Green investors
got a special treat this week from a bond offering by SunPower’s (SPWR:
Nasdaq) newly created subsidiary Maxeon Solar
Technologies, a manufacturer of solar cells and solar panels with plants in
Asia, Europe and North America. Maxeon
sold $175 million in convertible notes due in 2025 to a bevy of institutional
investors in a private transaction. The conversion
feature does not become effective immediately and with talk of a Maxeon
spin-out in the air, SunPower added a pinch of flavor to the deal. Note holders have an option to receive cash
(redemption) or stock (conversion) in the event that SunPower moves forward
with the proposed spin-off of Maxeon any time within the next three
months. If the spin-off is not
completed, the notes will be redeemed at a par with a 1% kicker.
The creative bond offering actually helps pave the way for the spin-off of Maxeon. A portion of the offering proceeds will be used to repay the $100 million promissory note from SunPower that was issued in exchange for a portfolio of intellectual property placed in Maxeon by SunPower to support its solar panel operations. The spin out of Maxeon will leave SunPower free to focus on solar power installations in the U.S. Maxeon will leave with all the manufacturing operations in France, Malaysia, Mexico and the Philippines, but leave the state-of-the-art solar panel factory in Oregon with SunPower.
Some have
questioned the wisdom of breaking up SunPower, which seems to have made a
success of vertical integration of development, manufacturing and installation
of solar power solutions. However,
SunPower’s key partner Tianjin Zhonghuan Semiconductor (002129: SZ) appears to endorse the idea, pledging a
$298 million investment in Maxeon. Of
course, Tianjin Zhonghuan is likely eager to prime the pump of demand for its silicon
wafers that SunPower has been using and now Maxeon will use in its solar cells.
Tianjin
Zhonghuan’s planned investment is giving a preview of valuation as the $298
million check is to be exchanged for a 29% stake in the new Maxeon. Those
numbers were bandied about late last year well before the world was rocked by a
global pandemic. There has been no word
from SunPower as to whether Tianjin is still ready to cut a check for $298
million or wants a larger stake. The
math suggests a $1.027 billion valuation for Maxeon, which is 78% of SunPower’s
current market capitalization.
SunPower is
letting go of its manufacturing capacity at a time when the solar panel market
in the U.S. is navigating through a decrease in the investment tax credit
offered by the U.S. government. Up
through the end of 2019, installers of solar power systems were able to claim a
30% of total project costs as a federal income tax credit. The allowable credit decreased to 26% for
systems installed in 2020, will decrease again to 22% beginning in 2021 and
then expire in 2022. Congress would need
to renew the program to continue enticing home and business owners to
adopt solar power. Wind down of the
solar tax credit program in the U.S. does not bode well for the newly slimmed
down SunPower, but management appears unfazed.
SunPower has
originally set the second quarter 2020 as timing for the spin out of
Maxeon with shares of the newly created public company distributed to SunPower shareholders. While a little behind schedule,
the deal seems to have support from all sides to get completed. For those who might remain skeptical,
SunPower has added some spice to the deal.
Neither the author of the Small Cap Strategist web
log, Crystal Equity Research nor its affiliates have a beneficial interest in
the companies mentioned herein.
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