunEdison’s shares. The price target has been lowered to reflect the increased dilution and cap structure, Jobin commented.

The analyst cited two reasons to be constructive:

• With a $300 million reduction in net recourse debt, there is an increase of the cash buffer, allowing the company additional flexibility during the 2016 transition period and “further removing the risk of an acute liquidity crisis.”
• The debt was already trading at a substantial discount to par. The convertible debt exchange implies a $10.78 equity conversion price, representing a 96 percent premium to the close on January 6.