SunEdison at heightened risk of bankruptcy

Its aggressive acquisition strategy has saddled it with a whopping $11 billion in debt. However, since TerraForm Global Inc and TerraForm Power Inc, its sibblings, are yieldcos, with separate legal identities, they need not follow SunEdison if it were to declare bankruptcy. They will be affected but not bankrupt.

One of the two publicly listed units of SunEdison, a U.S. solar company, has warned of “substantial risk” of bankruptcy since its parent is straddled with more than $11 billion in debt. This debt burden can be traced to SunEdison’s aggressive acquisition strategy.

SunEdison is already being investigated for overstating its cash position, following the breaking of this news, its shares fell vertically by 43% in premarket trading.

TerraForm Global Inc., one of two SunEdison “yieldcos”, has said it would join its parent and fellow yieldco TerraForm Power Inc. in delaying its annual report for the year ended Dec. 31.

However, investors would be glad to note that TerraForm does not lean too heavily on SunEdison for funding and thus its liquidity position is sufficient to support its operations even if its parent, SunEdison was to seek bankruptcy protection.

Its annual report was due by March 30.

Essentially, yieldcos are publicly traded units that hold renewable energy assets, including assets bought from the parent company.

Although TerraForm Global’s fell, following this news, it wasn’t as hard as its parent: shares fell by 30% to $2.05. Further, TerraForm Global has disclosed that SunEdison may not be in a position to transfer to it 425 megawatts of solar energy projects in India for which it has already paid $231 million. It is not clear whether this amount will have to be written-off. SunEdison may not be in a position to complete other deals as well.

“If SunEdison does not perform under these agreements, it could have a material adverse effect on TerraForm Global,” said TerraForm Global in a regulatory filing.

As per Pavel Molchanov, an analyst at Raymond James, since TerraForm Global and TerraForm Power are legally distinctly separate entities they would not follow SunEdison if it were to declare bankruptcy.

“However, there is a close historical relationship between the parent company and these yieldcos and therefore some dislocation in the event of parent bankruptcy should be expected,” said Molchanov in an email.

TerraForm Power’s shares fell have fallen by 13.2% to $7.35.

TerraForm Global has disclosed that it was in talks with lenders of its revolving credit facility to obtain an extension on a covenant that requires it to file its annual report on time. Furthermore, and this is significant, it has said the credit facility is not critical to the continuation of its business.

As for its parent, SunEdison, has said it has identified material weaknesses in its financial reporting controls. SunEdison has delayed its annual reporting twice this month.

Following the disclosure of its financial weakness, Vivint Solar Inc. had scrapped a deal wherein it was to be acquired by SunEdison this month. SunEdison had a debt of $11.67 billion as of Sept. 30.

In the last one year, SunEdison’s shares have crashed by 95%. Their value as of Monday’s closing was $1.26 thus bringing its market capitalization to $400 million.

All three companies, SunEdison, TerraForm Global and TerraForm Power did not immediately respond to requests for comments.



Categories: Economy & Finance, Entrepreneurship, Regulations & Legal, Strategy


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