The Struggling Solar Power Companies and How to Know if your Solar Company is at Risk

Jon Capistrano
Jon Capistrano
September 9, 2016

Investopedia presented a report about two giant players of the solar industry filed for bankruptcy last April and the entire sector continues to look shaky for the investors. SunEdison and Abengoa, 2 major players in the solar industry are both nearing bankruptcy or have filed for protection for bankruptcy. From an investor’s standpoint, even though solar has become established as a viable source of energy, the whole sector still looks far from stable.

SunEdison

The US solar manufacturing giant SunEdison, once the largest renewable energy developer in the world, filed for bankruptcy protection April of this year. It was the culmination of a dramatic downward spiral that has been attributed to a mismanaged acquisition strategy, and overreaching ambition.

The Wall Street Journal reported that the former solar marketing heavyweight, which was worth nearly $10 billion in mid-2015, will use the bankruptcy process to reduce their debt, which has ballooned more than $16 billion. To continue their operations and pay staff, Sun Edison received $300 million in bankruptcy debt financing. The company will continue operations during bankruptcy. The financing money was provided by first-lien and second-lien lenders.

During the summer of 2015, shares traded upward of $33.44. On the day when the company filed for bankruptcy, SunEdison’s trading price on the New York Stock Exchange went crashing to $0.34 per share.

SunEdison’s stock started crashing in July 2015 after it announced that it would try to acquire a residential solar company Vivint for a 52% premium. The deal for that residential asset deemed menial to the commercial assets SunEdison usually acquired tipped many investors off to the idea that the company may not have as much capital as they thought.

Abengoa Solar

On the other side of the spectrum, Spanish renewable energy giant Abengoa Solar has dodged the largest bankruptcy in Spanish history, at least for the time being. They have secured an agreement with their creditors acquiring backing 60% of its lenders to go for the standstill accord to come into effect. The company has managed to secure 75% of creditors and has given them 7 months upon the time of approval last April in which to restructure.

The company has secured an emergency loan of $152,733,765.00 to cover their immediate obligations. The company’s issues came to light last November 2015, when it filed for a preliminary credit protection, prompting speculation that one of Spain’s largest firm was about to go down. Since then their stock value has gone down by 70%.

By 2015, the company was employing an estimated 29,000 people around the world and had invested $3 billion in the renewable industry in the US where it has a major presence.

Major changes at the top of the company have shown the underlying problems within the organisation. Felipe Benjumea stepped down as the company’s chairman last September and is presently under investigation. The successor, Jose Dominguez Abascal was replaced last March.

In Australia, there were a number of solar companies specifically solar rooftop installers that filed for bankruptcy or for liquidation. One example is Metro Solar which has suffered a major collapse with a notice published last week that the Victoria-based company had been put into foreclosure and liquidation under the administration of the accounting firm Hall Chadwick.

In a notice dated June 15, the Australian Securities and Investment Commission said that the company Metro Solar would be wound up, with Hall Chadwicks’s David Ross and Richard Albarran delegated as liquidators.

The Altman Z-Score

One proven and quick way to predict if a PV manufacturer is facing liquidation within the next 2 years is through the Altman Z-Score.

The Altman Z-Score is defined as the output of a credit-strength test that measures and gauges a publicly traded manufacturing company’s possibility of bankruptcy. The test is based on 5 financial ratios that can be calculated from the data found on a company’s yearly 10k report. The test uses leverage, profitability, liquidity, solvency and activity in predicting whether a company has a high probability of being insolvent.

To find out more about how the Altman Z-Score is applied, click here on Investopedia and here to read about related stories on Sinovoltaics.

Featured Image Credit: alex lang

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