Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) is in a pickle that could lead to consequences as severe as an involuntary bankruptcy. On Monday, the company announced a forbearance agreement with lenders, essentially holding off payment on $541 million of bonds due on Friday. As more reports have emerged, it appears the forbearance agreement was only with 60% of bondholders and the other 40% want nothing to do with it.
Right now, it appears Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) has no interest in paying bondholders on Friday and there’s now speculation this could lead to lawsuits and even an involuntary bankruptcy. Bloomberg interviewed a hedge fund manager who said that the fund sees it as worthwhile to pursue a lawsuit if they aren’t paid on Friday. But statements from law firm Wilmer Cutler Pickering Hale and Dorr LLP were even more telling. Bloomberg quotes partner James Millar as saying: “Every piece of information that I’ve looked at suggests that they will default on Friday.” That’s telling no matter what side you are on.
What is interesting with this debate is that the company could have converted bonds into stock if it would have alerted bondholders three days prior to maturity, which was yesterday. Since it didn’t, it appears that the company will be forced to pay cash or wind up in court.
Implications across solar
Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) is the news of the day but this has much wider impact on the solar industry than just one company. China’s state-run banks haven’t come to the rescue of Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) even though it has billions of dollars of debt outstanding with them. China may finally be willing to let a few companies fail.
This is bad news for Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) and LDK Solar Co., Ltd (ADR) (NYSE:LDK), in particular. Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) has $2 billion of net debt, and at last count LDK Solar had $3.3 billion of net debt, both unsustainable in any normal business environment. Will the government let them fail as well, taking multiple gigawatts out of the industry’s overcapacity? Many companies hope so.