Sunedison Inc (NYSE:SUNE)‘s stock is trading 5% in green on Wednesday after the company said that managed to syndicate a 7 year term loan facility of TerraForm Private Warehous worth $280 million. The company said that the offering was oversubscribed and was placed with a diverse group of institutional investors. Moreover, the term loan sports an interest rate of LIBOR plus 4%. In addition, TerraForm Power Inc (NASDAQ:TERP)’s stock advanced by more than 7% on the back of the news.
TerraForm Private Warehouse holds Sunedison’s 521 Megawatts of operating assets acquired from Atlantic Power for a maximum period of seven years. The assets with an average contracted life of 18 years and provide investment grade utilities with an A3 weighted average credit rating, Sunedison said in a statement. It added that TerraForm Power has an exclusive call right over the assets and will add them to its portfolio in the future.
Today’s appreciation of the Sunedison Inc (NYSE:SUNE)’s stock managed to slightly offset the decline witnessed in the last weeks. Nevertheless, the stock is still down by 32% year-to-date, mainly on the back of weak financial results for the second quarter disclosed on Friday. As you probably remember, the company’s net loss missed the estimate and fell further to $0.89 per share from $0.16 a year earlier. Even though the company has embarked on an expansion spree to increase its market share and expand into the new markets, which affected the bottom line in its financial statement, the market focused on the net loss itself and sent the stock down. The stock’s move surprised analysts, most of whom see a long term potential for the company and have bullish ratings on its stock.
What’s also important is that hedge funds from our database are bullish on Sunedison. We consider hedge fund sentiment an important metric, because even though hedge funds undeperformed the market on average in the past years, many of their individual long positions performed very well. In fact, the weak returns of the equity hedge funds can be attributed to their short positions, which lost money in the bull market of the last couple of years, and to their exposure to large- and mega-cap stocks, which are more efficiently priced. However, when it comes to their small-cap ideas, we determined that they can beat the market by double digits annually. Our strategy is based on imitating a portfolio of 15 most popular small-cap stocks among a pool of over 700 hedge funds and in the last 35 months it returned over 123% and outperformed the market by more than 60 percentage points (see more details here).
With this in mind, when it comes to Sunedison, we can see that hedge funds clearly like the stock as at the end of March, 94 investors held some $4.44 billion worth of stock, which represented 68% of the company. Moreover, the number of hedge funds with long positions increased by six during the first three months of the year, while the aggregate value of their holdings surged from $3.73 billion at the end of December. In addition, among long investors in Sunedison, nine are represented by funds managed by billionaires, which should not be overlooked.
One of the top shareholders of Sunedison Inc (NYSE:SUNE), is David Einhorn‘s Greenlight Capital, which held 24.95 million shares at the end of March. Greenlight has been bullish on the company for more than a year and has been saying that the company has a lot of upside potential. Another investor that likes the company is Donald Chiboucis’ Columbus Circle Investors, which owns 1.13 million shares as of the end of June, having increased its stake by 605,100 shares during the second quarter.
To conclude, we still have to see if Sunedison Inc (NYSE:SUNE) has reached the bottom and is about to start its recovery. The hedge fund sentiment has probably fallen as some investors exited their positions to minimize losses, however, large money managers will most likely stick to their shares because they don’t have a lot of exposure to Sunedison in terms of equity portfolio value (for example, Greenlight’s $600 million stake amassed 7% of its equity portfolio at the end of March). That’s why we agree with analysts and consider that Sunedison has a lot of long-term potential and therefore is a good investment.
Disclosure: none
