Thursday, February 10, 2011

Bondholders Still Not Going for Evergreen Solar's (ESLR) Exchange Offer

I have written several posts about Evergreen Solar (ESLR) - the maker of photovoltaic solar cells - and their attempt to restructure through an out-of-court distressed debt exchange offer.

Basically, the company is still struggling to generate cash flow and is burdened by a significant amount of debt. The company has been able to produce PV cells more and more cheaply - but so have the other firms in the crowded PV solar industry, with the result that the average sales price has fallen just as much.

They have senior secured convertible 13% notes trading at ~70 for a market value of $115 million, plus 4% convertible notes trading at ~37 for a market value of about $100 million. The company still has a sizable market cap of $85 million, which is obviously inconsistent with the notion (implied by the market price of the notes) that the notes are severely impaired.

The company started the distressed debt exchange dance in December. They are trying to get the senior secured notes to accept new notes with a lower interest rate and extended maturity in exchange for a more favorable conversion price. The other (junior) convertible notes are being offered a better conversion price in exchange for a 40-50% haircut.

Also, the company is trying to coerce the senior secureds by asking tendering bondholders to consent to an amendment that strips the lien from the senior secured. They need 75% participation in order to do this.

As I said when the offer was announced, I did not think that it was generous enough to the holders of either of the notes. They are being asked to forgo a lot in exchange for out of the money options. 

They revised the offer - to sweeten it by lowering the conversion prices - in January. The deadline for the first revised offer was yesterday, and the company announced today that they have extended the deadline until tomorrow:

"holders of approximately $64 million aggregate principal amount of the existing 4% notes (or approximately 26% of the existing 4% notes outstanding) had tendered for exchange, and holders of approximately $79 million aggregate principal amount of the existing 13% notes (or approximately 48% of the existing 13% notes outstanding) had tendered for exchange and had delivered consents to the proposed amendments to the indenture governing the existing 13% notes."
That is a really poor showing, especially after having revised the offer, and especially for the 4% notes! I don't think the two day extension is going to accomplish much.

What's odd is that at the shareholder meeting on Wednesday, they had the shareholders vote to approve these exchange offers (which was necessary because they require issuance of more shares), even though the bondholders have largely rejected the offers. [By the way, the bondholders that tendered are tremendously stupid.] So the company says that they "will either close the current exchange offers on Friday, February 11 at 5:00pm, New York time, or terminate the offers if their respective conditions are not met."

It is very unlikely that there will be a substantial increase in the number of bondholders who tender. I assume that if they terminate the offers, they will go back to the drawing board completely, with an understanding that the bondholders have all the cards and need to be given a much more substantial inducement to reduce the company's debt burden.

The company has two things to trade to bondholders in exchange for relief: cash (but not much) and stock. They will need to drastically increase the amount of stock they are offering the bondholders as an inducement to tender. 

The beauty of this, from a bondholder perspective, is that management is much more likely to keep their jobs if they can keep the company out of bankruptcy court. And if they have to trade away the equity that is currently 70% owned by naive retail investors, well, them's the breaks.

1 comment:

Eric said...

them's the brakes