NEW YORK (TheStreet) – Maxim Group analyst Aaron Chew was thinking about Trina Solar debt covenants this past week when digesting the China-based company’s second straight quarterly loss. Trina’s debt covenants stipulate that it must be profitable in a 12-month period or be in breach of its bank lending requirements.
With a combined loss per share of $1.38 over the past two quarters, Trina would have to earn at least $1.39 in the first half of 2012 to not breach this debt covenant. This isn’t just a heroic earnings target, Chew realized, but is in fact an impossible dream. The first half of 2012 isn’t expected to be more than break even to marginally profitable for any Chinese solar company.
Then Chew came to the real issue at the heart of the Trina debt covenant: There is no real bankruptcy risk when it comes to Chinese solar because the Chinese government and Chinese banks have too much invested in the sector. If the Chinese banks can’t carry these solar companies on their backs forever, just how they lessen the load a little has always been the opaque road to which the Chinese solar manufacturing onslaught has been leading.
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