The solar industry should have had a good week, with interest rates continuing to fall and the residential solar industry looking like it's about to turn a corner. Instead, SunPower's(NASDAQ: SPWR) shares collapsed 27%, according to data provided by S&P Global Market Intelligence, because SunPower warned investors that it may not be a "going concern" if it can't find additional financing.
The financing crunch
This week, SunPower announced it had breached covenants on debt that could be immediately callable, meaning the company would have to pay off the debt right away. If bondholders called the loan, it could cause SunPower to run out of cash very quickly.
But we also learned that SunPower has gotten waivers from bondholders through at least Jan. 19, 2024, to find new financing or improve its financial position. This could mean extending waivers or raising new capital either in debt markets or through stock sales.
A "going concern" warning is always scary, and that's why the stock is down. But it doesn't appear to be the end of SunPower yet.
A path forward
The good news for SunPower is that interest rates are down to levels similar to a year ago, so financing costs should come down for residential solar projects, leaving more margin for the business. If that higher margin coincides with higher installations in 2023, the business could be set up for a recovery.
The challenge is getting there. Given the uncertainty, it makes sense that SunPower's stock is down. However, if the company gets past this rough patch, the stock could be set up for a great year in 2024.
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Travis Hoium has positions in SunPower. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
