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Actionable news in SUNE: SUNEDISON Inc,

SunEdison's Recent Bond Trading Indicates A Slight Recovery In Its Fortunes

SunEdison bulls and bears can look to recent bond trading for additional guidance on the future of the stock.

The bonds trade at a deep discount, confirming the market's fear of bankruptcy. However, equities such as Lightstream Resources have bonds that trade at even higher yields.

SunEdison's 2022 bonds trade at a higher price now than before March 28th; the bond market is no more bearish on SunEdison now than prior to the bankruptcy bombshell.

Bond trading on Lightstream Resources indicates that the stock is overvalued.

When looking at the numerous recent articles on SunEdison, Inc. (NYSE:SUNE) and corresponding hundreds of comments, I thought to myself "boy, do I need some of that". While fishing for easy clicks and followers, I figured I would at least provide some useful and provocative information for supporters and detractors of the stock to chew on. Like the stock, the bonds have tanked, particularly after the report that SUNE might be going bankrupt while its yieldcos admitted that it's at a significant risk of filing soon. But the bond market is starting to show a recovery as it attracts high-yield traders who are willing to place money on a risky bet that turns out well.

Out of its numerous convertible debentures, SUNE has three series of bonds which has pricing readily available on Morningstar:

All three series trade at less than 10 cents on the dollar and at yields to maturity of at least 70%. Someone who buys the 2021 bonds at $6 per $100 par value would expect an annual return of 90% for the next four and two-thirds years assuming the interest is paid and the principal is returned. In other words, the bondholder expects a very high yield in order to offset the perceived risk that this best-case scenario is extremely unlikely.

Given the various negative drivers like the heavily leveraged balance sheet, operating losses, delayed reporting and investigation by the SEC, it's no surprise that the bonds are trading this low. The bond market is pricing in the expectation that these senior unsecured convertible bonds will only get a fraction of their value in a liquidation sale or restructuring. In other words, the bond market believes that the current equity is destined to eventually be worthless.

However, that does not mean that the equity will go to zero any time soon. A stock that I'm familiar with (see my articles calling for its restructuring here and here), Lightstream Resources Ltd. (OTCPK:LSTMF), has bounced 100% from January lows due to the recovery in the price of oil. The company formerly known as Petrobakken Energy has 8.25% coupon maturing 02/01/2020 senior unsecured notes trading at just $3.50 per $100 par value or a yield to maturity of 237%. Those notes have traded around that level for all of 2016. Yet the stock still trades and has actually been good to...