Saturday, September 7, 2013

95 Suntech Power Posts ($STP)

This will be the 96th Suntech post, which makes it the most posted about company in the 6.5 year history of this blog. The ten other most posted about companies are:

  • Conrad Industries, with 89 posts. Our first post was at $10 in January 2011 - it's now at $30 plus a $2 special dividend. That has been an internal rate of return of 57%. It's amazing how good of an idea it was when we first wrote it up. You were only paying $3 for the business (excluding net current assets) - which then paid a $2 dividend in December 2012! There are no longs anywhere near this cheap anymore, a sign that it is much later in the bull market than people think.
  • GMXR with 88 posts. Our capital structure writeup was April 2012. The stock went to zero and the bonds were repaid. Remember in November 2012 when the company had to give away 20% of the company just to raise money for a debt maturity at 15% interest? The stock doubled... but the company was gone six months later.
  • Treasuries. We have consistently nailed the Treasury market, with an edge that almost no one else in the market has: the Federal Reserve is driving long bond prices down, not up, by terrifying everyone about monetization and inflation. Nominal bond yields would be lower if investors were not afraid of inflation. It looks like pretty soon it will be time to buy bond call options again.
  • MGM with 59 posts. This is our only miss in the top ten most posted. The casinos have diversified from gambling into very profitable nightclubs (and day pool parties) which are good for degenerates with attention spans too short for card games. Rather than repair the overleveraged financial institutions, fraudulent reserve banking system, etc, our "elites" decided to just double down. [MGM will be exciting in the next recession. Tangible book value -$3 billion, long term debt $13.6 billion, EBIT less than interest over the past twelve months.]
  • Chesapeake with 43 posts. Both the equity and the preferred stock have done quite well. This one is not really actionable any more, but the bear raid in 2012 was nuts.
  • Evergreen Solar with 40 posts. This obviously went to zero.
  • A123 Systems. Also went to zero and the bonds were a big win.
  • Grubb & Ellis. Went to zero.
  • Downey Savings. Looking back on it, I think that people in 2007 refused to believe that a bank could ever fail. After a very brief "panic", which was actually entirely justified, and the suspension of mark to market accounting, people are back to believing that banks can't fail.
In investing, the price will not always move in your direction but the facts should. The Suntech facts have continually moved in our direction. Remember, the bull thesis was first that money in the GSF subsidiary would pay off the bonds [never existed], then that there would be a bailout by the Chinese before maturity [nope], then that some sucker would sink more money into this thing. Instead, no bailouts, no plans, just board member resignations and hopeful announcements of restructuring deals that would crush the equity even if they worked.


Anonymous said...

"As a week or so" drags on, the longer this goes without any new news does that increase the probability the company will just go dark and not restructure?

It appears the whole restructure effort is being led by bondholders and the company is just along for the ride.

Anonymous said...

No news from STP is good news!

We will find out before the NYSE opens on 9/19 (or 9:30pm in China on 9/20) if Wuxi Suntech will either be liquidated or get a 3 month extension under Chapter 8 of PRC Enterprise Bankruptcy Law.

"When the bankruptcy application is accepted by the court, an automatic stay against creditor’s actions against the debtor’s property becomes effective. The debtor or the administrator (as applicable) is required to submit a draft reorganization plan to the court and the creditors’ committee within six months after the initiation of the case (which, in certain cases, could be extended for an additional three months upon court approval on justifiable grounds). If the reorganization plan fails to be submitted within the prescribed period, the court shall announce the debtor bankrupt. Thus, a Chapter 8 filing effectively gives the insolvent enterprise a six to nine month reprieve time, in lieu of sentencing it to immediate bankruptcy. The draft reorganization plan needs to be approved by a majority in number of creditors in each class representing at least two-thirds in value of the liabilities for that class. If the draft reorganization plan fails to receive the requisite approval from the creditors, the debtor would be liquidated. When dividing creditor classes, creditors with security over the entity’s assets enjoy a priority status in repayment to the extent of the secured collateral; employees’ claims are payable after the expenses of the bankruptcy, but ahead of certain taxation and state claims; and, as to be expected, claims of unsecured creditors rank last."

Anonymous said...

Seems obvious they would get a 3 month extension, no?

How would this effect the ADR?

Anonymous said...

At least 4 of the 7 PRC banks would need to agree to a plan (which has yet been proposed or submitted) for an extension to be proposed in court (which might take "a week or so" to process)... "if the draft reorganization plan fails to receive the requisite approval from the creditors," or if a judge does not approve an extension by September 20th, then all of Suntech's operating assets (which were reorganized under Wuxi Suntech) will be liquidated.

The #1 priority of all 7 PRC lenders is to reduce their "sizable credit exposures"( and these lenders would likely prefer cash / an immediate liquidation (via a shotgun merger with a state owned enterprise, for example,) over STP asset sales, an expensive swap, and taking haircuts that all hinge on closing a risky equity issuance, all while STP is operating at a loss and being sued by creditors outside of China.

If Suntech Holdings were to loose claim over all of it's operating assets, then it's Directors would be required to put the company into involuntary insolvency or else breach their statutory and fiduciary duties under Cayman law and, correspondingly, be personally liable to a range of criminal and civil lawsuits in Cayman and US courts.

Anonymous said...


Will the summary judgement in the US be of any consequence then?

What was the point of the restructure PR if odds are against that outcome?

Anonymous said...

Remember a federal judge could appoint a receiver over the company.

They are really playing with fire by not settling or filing a voluntary BK now.

Remember the plaintiff nominates a receiver. What if there was a receiver who crowd-sources a review of the internal emails, to find out whether any of the management was negligent?

Anonymous said...

Even if a summary judgement ruling were to establish a lien in the US, it would take >11 days for a "Foreign Representative" to be appointed and for insolvency proceedings to begin in the Cayman Islands or for a receiver to be appointed in the USA.

The "understanding" announced was between the bondholder working group and the company (bondholder appointed chairman + wuxi suntech administrator), but the plan did not contain anything to meet the needs of Wuxi Suntech's creditors (PRC banks who have secured claims against Suntech's main financial and operating assets).

The FT reported last month that "'the Chinese banks are pressing for full payment and want the Wuxi government to bail them out,' one person familiar with the matter said."

Any updates from the Chinese banks as to whether they prefer the proposed scheme of arrangement or a liquidation?

We will get the news within a week or so.

? said...

Why would they file for BK if they are in the middle of working out a deal with bondholders to convert the debt to equity?

Anonymous said...

So essentially there are two options now.

1. They agree to restructure and this drags on a few more months. Likely to the end of 2013 as they need approval from shareholders/bondholders, etc.

2. The Chinese banks/goverment do not wish to restructure and instead decide to liquidate in one form or another. If this is the case, this should be done within a month and company should be in BK in the Cayman Islands.

"Any updates from the Chinese banks as to whether they prefer the proposed scheme of arrangement or a liquidation?" is the key question then.

Anonymous said...

There's no statutory minimum time period for a receiver to be appointed. All it would take would be to convince the judge that the assets are in danger of dissipating. The company's (and its directors) admissions regarding fraud and insolvency would work wonders.

Once bondholders win, they can also start hitting everyone involved in this mess with information subpoenas too. Where did the money go? There must be tons of people who know.

CP said...

They will pretty much have to file BK in some jurisdiction in order to wipe out earlier liabilities: warranty claims, the securities fraud lawsuit, the shareholder derivative lawsuit, holdout bondholders, etc.

Anonymous said...

So even if they decide to restructure, they will file for BK before the actually restructuring takes place?

So either way we should see a BK filing no later than Sept 20th?

CP said...

It would be hard to wipe out the amount of liabilities that they want to wipe out without an insolvency proceeding somewhere.

Also, there's no stay of litigation in the U.S. unless an insolvency proceeding (7, 11, or 15) is filed here.

There is also no avoidance of U.S. judgments unless it's a 7 or 11 plan here.

Anonymous said...

Suntech Holding's main operating subsidiary, Wuxi Suntech, was forced into bankruptcy in China on March 20. If 4 of the 7 Wuxi Suntech creditors do not agree on a plan for Wuxi Suntech to exit bankruptcy by Sept 20, then Wuxi Suntech will be liquidated. If Wuxi Suntech gets liquidated in China on Sept 20, then Suntech Holdings' board would be required to wind up STP under Cayman law.

People are giving too much attention to the agreement which STP's board + Wuxi administrator is trying to reach with (some) bondholders.

Irrespective of whether the bondholders and STP reaches an agreement, STP will need reach a separate agreement with the 7 PRC bank creditors who forced Wuxi Suntech into bankruptcy by Sept 20th on how Wuxi Suntech will exit bankruptcy or else Wuxi Suntech will be liquidated.

All 7 PRC banks "are pressing for full payment" yet might only recuperate 25% of their secured loans if assets are liqudiated (according to FT).

All 7 PRC banks are overexposed to credit defaults.

All 7 PRC banks would presumably prefer the liquidity a liquidation would bring over more short-term debt extensions and long-term write downs.

Even though Suntech would presumably prefer to restructure Wuxi Suntech's debt with lenders, it is unable to make payments and it will be very difficult for it to avoid a liquidation in China.

CP said...

Agree with the 12:34 post by anonymous.

Why would the Chinese banks agree to take less money to benefit the subordinated holdco bonds? That has never made any sense.

It's long past time for this thing to get liquidated. The pretend game is just diminishing the already small proceeds for bondholders. Wasting money on salaries, legal fees, opportunity cost...

? said...

Why would Clearwater and Spinnaker capital get involved if they knew the PRC banks would just want liquidation?

Anonymous said...

Well Clearwater originally bought the notes thinking they will get bailed out. You can google the news articles. They sound like a moral hazard investor with no real insight.

So now that they have tripped over their dick buying holdco notes with no claim on anything, they don't want to admit to their PEs what a big hit they are taking.

? said...

Assuming liquidation happens.. What is the timeline?

CP said...

Clearwater Distressed Funds Buy Chinese Solar Convertible Bonds
By Bei Hu - April 22, 2009 22:33 EDT

April 23 (Bloomberg) -- Clearwater Capital Partners LLC, a New York-based manager of $1.7 billion in Asian distressed assets, bought “a substantial amount” of Chinese solar companies’ convertible bonds as prices for the notes plunged.

“These guys are going to own the solar industry worldwide,” Clearwater co-founder Robert Petty said in an interview at the GaimAsia 2009 conference in Hong Kong yesterday. The bonds “are trading at distressed prices. You can buy debt with equity-like returns.”

“Everybody was into solar two years ago, exactly where you were not supposed to be,” said Petty. “Now it’s where you are supposed to be.”

“We have not been really excited about China until six months ago,” he added. “China is really interesting now.”

Anonymous said...

Hilarious! See, they've gotten caught long these and don't know what to do.

Can you say "thesis creep"?

When they bought the bonds, the stock was trading at $10-20 per share.

Yet the hold on to the bonds all the way through a solar industry collapse, a share price collapse below a dollar, uncomfortable news about the GSF fraud in Italy, and even worse allegation that Shi looted the company with a bogus supply company.

They hold on because they expect a bailout. Then March 15 comes and there's no bailout!

What's the thesis now? How many iterations have there been?

Investing 101:
"we try to be diligent in avoiding thesis creep – buying something for reasons X, Y and Z and then holding it six months later for reasons A, B and C"

Anonymous said...

Here's the real question: why has the company never been able to explain what is going on behind the scenes?

Answer that and you answer everything.

? said...

Any news on the hearing this morning?

Anonymous said...

The judge just said he knows the name partner of Suntech's law firm and that he wouldn't approve of this dishonorable defense by the attorney representing Suntech.

Anonymous said...

Heavy volume today...

Anonymous said...

it looks like Trondheim won the case and can begin seizing assets in the US. The only way STP and the other creditors can stop it is to enter into a voluntary BK and restructure the debts there. Perhaps the time-line has finally started to accelerate.

Anonymous said...

STP has already sold most--if not all--of its US assets (in Arizona). So if Trondheim and Miexler were made lien-holders by a US judgement ruling, then both can jointly file a lawsuit against Suntech Holdings to establish their lien against assets in Cayman courts. Other US bondholders can also follow this path and join the Cayman lawsuit. If Suntech is unable to settle or pay its debts in full, then Suntech Holdings will wind up in Compulsory Insolvency.

? said...

Is there a link?

Will be interesting to see if the company takes this seriously

Anonymous said...


Anonymous said...

Suntech Power Holdings Co. (STP) noteholders won a court ruling on their claim for $550,000 in defaulted debt owed by the Chinese solar-cell maker, a lawyer for the investors said.

U.S. District Judge Robert Patterson Jr. granted the investors’ motion for summary judgment today at a hearing in Manhattan, Jay Teitelbaum, a lawyer for Trondheim Capital Partners LP and Michael Meixler, said in a phone interview.