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What: Shares of renewable energy developer Abengoa SA (ADR) jumped an incredible 91% in March as the company took steps to avoid insolvency.
So what: Abengoa made strides to agree to a financial package with creditors that would help the company stay out of insolvency, the equivalent of bankruptcy. The biggest move was an agreement to give creditors a 55% stake in the company in return for $2 billion in loans. Projects and even shares in Abengoa Yield were put up as collateral.
Abengoa has been in financial trouble for a while and has been negotiating with creditors on a plan to refinance the company. But with a tangled web of assets that stretch around the world, it's a negotiation that's become extremely complicated. I wouldn't be surprised to see these negotiations drag on for many months, leaving equity holders in limbo as to what they will or won't own in Abengoa at the end of the day.
Now what: While it might have been a good month for Abengoa, the company is far from being out of the woods. It still needs a long-term plan to avoid insolvency, and that's not yet on the table.
With so much uncertainty surrounding it, this isn't a stock I would be betting on. Without the confidence of creditors, renewable energy companies will have a hard time making money. And Abengoa is a great example of that.
The article Why Abengoa SA's Shares Popped 91% in March originally appeared on Fool.com.
Travis Hoium owns shares of General Electric Company. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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