What: Shares of energy developer Abengoa SA (UNKNOWN:ABGB.DL) dropped a whopping 56% in the month of November and show no signs of recovering anytime soon.
So what: Abengoa has been struggling with operations for a while, but thought it had a lifeline from Gonvarri Corporacion Financiera, which agreed to inject 250 million euros into the company in early November. But by the end of the month the deal had fallen apart, and Abengoa filed for preliminary creditor protection. This isn't bankruptcy, but it's a step before that, with the hope that debtors will negotiate new financing for the company.
While we don't know what the outcome of these negotiations will be, we know Abengoa isn't in a good financial position. That's not a strong place for stockholders to be, and there's the possibility that an insolvency filing could leave current shareholders with nothing.
It's worth noting that Abengoa Yield (NASDAQ:AY) could get wrapped up in this insolvency despite being an independent company. Through what's known as cross defaults, the company may have obligations to Abengoa's creditors -- and with Abengoa Yield CEO Javier Garoz recently having been replaced by Abengoa CEO Santiago Seage, efforts to separate entirely look like they're heading backward.
Now what: Operationally, Abengoa is a mess, with 607 subsidiaries and hundreds of joint ventures in over 50 countries around the world. That complex structure and $9.57 billion in debt make the company not only difficult to analyze, but difficult for creditors to unravel as well. The sheer complexity is worth avoiding, and the insolvency potential is now high as well.
Even Abengoa Yield presents enough risk that I think investors should stay away. Yieldcos aren't as independent as they might appear, and the risk of unforeseen defaults on debt isn't a risk worth taking.