Tuesday, September 16, 2008

SunPower and Evergreen - Bit by Lehman

So in my previous post I mentioned Evergreen's exposure to Lehman. Apparently, SunPower will have similar issues, though not as grave. Quoted from MarketWatch:

"Concurrently with our February 2007 offering of $200 million principal amount of 1.25% senior convertible debentures due 2027, we lent 2.9 million shares of our class A common stock to LBIE. The lent shares were to be used by Lehman Brothers Inc., the underwriter in the offering and an affiliate of LBIE, to facilitate the establishment by investors of hedged positions in our class A common stock. We did not receive any proceeds from our lending of class A common stock to LBIE, but we received a nominal lending fee of $0.001 per share.


While the share lending agreement does not require cash payment upon return of the shares, physical settlement is required (i.e., the loaned shares must be returned to us at the end of the arrangement). In view of this and the contractual undertakings of LBIE in the share lending agreement, which have the effect of substantially eliminating the economic dilution that otherwise would result from the issuance of the borrowed shares, to date the borrowed shares have not been considered outstanding for the purpose of computing and reporting our earnings per share. Excluding the 2.9 million class A shares lent to LBIE, as of August 29, 2008 we had 85,739,000 shares of common stock issued and outstanding, comprised of 43,705,713 shares of class A common stock and 42,033,287 shares of class B common stock."

SunPower is one of my largest holdings, and though yesterday it sank to 52-week lows, today it has rallied - and I expect it to continue to rise, as Lehman's bankruptcy will not affect it as strongly as it will affect Evergreen.

My holdings of Evergreen, on the other hand, are not faring well.

I will stay the course - at this point, I don't have much more to lose.

Stay true in these dark days,

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Stay the Course (seriously...)

I know the phrase "stay the course" has earned a pretty bad reputation, given its use by one of the world's worst dictators, but I think it is highly applicable in the current financial situation.

Many of us (SRInvestors) have lost significant amounts of money. Those of us who are purists may not be invested in any major banks (since most of them fund fossil fuels and other SR no-nos) but lots of the upstart cleantech companies that saw such phenomenal stock growth last year are tanking as the banks that loaned them money tank.

Case in point: Evergreen Solar and Lehman Brothers.

Quoted from Barron's:

In July, Evergreen issues $373.75 million of convertible notes. In connection with the deal, the company loaned 31 million shares to Lehman Brothers International (Europe) for hedging transactions. The company had originally concluded that, since the shares were to be repaid when the convert came due, the stock did not have to be included in EPS calculations. But now the company says it may have to include the additional shares in calculating EPS, diluting existing holders by about 19%, according to J.P. Morgan analyst Christopher Blansett. And the reason is obvious: the company may not ever get repaid for those shares.

The company had also paid another Lehman affiliate $39.5 million for a “capped call transaction” intended to reduce potential dilution by effectively increasing the conversion price on the notes. Blansett notes that the company “will likely be unable to recover” any of that cash.

This particular conundrum is probably unique to Evergreen, but in general the worsening economy is bad news for green technology, as its causing oil prices to sink and making investors far more risk averse - two things that could spell doom for the sustainable business paradigm.

Be strong, my fellow SRInvestors! Economic downturns do not last forever (that's why they are called "economic cycles"). Ours is not a game for the weak of heart, for those who cut and run at the first sign of a trouble. Green investing is a treacherous road, especially when it comes to cleantech. If you want stability, I suggest you invest in AEP (please don't), but if you want to make money while making the world a better place, now is the time to batten down the hatches and ride out the storm.

So stay the course, I say, as the markets will improve. As long as the companies you have invested in have solid products, business strategies, and partnerships, they will recover and you will be on the way to living the high, sustainable life.

Here's to weathering the storm!

The Social Investor