If SunEdison enters into bankruptcy, the autopsy will no doubt reveal a suicide, finding the solar energy company done in by financial engineering that was too clever and by a failure of its executives and investment bankers to remember the lessons of the financial crisis, The New York Times reported yesterday. SunEdison is not dead yet, but it is floundering. The immediate cause of its distress is the now-terminated agreement to acquire Vivint for $2.2 billion that was struck last July. The highly leveraged deal flashed caution from the start. SunEdison agreed to acquire Vivint Solar, but could not afford to pay the $2.2 billion. Instead, the deal consisted of cash and SunEdison common stock. SunEdison did not have the cash so it arranged to borrow $500 million from Goldman Sachs Bank USA. That was not enough so SunEdison also agreed to issue $350 million in convertible notes to Vivint holders, debt instruments that SunEdison would pay out later at 2.25 percent interest. This type of self-financed debt is the last resort of acquirers.
