Anyone who stuck by SunEdison Inc (OTCMKTS:SUNEQ) when SUNEQ was clearly headed for bankruptcy just heard the last nail being driven into the coffin.
Yup. They’re pretty much wiped out.
A bankruptcy judge decided that holders of SUNEQ won’t get a seat at the table along with banks and bondholders as the company works its way through Chapter 11. The court, by shooting down a committee to represent the voice of equity holders, all but assured there will be nothing left for them once proceedings conclude.
Judge Stuart Bernstein noted that the solar power company’s debts exceed its assets by at least $1 billion, making it “hopelessly insolvent.” Since it’s almost certain that SUNEQ will not be able to pay off its debt, a committee representing shareholders isn’t necessary. After all, they’re last in line when it comes to recouping anything in bankruptcy.
As the judge said in his decision:
“[The] stockholders of a ‘hopelessly insolvent’ estate have no economic interest in the case, and under the absolute priority rule, are not entitled to any distribution … [Shareholders] have lost money on their investments, and hope that an official committee will capture value for them in the end. The appointment of an Equity Committee, however, will not create value where it does not exist.”
A Bitter End for SUNEQ Stockholders
That’s not to say shareholders have been completely kicked to the curb. The decision notes that stockholders may still be heard individually or as one or more ad hoc committees. And they may recover some or all of their professional fees and expenses if they make a substantial contribution in the case.
But at this point, it looks like shareholders are as likely to recover money as they are to win the Powerball. From the decision:
“Everyone hopes that these cases will prove to be solvent and return money to the shareholders, but based on where these cases appear to be and where they appear to be headed, this is substantially unlikely.”
Shareholders who weren’t paying attention or trying to make some kind of Hail Mary rebound play were shellshocked when SunEdisoncollapsed in spring. Despite multiple warnings, they rode SUNEQ all the way down to penny status and then were actually surprised when the company sought bankruptcy protection.
SunEdison now trades over-the-counter where it has become a playground for speculators. On Friday, SUNEQ plummeted by nearly 50% to 6 cents per share after the bankruptcy court’s ruling.
That’s how it goes when you’re a gambler.
Investors, on the other hand, knew to cut their losses on SunEdison long well before Chapter 11.
As the saying goes, take care of the downside, and the upside will take care of itself.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
