Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



LDK Solar Is the Latest to Put Off Paying Debts

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

LDK Solar (NASDAQOTH: LDKYQ  ) is the latest Chinese solar manufacturer to enter into a forbearance arrangement with noteholders, putting off bankruptcy, yet again. This follows months of forbearance for Suntech Power (NASDAQOTH: STPFQ  ) , the other solar manufacturer that is so indebted, it can't pay its bills

What is forbearance, and how are solar companies using it?

Forbearance: A stay of execution
A forbearance arrangement/agreement in its simplest form is a debtor putting off paying interest or principal to a lender until the debtor can acquire more funds. In the case of LDK Solar, they've entered into a 30-day "forbearance arrangement" for its U.S. $-Settled 10% Senior Notes due 2014. These notes had interest due on August 28, 2013, and still hasn't been paid by the company.

Note that this is an "arrangement," not an "agreement," indicating that lenders didn't come along willingly. By contrast, Suntech's first forbearance agreement in March included the agreement of 60% of noteholders. LDK Solar made no such claim in its latest release. 

The big question is: Why aren't these companies bankrupt already? In the U.S., if you miss a debt payment, your lenders demand payment, and will likely force you to file for bankruptcy, at which time you either reorganize your capital structure, or liquidate the company. But these companies aren't U.S. companies, so the same rules don't apply. In fact, we're in uncharted territory here because Suntech was the first company from Mainland China to default on U.S. debt. 

Even Suntech's ongoing reorganization is confusing, with its largest subsidiary in bankruptcy and state-run banks involved in the process. There's little likelihood that reorganization would leave U.S. stockholders with much of anything; yet the company is worth $250 million on the market today. LDK Solar is essentially in the same position, with little value for shareholders at this point in the game, no matter how debt negotiations play out.

Balance sheets matter
This is another warning that balance sheets matter in solar. LDK Solar ended last quarter with $2.8 billion in debt, and just $114.7 million in revenue, not nearly enough to pay back what it owes. 

A terrible balance sheet is also what sunk Suntech, which was the largest solar manufacturer in the world as recently as last year. The next company to be concerned about is Yingli Green Energy (NYSE: YGE  ) , which has $2.8 billion in debt. The good news for Yingli is that it generated $521 million in revenue last quarter, and appears to be improving financially as the industry's margins rise. But is that too much debt to overcome? Only time will tell. 

There will be losers in solar
Even if the solar industry grows at the most optimistic rates, there will be losers. There's not enough margin to pay for equipment built only a few years ago on borrowed money. Investors should focus on the companies with the best balance sheets and the highest quality products because that's where the money is. Chasing a company that can't pay its bills, like LDK Solar or Suntech Power, has a low chance of working out in the long run.

A better stock in energy
There are many different ways to play the energy sector, and The Motley Fool's analysts have uncovered an under-the-radar company that's dominating its industry. This company is a leading provider of equipment and components used in drilling and production operations, and poised to profit in a big way from it. To get the name and detailed analysis of this company that will prosper for years to come, check out the special free report: "
The Only Energy Stock You'll Ever Need." Don't miss out on this limited-time offer and your opportunity to discover this under-the-radar company before the market does. Click here to access your report -- it's totally free.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2659084, ~/Articles/ArticleHandler.aspx, 9/25/2016 10:06:15 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 3:43 PM
LDKYQ $0.02 Up +0.00 +3.63%
LDK Solar Co., Ltd… CAPS Rating: *
STPFQ $0.00 Down +0.00 +0.00%
Suntech Power Hold… CAPS Rating: *
YGE $3.89 Up +0.19 +5.14%
Yingli Green Energ… CAPS Rating: *