- May face technical default as deadline looms on overdue report
- Top renewable developer has `big issue coming with their debt'
The clock is ticking for SunEdison Inc.
The world’s biggest clean-energy developer has already postponed the release of its 2015 annual report, twice. If SunEdison fails to file the report by March 30, it must reach accommodations with lenders on at least $1.4 billion in loans and credit facilities or face a potential technical default.
SunEdison reported total debt of $11.7 billion at the end of September, more than double the amount a year earlier, as it bought up wind and solar developers and projects on six continents. That’s prompted questions about whether it borrowed too much, too fast, and has helped make it the worst-performer on the 104-member WilderHill New Energy Global Innovation Index in the past year.
“They have a big issue coming with their debt,” Patrick Jobin, an analyst at Credit Suisse Group AG, said in an interview, citing two credit facilities that require the company to provide financial disclosures. Because that hasn’t happened, it’s unclear if SunEdison is able to meet its obligations, he said. “We’re sitting here blindfolded. I don’t even know what cash-generating assets they have left.”
Ben Harborne, a SunEdison spokesman, declined to comment. The company said in a Jan. 7 presentation that it expected to have $619 million of cash on hand at the end of 2015. Of that amount, $563 million was committed to project development, and $56 million was available for general corporate use.
SunEdison’s Debt Has Surged
SunEdison took on a $725 million second-lien credit facility in January, with Barclays Plc, Deutsche Bank AG, KeyCorp and Macquarie Bank Ltd. as joint bookrunners. One of the terms requires the company to release an audited financial statement for 2015 within 90 days of the end of its fiscal year, according to documents filed with the Securities and Exchange Commission.
That’s March 30. The company then has a 15-day cure period to address the breach, or April 14.
‘Event of Default’
“If they have not filed by March 30, they will be in default,” said Ian Feng, an analyst at Covenant Review LLC, a credit research firm that reviews high-yield bonds and leveraged loans. It will become an “Event of Default” when the cure period expires. “That will be 15 days after they’ve breached.”
The company also has a renewable energy letter of credit facility with similar deadlines, a backstop facility that may be used to support project development. As of Sept. 30, SunEdison had $716 million in outstanding third-party letters of credit backed by the facility, according to a November filing. Goldman Sachs Group Inc., Deutsche Bank, Wells Fargo & Co. and Macquarie were joint bookrunners on the facility.
Spokesmen for the six banks declined to comment or did not reply to inquiries.
“Their business model is contingent on having access to additional financing,” said Sven Eenmaa, an analyst at Stifel Financial Corp. “I would be very surprised if they wait to the last second given how much leverage they have.” He dropped coverage of the company Tuesday, citing uncertainty over its financial status.
Missing the deadline would put the company at risk for a “technical default,” unless banks have approved waivers beforehand, according to Swami Venkataraman, an analyst at Moody’s Investors Service.
“The banks have the ability to decide what would happen,” Venkataraman said. Such talks can lead to a variety of scenarios.
Lenders might grant SunEdison an extension to file its 2015 results, possibly in exchange for a higher interest rate or reducing the limit of the loans or credit facilities. The outcome may depend on the company’s financial position and relationships with banks. And it will all be avoided if SunEdison is able to file its results by the deadline.
“It could be a formality, but given everything that’s happened, it may not,” said Michael Morosi, an analyst with Avondale Partners LLC.
SunEdison’s shares climbed to a $32 peak in June as investors cheered its buying spree. That turned when it announced plans to buy Vivint Solar Inc. in July, prompting investors to question its business model and its liquidity. The $2.2 billion deal was delayed, renegotiated down to $1.9 billion and canceled by the target this month after SunEdison missed deadlines to close the transaction. The company slipped 4.7 percent to $1.21 at the close in New York Thursday.
That may all factor into the company’s potential negotiations with creditors, said Eenmaa. Lenders typically choose whether to renegotiate based on whether their “ability to collect in the future is better than immediately enforcing remedies.”
SunEdison’s 2015 10-K annual report is overdue. The company said Feb. 29 it would be delayed as long as 15 days, and it missed that target as well, saying March 16 that “deficient information technology controls” had caused another postponement, without providing a new date. The New York Stock Exchange notified SunEdison that day that it was a noncompliant issuer for failing “to timely file its 10-K.” The company is also conducting an internal investigation into the “accuracy of its anticipated financial position.”
“With the delayed 10-K filings we also have no firm financial statements from the company to lean on,” Eenmaa wrote in a research note Tuesday. “We view the range of operational and financial performance outcomes for 2016 and beyond as highly dependent on the company’s ability to restructure its balance sheet with creditors, where the process outcome could be highly unpredictable.”