TerraForm Deals for `Sole Benefit' of SunEdison, Tepper Says

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  • Appaloosa President Tepper raising concerns about Vivint deal
  • TerraForm shares climb most ever after Tepper sends letter

A warning by billionaire hedge-fund manager David Tepper that recent leadership changes at TerraForm Power Inc. benefit its corporate parent more than its investors drove the company’s shares up the most on record.

TerraForm was created to buy and operate renewable-energy power plants, including those developed by its parent, SunEdison Inc. Tepper’s warning came in a letter to TerraForm’s board released Tuesday, following a management shakeup last month in which two independent directors resigned and a new chief executive officer was named.

Recent deals were “obviously intended for the sole benefit” of SunEdison, offering little gain to TerraForm or its shareholders, Tepper, president of Appaloosa Management LP, said in the letter. The shares jumped 33 percent to $9.15 in New York, the most since its July 2014 initial public offering.

“Tepper is raising the issue of independence in a very public domain and that activism can be useful,” Michael Morosi, an analyst at Avondale Partners LLC, said in an interview. Gordon Handelsman, a SunEdison spokesman, declined to comment on the letter Tuesday.

Board Resignations

Mark Florian and Mark Lerdal both resigned as independent directors on Nov. 20.

“As an independent director, I have been working hard and in good faith to protect the interests of the stockholders,” Florian wrote when he left. “I do not believe I will be able to do so going forward and therefore resign.”

Three days later, SunEdison’s Chief Financial Officer Brian Wuebbels was named TerraForm’s CEO, replacing Carlos Domenech who left the company. SunEdison, which controls TerraForm, said the move was aimed at improving “the alignment and effectiveness of its operating structure.”

Appaloosa, a hedge fund based in Short Hills, New Jersey, said in Tepper’s letter that it owns common equity and senior notes in TerraForm Power; it has less than 1 percent of the shares outstanding, according to data compiled by Bloomberg.

TerraForm is essentially a holding company that buys and operates power plants. Tepper said this arrangement works well when the projects are supported by long-term contracts to sell power to “large, investment-grade corporate counterparties.” The model is threatened by the SunEdison’s pending $2.2 billion acquisition of Vivint Solar Inc., he said.

Vivint Deal

“The July announcement of the acquisition of the Vivint Solar portfolio of residential rooftop assets marks an unfortunate departure from this business model,” Tepper said in the letter, notably because homeowners may be riskier counterparties than the typical buyers of electricity from TerraForm Power’s big, utility-scale power plants. He also cited SunEdison’s plans to acquire assets from Invenergy Wind LLC as another concern.

TerraForm’s board should “exercise its independence” regarding the Vivint deal, and evaluate its benefits to TerraForm and its shareholders, Tepper said in the letter. “Such efforts would be strongly supported by Appaloosa.”