Evergreen Solar’s balance sheet is a common concern in nearly every earnings conference call. After reviewing earnings on November 4, I concluded that Evergreen Solar (ESLR) “remains a very speculative bet on survival.” After Monday’s announcement of a major recapitalization plan, it is clear that ESLR’s balance sheet remains in precarious shape.
The recapitalization plan is complex but it essentially extends the duration for servicing existing debt, raises up to $40M in additional capital, attempts to reduce overall debt by incenting debtholders to convert debt into equity, and doubles the amount of shares available to make room for these conversions and future potential equity-related financing. A reverse stock-split will save ESLR’s listing on the NASDAQ which, presumably, maintains the interest of analysts and institutional investors and makes future financing plans more feasible.
Shareholders must approve the plan, and I am wondering whether it will get approved. Long-suffering ESLR shareholders are likely quite unhappy about the massive dilution. I will likely vote yes just because I bought into ESLR in the past few months expecting it to be a speculative play.
Not surprisingly, the market immediately panned the news. ESLR has lost 19% of its value since the announcement of the recapitalization plan. This move completely wiped out October’s strange surge and now leaves me to conclude that October’s move was at best a random anomaly. I added my last tranche of ESLR on Tuesday when it hit 70 cents. I will now just sit back and see what this “call option” on survivability brings. If management somehow saves the company, the upside should be huge. Going bust is the other alternative.
*Chart created using TeleChart:
Be careful out there!
Full disclosure: long ESLR