Several solar companies lent shares to Lehman as part of their convertible debt offerings. The accountants said they didn’t have to count the shares as outstanding since they were just being loaned (so the bondholders could hedge). Now, Lehman is gone and they’re going to have to include those shares as outstanding. They still owe the debts… effectively they gave away 1/4 of the company. Poof! With friends like that, who needs enemies.
not sure about this… my understanding was the accountants were still looking at the impact, determining how to account for these lent shares… The companies never received proceeds from the shares and they would get them back at no cost, If that happens, they would just retire them at no cost. what’s the big deal?
Not that easy… they legally registered the shares. The only way to get them back is to buy them back and retire them. They gave away the company…
virginCFAhooker Wrote: ------------------------------------------------------- > Not that easy… they legally registered the > shares. The only way to get them back is to buy > them back and retire them. > > They gave away the company… buy them back from whom? they were not released to the public. they were entered as a contract to be returned to the issuer, they may just be returned earlier then expected. John, here’s my car keys. i’ll need those back next week… If John dies, I don’t have to buy back the car from John’s wife.
some of the issuers did enter into a capped call transaction with Lehman. If Lehman defaults on this, the issuer could lose the anti-dilution impact of the convertible notes.
The capped call is only a tiny part of the potential loss. I don’t understand who’s worried about dilution now when the strike price is like 300% higher than the share price. The shares they lent to Lehman were sold in the open market. For ESLR, LEHMAN immediately sold over half of them in conjunction with convertible offering and they had the right to sell the others at will (none of these shares are considered outstanding for accounting purposes even though they’re fully registered with the SEC!). If Lehman still has any shares, they go into the general pile of assets that get’s broken up in the BK proceedings to those highest on the list, etc. ESLR can’t just slip in there and say… “uh scuze me I left my keys, got it, thanks. bye” Anyway, I’m amazed at what a boneheaded structure these deals are. This is a freebie giveaway to the bondholders and frankly, the effective interest rate for the company wasn’t that low to justify this silly structure.
anyone who thinks this is hilarious is seriously sick
Anyone who bought shares in these companies deserves the losses they are taking. These deals are 100% absent of common sense. You don’t loan someone 1/4 your market cap to lower your borrowing costs by 1/2%. That is silly, hilarious, crazy… i’m out of adjectives to describe this stupidity.
Virgin…Can you point me to the #'s or article to back this up. I’d like to dig into this a bit more this afternoon.
Yeah what solar companies?
Just look at ESLR’s filings in late June. I think they’re the biggest offender. They have 120 million shares outstanding. They lent Lehman 30 million. Ever wanted to buy a solar company that trading at book value? Here’s the chance! SPWR and JASO got hit, too, but not as stupid as ESLR. SPWR has the best product on the market if Obama energy policy hits. ESLR’s product is arguably the worst since it delivers the lowest amount of watts per inch of roofspace. However, ESLR’s product is domestic and cheap and will do well.
I wonder if that’s a dealbreaker… DC Chemical was wanting to buy 3,000,000 shares of Common, 625 shares of Restricted Preferred, and 4,500,000 shares of Restricted Common from them.
Shouldn’t be too tough. 3 million shares of ESLR stock trade every couple of hours… ESLR is worth $2.75 given the risk that management brings to the table. Like I said, their product is always last on the list unless somebody wants a “domestic green solution”