Eric Savitz (Barron's) submits: Evergreen Solar (ESLR) shares were down sharply today, in a move that may be tied to a convertible offering the company completed in June that included a hedging transaction involving Lehman Bros. (LEH).
The company in June priced $325 million of 4% senior note due 2013, with a green shoe covering another $48.75 million. In connection with the deal, Evergreen agreed to lend Lehman, which was the underwriter for the deal, 30,856,538 shares for hedging transactions; Lehman planned to sell the shares to clients, with no proceeds to Evergreen. So here’s the kicker: the arrangement called for Lehman to cover the shorts when the notes came due. But Lehman today filed Chapter 11, which has apparently lead the Street conclude that Evergreen will now be just one more creditor. That would be one mammoth hit if that’s how it plays out; it would be the equivalent of issuing all of those shares effectively for free, in one massively dilutive transaction. Ouch.
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