Trina Solar Ltd. (NYSE: TSL) is one of the top solar players in the world, and the company claimed to have power output world records in three of the past four years. Now the company is raising capital. Tuesday saw an offering of $100 million in convertible notes and 7 million American Depositary Shares (ADSs). This is far from your traditional capital raise, when you see that a large portion of the shares were effectively being used as hedging instruments.

Of the 7 million ADSs, approximately 2 million shares are being offered and sold by the company itself and up to approximately 5 million will be loaned by Trina Solar to affiliates of the underwriters of the convertible senior notes offering.

Deutsche Bank Securities, Barclays Capital and Credit Suisse were acting as joint book-runners for the ADS offerings, and Roth Capital Partners was acting as co-manager for these offerings. Trina Solar has granted the underwriters of the ADS offering a 30-day option to purchase up to an additional amount of approximately 1,050,000 primary ADSs to cover overallotments. Trina Solar also granted the underwriters in the notes offering a 30-day option to purchase up to an additional $15 million.

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In connection with the offering of notes, Trina Solar will enter into ADS lending agreements with the ADS borrowers. Those borrowers will sell the borrowed ADSs to facilitate privately negotiated transactions or short sales for the note buyers to hedge their investment in the notes. The filing said:

The ADS Borrowers will be required to return the borrowed ADSs pursuant to the ADS lending agreements by the maturity date of the Notes. The ADS Borrowers will receive all of the proceeds from the sale of the borrowed ADSs. Trina Solar will not receive any proceeds from the offering of the borrowed ADSs, but will receive a nominal lending fee from the ADS Borrowers. The borrowed ADSs are not outstanding for purposes of calculating earnings per share under current GAAP rules and therefore Trina Solar will not incur share dilution from the borrowed ADSs. The size of the ADS Offering will ultimately depend on the amount of the Notes Offering allocated to investors who wish to hedge their investment in the Notes.

As far as the use of proceeds, Trina Solar said that the funds will be used for general corporate purposes and applied to pay up the shares underlying the borrowed ADSs. And the ADS borrowers informed Trina Solar that it or its affiliates “intend to use the short position created by the ADS loan and the concurrent short sales of the borrowed ADSs to facilitate transactions by which investors in the notes offered hereby may hedge their investments.” Trina Solar further said:

We intend to use the net proceeds from the offering of primary ADSs and the net proceeds from the concurrent offering of the convertible senior notes for general corporate purposes, which may include the development of solar power projects and their general financing requirements, expansion of manufacturing capacity and working capital.

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Capital raises can cause stocks to drop in general. That is particularly the case in such offerings where hedging efforts are assigned up front in dual offerings. Trina Solar shares were down 6% at $12.39 on 1.7 million shares after about 30 minutes of trading Tuesday. Its 52-week range is $10.15 to $18.77, and the market cap outside of the impact of these offerings was listed as $910 million. These ADSs trade roughly 4.5 million shares per day.

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