Solar Companies Are Setting Up for Growth, but at What Cost?

Convertible debt is back in style in solar, and SunPower (NASDAQ: SPWR  ) , SunEdison (NYSE: SUNE  ) , and Trina Solar (NYSE: TSL  ) are all using this debt to expand their balance sheets. The goal is to use the additional funds to acquire or build solar projects, which will eventually be sold or pushed down to YieldCos. 

But the cost for investors is dilution if stock prices continue to rise. That lowers upside for existing investors, who would then own a smaller percentage of the company. 

The alternative would be to sell debt that pays a higher interest rate but doesn't convert to stock. They've chosen not to do this because of the risk it adds to operations because of quarterly interest payments. 

The question solar specialist Travis Hoium is asking is if project returns are as high as advertised, why not use non-convertible debt? Find out more in the video below. 

Do you know this energy tax "loophole"?
The energy market is booming and the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Read/Post Comments (1) | 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.

  • Report this Comment On June 09, 2014, at 2:59 PM, clanza875 wrote:

    The biggest question i have is why not just do a secondary offering of equity. Its a lot less risky to current shareholders. If their investments fail there is no principal to repay? By doing a convertible you only get diluted if the equity is worth more, but still have the downside risk of having to repay the loan.

Add your comment.

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: 2985874, ~/Articles/ArticleHandler.aspx, 9/5/2015 6:17:28 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...

Travis Hoium

Travis Hoium has been writing for since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things.

Today's Market

updated 9 hours ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

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

9/4/2015 3:59 PM
SPWR $22.88 Down -0.78 -3.30%
SunPower Corporati… CAPS Rating: ****
SUNE $11.99 Up +0.05 +0.42%
SunEdison CAPS Rating: ***
TSL $8.51 Down -0.19 -2.18%
Trina Solar Limite… CAPS Rating: **