Sustainable Energy Company Abengoa May Not Be Sustainable (ABY)

ABY is Abengoa's U.S. listed yieldco which, because of cross-default provisions, may be at risk should the parent become Spain's largest ever bankruptcy.

The Financial Times' fastFT feels the creditor's pain: 

Abengoa's credit rating cut five notches by S&P

6 hours ago
Ouch.

Better late than never, perhaps. Standard & Poor's has downgraded Abengoa, two days after the Spanish renewable energy group announced it will start insolvency proceedings.

Typically downgrades occur one or two notches at a time, but S&P has hurled Abengoa five notches lower in one fell swoop, taking it down from B+ to CCC-, just two away from default.

Abengoa was forced to commence solvency proceedings when a planned €350m capital injection from the Gonvarri group fell through at the last minute. The company's shares were suspended during the release of this announcement on Wednesday, then plunged 70 per cent when trading resumed....MORE

While Reuters' Breakingviews says:

Abengoa has creditors over a barrel

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
Spain’s Abengoa has its creditors over a barrel. The engineering and renewable energy group is seeking court protection from its creditors after a new investor backed out of providing fresh equity. The group might survive if creditors accept a haircut of two-thirds and new cash can be found. In liquidation, losses would be much worse.

The starting point is how much debt Abengoa, which builds, operates and then sells infrastructure like solar plants, can handle. The debt for which it is directly responsible totals 7.9 billion euros, equivalent to nearly eight times its EBITDA for the past year. Assume Abengoa can make 750 million euros of EBITDA a year, and a reasonable amount of leverage is 2.5 times that, and borrowings would need to be slashed to 1.9 billion euros, implying a recovery of just 35 percent for current creditors.

Yet Abengoa’s bonds are trading lower, some around 15 percent of face value. That’s partly because the outcome could be much worse if Abengoa is declared insolvent. That is a real risk, because its business model requires lots of capital. Cash is likely to drain away if banks refuse to roll over working capital loans or customers withhold payments. And if Abengoa can’t keep building, some 2 billion euros of performance bonds – issued to customers as a guarantee that projects will be built on agreed terms – could become due....MORE