Blade Maker TPI Plummets After Supply Woes Hammer Wind Industry

(Bloomberg) -- Wind-blade manufacturer TPI Composites Inc. fell the most in eight months after warning that supply-chain issues and uncertainty over potential tax breaks for clean energy will affect profitability and liquidity through next year. 

The company also said it was not in compliance with a loan covenant at the end of September. It’s selling $350 million of preferred shares to Oaktree Capital Management to pay off the the debt, according to a statement Monday. 

The shares slumped as much as 19%, the most intraday since Feb. 26. They were down 14% to $26.84 at 1:10 p.m. in New York. 

TPI’s results were also affected by the lengthy negotiations in Washington over President Joe Biden’s infrastructure and spending plans. The lack of clarity on specific incentives for wind power left developers “in a wait-and-see mode,” the company said in its earnings report. That was compounded by snarled global supply chains that drove up costs and made some raw materials hard to find.  

“Supply chain and logistics challenges continue to plague the industry and we were not immune from them,” TPI chief executive William E. Siwek said in the company’s third-quarter earnings call Monday. “We expect that impact to continue through the balance of 2021 and through 2022.”

Production at TPI plants has been slowed by raw material shortages, and earnings were affected by higher costs for resin, carbon, fiber and logistics. That’s likely to eat into margins and earnings through 2022, while slower sales will be a drag on revenue. 

Third-quarter sales of $479.6 million were lower than analysts’ forecasts of $486.2 million.  

TPI said that at the end of the third quarter, it wasn’t in compliance with the total net leverage ratio covenant in a credit agreement, which would give the lender the right to request immediate payment of a senior revolving loan. The company negotiated a waiver through Dec. 8. It has entered into a deal to sell shares to Oaktree and will use the proceeds to pay off the loan. 

TPI will issue and sell $350 million in preferred shares to Oaktree, which has the option to buy $50 million more over the next two years. The preferred shares pay an 11% annual dividend. The blade maker will also issue Oaktree a warrant to buy about 4.7 million common shares for 1 cent each, and Oaktree may also later invest $200 million for follow on capital.

“The investment by Oaktree gives us sufficient capital to weather the near-term challenges or the headwinds,” Siwek said. Oaktree also is entitled to nominate a director to TPI’s board. 

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