Please ensure Javascript is enabled for purposes of website accessibility

Why Abengoa SA's Shares Popped 91% in March

By Travis Hoium - Apr 7, 2016 at 10:06AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A plan to avoid insolvency (for now) had investors bidding this renewable energy company higher.

Image source: GE.

What: Shares of renewable energy developer Abengoa SA (ADR) (NASDAQ: ABGB) jumped an incredible 91% in March as the company took steps to avoid insolvency.

So what: Abengoa made strides to agree to a financial package with creditors that would help the company stay out of insolvency, the equivalent of bankruptcy. The biggest move was an agreement to give creditors a 55% stake in the company in return for $2 billion in loans. Projects and even shares in Abengoa Yield were put up as collateral. 

Abengoa has been in financial trouble for a while and has been negotiating with creditors on a plan to refinance the company. But with a tangled web of assets that stretch around the world, it's a negotiation that's become extremely complicated. I wouldn't be surprised to see these negotiations drag on for many months, leaving equity holders in limbo as to what they will or won't own in Abengoa at the end of the day.

Now what: While it might have been a good month for Abengoa, the company is far from being out of the woods. It still needs a long-term plan to avoid insolvency, and that's not yet on the table.

With so much uncertainty surrounding it, this isn't a stock I would be betting on. Without the confidence of creditors, renewable energy companies will have a hard time making money. And Abengoa is a great example of that.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
345%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.