Shares of Sunnova Energy International (NYSE:NOVA) jumped by as much as 14.3% in trading on Monday after the company announced plans for a large new debt offering, but the stock closed the trading session down 7.5%.
On Monday morning, management said they plan to offer $500 million of convertible senior notes due in 2026. Initial purchasers are expected to get an option to buy another $75 million worth of the notes as well. Details about the conversion option aren't known yet and will be determined by the market in the next few days.
Management said the money raised will be used to pay off outstanding debt and for other corporate purposes, including financing renewable-energy and energy-efficiency projects.
There are a couple of reasons Wall Street might not be excited about Sunnova's newest debt offering. First, the fact that the notes will be convertible into stock means that this action will dilute shareholders if the stock price rises. But the debt still needs to be paid back, so these debtholders will have upside without taking the downside risk that equity investors have.
Another concern is that Sunnova is still losing money and burning through cash. This debt offering may fill that hole for a short period of time, but the company needs to get to a profitable state. Until that happens, this solar energy stock could remain volatile.