SunPower (NASDAQ:SPWR) stock is capturing the spotlight on Monday in the worst way possible. Following the breach of a critical component in a credit agreement, management disclosed a default risk. That’s a cruel blow to SPWR stock, which had previously appeared to be engineering a comeback due to speculation about interest rate cuts.
According to Reuters, SunPower failed to file its third-quarter earnings results on time. Unfortunately, that miss breached a key contractual term which could prompt lenders to recall certain loans. In total, these loans amount to $65.3 million. Subsequently, SPWR stock is down about 35% as of this writing.
Under the company’s latest Form 10-Q filing, management issued a blunt warning:
“If the lenders under the Credit Agreement and the Atlas Credit Agreement were to demand immediate repayment, the Company would not have sufficient liquidity to meet its obligations and pay its liabilities arising from normal business operations when they come due. As such, substantial doubt exists about the Company’s ability to continue as a going concern.”
Naturally, this matter has triggered heavy concerns among investors. However, Raymond James analyst Pavel Molchanov believes the issue is merely technical and won’t cause liquidity problems for the enterprise. Justifying his optimism, investors have also known since October that SunPower would be restating some financials.
SPWR Stock Presents Deep Concerns but Some Hope Remains
Obviously, the default risk is agitating investors of SPWR stock, who have already dealt with myriad ambiguities in the market. Therefore, today’s fallout is arguably unsurprising. However, an incentive exists for the parties involved to negotiate the matter without resorting to extreme action.
While there’s really no great way to dress up a credit agreement breach, the silver lining for stakeholders of SPWR stock is that it’s not unusual for struggling publicly traded companies to renegotiate loan repayment with lenders to help avoid bankruptcy. At the most basic level, demanding an immediate repayment on debt that leads to the borrowing entity’s collapse would effectively negate future business opportunities.
Moreover, a hefty double-digit loss in a single session is never a positive. But under a broader context, the value erosion looks less catastrophic. In particular, after the closing bell on Nov. 10, SPWR stock finished the day at $3.79 per share.
Of course, that context does little for recent investors. Nevertheless, the fact that SunPower stock didn’t fall well below established technical support lines is a nod to Molchanov’s measured assessment.
Why It Matters
At the moment, analysts rate SPWR stock a consensus hold. This assessment breaks down as two buys, 13 holds and five sells. Overall, the average price target for shares comes in at $4.96, implying about a 25% upside at the time of this writing.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
