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SunPower: A Moderately Leveraged Solar Power Company

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Debt profile

As of December 28, 2014, SunPower (SPWR) had total debt of $1.18 billion—compared to $899.4 million at the end of fiscal 2013. The debt primarily includes convertible debt of $945.4 million. During the year, the company issued $400 million 0.875% coupon convertible debentures maturing in 2021. The company repaid $230 million 4.75% debentures through proceeds from the new issuance. It saved on interest costs. The company is in compliance with all of the covenants.

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Purchase commitments

SunPower also has certain agreements with suppliers to purchase raw materials and components. It entered into these agreements to ensure the continuity of operations. The agreements are based on SunPower’s requirements for polysilicon, ingots, wafers, and renewable energy credits. Total future non-cancellable purchase agreements amount to $1.86 billion over the next ten years.

Credit metrics

SunPower is moderately leveraged. Its total debt-to-fiscal 2014 EBITDA (earnings before interest, tax, depreciation, and amortization) came in at 3.1x, while the total debt-to-equity ratio came in at 0.76x. SunPower is considerably more leveraged than First Solar (FSLR), which boasts these ratios at 0.32x and 0.05x, respectively. However, its leverage is moderate compared to peers (TAN) like SunEdison (SUNE), Trina Solar (TSL), and SolarCity (SCTY). Also, the majority of the company’s debt is convertible in nature. This puts it in a favorable position compared to highly leveraged peers.

Liquidity

With the current ratio of over 2x and cash at hand of close to $1 billion, SunPower has sufficient liquidity available to cover the working capital requirements for a few quarters without additional borrowings.

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