Tuesday, January 8, 2013

Alpha Venture Writes About Suntech Power ($STP)

Good writeup of the STP trade by Alpha Vulture:

"That STP itself is a good short actually doesn’t need a whole lot of in-depth analysis. Based on the bond prices, the maturity profile, EBITDA and the short interest in the stock it’s clear that the current stock price is too high. With the bonds maturing in March it shouldn’t take too long to see how this is going to work out."
I think the equity is so overpriced that an outright short makes a lot of sense.


C.R.L. said...

What's the borrow?

TSJ said...

Did you notice that the bond prices actually increased yesterday? What do you make of that?

CP said...

There would be a bid for bonds from people who wanted to buy them and short the stock.

B1uesteel_VR said...

how likely someone has picked up enough converts to vote in favor of refinancing (no default), while simultaneously going long the stock/calls?
Or maybe just that those holding the notes are presently planning to vote in favor of refinancing?

CP said...

You can't force other bondholders to accept less than the principal and interest due them, except in bankruptcy court. It's not a democracy where other people get to "vote" on whether you get paid back.

B1uesteel_VR said...

Agree w/your write-up, just putting some surface thoughts out there that might have a greater than zero probability.
Unless I'm missing something (which is most likely) why wouldn't the non-short convert holders vote for refinancing when they're clearly not making economic decisions already? They are out there based on the short interest and option open interest data.
Also what do they have to gain from calling a default and going to BK, instead of agreeing to "amend and pretend"?
Sitting under the bank loans, that were refinanced, there's probably little, if anything, left over to them in a BK scenario relative to the current convert price.
Then in a re-fi, would the notes meaningfully trade up from the conversion premium at present even if shares kept climbing?
Yet the short squeeze on this would probably play out.

CP said...

There's no "vote".

Each individual noteholder would of course be free to roll his loan over/extend maturity. Except no rational actor would do that with notes trading at 55.

A group of noteholders could agree to roll their debt AND take equity. But it would probably take a TON of equity (dilution) for them to agree to this.

CP said...

So, if there's a default, the equity is worth ~0, and restructuring would require so much dilution that equity would probably still ~0. That's what happens when a company owes half a billion dollars that it can't pay.

B1uesteel_VR said...

Understood. Thx

CP said...

"what do they have to gain from calling a default and going to BK, instead of agreeing to 'amend and pretend'"

They have the leverage to take all the company's equity in a negotiated restructuring - or else take it in bankruptcy court if there's a default.