Solar Energy Firms Taking Hit from Lehman Failure
The bankruptcy of Lehman Brothers (NYSE:LEH) a is going to hit a couple of solar stocks pretty hard according to 24/7 Wall Street. “Evergreen Solar (NASDAQ:ESLR) looks to be taking the bigger hit, but JA Solar (NASDAQ: JASO) will also feel the pain.”
“At Evergreen, Lehman was the lead underwriter for a $373.75 million senior convertible note offering back in July. The solar company lent Lehman some 30.9 million shares of new common stock in a capped call transaction. The new shares were to be reported as issued and outstanding for corporate law purposes.”
“According to the terms of the note, Lehman is obligated to return the shares by July 15, 2013. That transaction lifted the conversion price from $12.11 per share to $19.00 per share. To date, Evergreen has paid $39.5 million transaction fee.”
“Evergreen will have to write off the $39.5 million and, if the company can’t recall the 30.9 million new shares, Evergreen shareholders face a dilution of their stock by more than 20%. Evergreen says that it will adopt a wait-and-see position regarding Lehman’s ability to return the borrowed shares in 2013. While it’s waiting, Evergreen will not consider the shares to be outstanding “for the purpose of computing and reporting share results.”
[A summary of an Evergreen conference call on the topic Monday is available here.]
JA Solar is in the same boat, but there’s not quite as much water in it, 24/7 says. “The company lent the European division of Lehman 6.56 million new shares, also due in 2013. The original conversion price was set at $30.475/share. The capped call lifts the price to $37.375/share. JA has paid $16.2 million in a transaction fee, and it looks like shareholders face a dilution of about 4% if Lehman doesn’t return the borrowed stock. JA Solar also plans to treat these shares as non-outstanding.”
[In a conference call today, management said it did not expect the Lehman transactions will impact its 2008 and 2009 outlook. Transcript available here.]
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