Markets

Evergreen Solar Vulnerable to Lehman Collapse

By David Phillips

Updated on: September 17, 2008 / 12:14 AM EDT / MoneyWatch

The Company: Evergreen Solar, a manufacturer of solar power products.
The Filing: Form F-3 Registration Statement filed with the SEC on June 24, 2008.
The Finding: Despite assurances by Michael El-Hillow, Chief Financial Officer of Evergreen, the Chapter 11 filing by Lehman Brothers could expose the solar panels maker to a potential shareholder dilution of more than 20 percent if shares lent to an affiliate of the insolvent brokerage are not returned.

The Upshot: In June 2008, Lehman served as the lead underwriter on $325 million of a four-percent senior convertible note (due 2013). Evergreen Solar used the net proceeds for construction of its String Ribbon Manufacturing Facility and working capital.

In connection with the offering of the notes, Evergreen entered into a capped call transaction with Lehman Brothers OTC Derivatives to reduce the potential dilution to Evergreen's common stockholders that would otherwise occur as a result of new common stock issuances upon conversion of the Senior Notes. The capped call transaction is a hedging instrument, which effectively increased the conversion price of the Senior Notes to $19.00 per share compared to the actual Senior Notes conversion price of $12.11 per share.

Concurrent with the sale of the Senior Notes, the company entered into a common stock lending agreement with Lehman Brothers, by which the Company loaned 30.9 million shares of its common stock to the erstwhile investment bank. Ironically, should Lehman creditors be free to secure -- and to sell -- these borrowed shares, Evergreen would be forced to include the amount (for share-net purposes) under GAAP reporting standards -- increasing share count outstanding by 20 percent.

The Question: What other renewable energy companies could be adversely impacted by the fall of Lehman Brothers?