- Company faced $100 million payment deadline in November
- ‘Misleading’ presentation didn’t disclose loan, yieldco claims
As SunEdison Inc. navigates through bankruptcy, an 11-day period in November continues to haunt the world’s largest renewable-energy company.
Over that period, the company misrepresented its financial health, withheld details about an imminent margin-loan deadline and ousted several independent directors at the two publicly traded yieldcos it founded and controls, as it sought funds to make the looming payment, according to lawsuits filed against SunEdison prior to its bankruptcy.
SunEdison won court approval Tuesday for a $1.3 billion operating loan. That package will also fund a creditor probe into its financial activities, and the findings will shape the outcome of the bankruptcy. Meanwhile, creditors say the company shouldn’t be in charge of managing its own cash, a question scheduled to be addressed at a June 21 hearing.
The reason is SunEdison’s “large, opaque capital structure, with complex intercompany relationships and cash flows, poor accounting, poor controls and allegedly fraudulent conduct at the highest levels,” creditors said in a May filing. A key event came at the culmination of the 11-day period, an incident that one of the suits called the “Friday Night Massacre.”
That was when SunEdison reconstituted the boards of the two yieldcos it had formed to buy its power plants, TerraForm Global Inc. and TerraForm Power Inc., and the new boards then remade their conflicts committees -- independent directors tasked with evaluating transactions with the parent company. SunEdison’s then-Chief Financial Officer Brian Wuebbels, also named in the lawsuits, became chief executive officer of both TerraForm yieldcos.
SunEdison’s actions “led many commentators to draw parallels with the Enron Corp.” bankruptcy, creditors said in the complaint. Enron lost the right to handle its own cash.
“I’ve never seen a situation where a conflicts committee of the board was fired,” said Nell Minow, vice chairman at ValueEdge Advisors LLC, which advises investors on governance issues.
SunEdison’s lead bankruptcy lawyer, Jay Goffman, said in court that the creditors’ allegations are “gamesmanship and false statements” to help boost recoveries. He didn’t respond to requests for comment.
SunEdison declined to comment on allegations in the suits -- one brought by TerraForm Global and the other by TerraForm Power shareholders led by Appaloosa Management LP, the hedge fund run by billionaire David Tepper. It has yet to file a response to the TerraForm Global suit. A February response in the Appaloosa suit includes a redacted section addressing the changes to TerraForm Power’s board.
During the company’s Nov. 10 third-quarter conference call, then-CFO Wuebbels said it had “sufficient liquidity” -- about $1.4 billion -- at the end of the third quarter.
Yet SunEdison’s management was facing a potential crisis: a $100 million payment on a margin loan, due on Nov. 20, according to the TerraForm Global suit filed in April. Missing the deadline could trigger cross defaults on parts of almost $8 billion in SunEdison debt, according to the suit.
SunEdison had already told TerraForm Global in October it “had a short-term need for additional cash,” according to the suit. SunEdison was developing a portfolio of solar projects in India that were earmarked for sale to TerraForm Global and SunEdison asked TerraForm Global to prepay for them. The yieldco refused because the projects weren’t complete.
TerraForm Global management learned about the margin payment two days before it was due, on Nov. 18, according to the suit. The yieldcos evaluated ways to get SunEdison the money -- including share buybacks, selling assets or an unsecured loan coupled with governance changes that would reduce SunEdison’s control over their boards, according to the suit. The conflicts committees rejected these ideas -- in part because SunEdison wouldn’t agree to governance changes, TerraForm Global said in its complaint.
To get around this opposition, SunEdison reshaped the committees, according to the suit. The developer called for meetings of both yieldcos’ boards on Nov. 20. Senior management was replaced and SunEdison reconstituted both boards. The new boards then remade the conflicts committees, TerraForm Global said in its suit.
“They could see trouble,” said Swami Venkataraman, an analyst at Moody’s Investors Service. SunEdison was “trying to come up with other things, pulling the yieldcos closer.”
The events showed SunEdison’s ability to exercise control, according to Appaloosa’s January lawsuit. Appaloosa owns 3.1 percent of TerraForm Global, and is TerraForm Power’s second-biggest shareholder with a 9.5 percent stake, according to data compiled by Bloomberg. Tepper declined to comment on the suit.
An amended Appaloosa filing in March called the board shakeups the “Friday Night Massacre.”
“That’s when it became clear that SunEdison was willing to do whatever it took to save itself,” said Michael Morosi, an analyst at Avondale Partners LLC. “The turmoil with management, the turnover of the board, that’s when it became clear that the yieldcos were being viewed as a source of liquidity.”
TerraForm Power fell 4.5 percent to $8.68 at the close in New York. The yieldco has fallen more than 75 percent in the past year. TerraForm Global declined 2.2 percent Thursday.
TerraForm Global’s new conflicts committee met by phone at 2:15 p.m., Nov. 20, less than an hour before the payment was due. SunEdison requested prepayment for the India projects. The “false, misleading and one-sided” presentation didn’t disclose the margin loan, or that the directors who had been replaced had already evaluated and rejected ways to transfer funds to SunEdison, according to TerraForm Global’s lawsuit.
TerraForm Global’s suit alleges that SunEdison said the board changes were needed to get a decision on another pending deal, the acquisition of Vivint Solar Inc., which was later canceled.
The new conflicts committee agreed to immediately advance $150 million for the India projects, according to the TerraForm Global suit. SunEdison instead used it to pay the margin loan minutes before its 3 p.m. deadline, TerraForm Global alleges. The yieldco is seeking $231 million, to cover that payment and another $81 million provided later that it says was also earmarked for the India projects.
Spokesmen for TerraForm Power and TerraForm Global declined to comment on the allegations and said members of the conflicts committees were unavailable for comment.
In its response to the Appaloosa suit, SunEdison defended the independence of the directors appointed to TerraForm Power’s board on Nov. 20. Both cases against SunEdison have been stayed by the bankruptcy. Wuebbels, who stepped down as CEO of both TerraForms in March and has been terminated from SunEdison, wasn’t made available to comment.
SunEdison hasn’t been straight about its finances, said Steven Azarbad, chief investment officer of Maglan Capital LP, a distressed hedge fund that exited its position in SunEdison this year, before the company filed for bankruptcy. One sign, according to Azarbad, was Wuebbels’s Nov. 10 assertion that SunEdison had $1.4 billion in liquidity, when in fact much of that was already committed to specific uses. That detail, Azarbad says, was in an investor presentation, “buried in a caveat.”