Tuesday, February 14, 2012

Best Part of the ENER Trade

The stock was down 80 percent today and the bonds rallied from high 30s to about 45 (about a 15 percent increase). I had added to the bonds last week in the mid-30s. That is as I predicted: "the common stock is worthless in a liquidation, but the notes are worth nearly twice as much."

And as more information comes in and people process the news, I would expect the bonds to keep trading higher. The Ovonic subsidiary sold for $58 million, which is significantly higher than I had modeled, plus we don't have to worry about value destruction as much now that the company is in bankruptcy.

An article in the Detroit News has some more color from investor relations. By the way, it is unusual to file for bankruptcy on a weekday. There are a set of first day motions that need to be approved, like getting approval from the court to pay your employees and spend any cash, and the process typically goes more smoothly with a weekend bankruptcy filing. In fact, the filing this morning was a complete bolt from the blue - I would not have given a high probability to a Tuesday morning BK filing.

1 comment:

ECD Fan said...

Don't get to excited about the bonds - there are huge unrecognized warranty liabilities that will drain the cash shortly. And, of course, the Ovonic subsidiary fetched much less than $58 million (and that is before BASF figure out they were swindled). Finally, all Unisolar's assets (mainly equipment) will be dismantled and liquidated for scrap before the end of the year. The whole truth about the scam ECD/Unisolar is about to come out. The bondholders did not sue, but they sure were effective - let's see what's left now!