SunEdison Caps Wild 2015 Ride With Deals Boosting Balance Sheetby and
Company swapping equity for $336 million in exchangeable notes
Buying, and immediately selling, stake in Dominion solar farms
It’s been a wild year for SunEdison Inc.
The world’s biggest clean energy company climbed 53 percent in value in the first half of the year, buoyed by plans to add wind turbines and solar panels on six continents. The shares plunged 83 percent in the second half as investors began raising questions about SunEdison’s increasingly complex corporate structure and how it planned to pay for all those power plants.
The reversal was the biggest loss in the industry, as Maryland Heights, Missouri-based SunEdison’s debt swelled and earnings fell short.
SunEdison “continues to finance the business primarily with debt,” Julien Dumoulin-Smith, a New York-based analyst with UBS AG, wrote in a Dec. 28 research note. “We simply see limited equity value given the magnitude of obligations.”
SunEdison is taking steps to shore up its balance sheet, announcing a pair of deals Wednesday to reduce debt and sell its stake in a 336-megawatt portfolio of solar farms.
The company agreed to swap $336 million of exchangeable notes for equity in some projects and shares in one of SunEdison’s holding companies, according to a statement Wednesday.
Separately, it completed a deal to buy 33 percent of a solar portfolio from Dominion Resources Inc. and immediately turned around and sold it to a joint venture SunEdison formed in September with investors advised by JPMorgan Chase & Co.
The notes were due in 2020, and taking care of them now “demonstrates that they’re looking at the balance sheet long-term rather than the cash needs for the next six months,” Mahesh Sanganeria, an analyst with Royal Bank of Canada, said in an interview Wednesday. “If I was worried about a liquidity crisis anytime soon, why would I worry about 2020 notes? They’re trying to deleverage the balance sheet so they can operate without too much restriction.”
SunEdison’s balance sheet has become a concern in recent months. Its debt at the end of the third quarter was $11.7 billion, up 84 percent from a year earlier. Ben Harborne, a spokesman, declined Wednesday to discuss the company’s performance this year.
The share decline in the second half was triggered mainly by two events. First, in July it announced a deal to acquire the rooftop installer Vivint Solar Inc. The complicated $2.2 billion transaction also involved some of its assets being purchased by TerraForm Power Inc., one of two publicly traded holding companies SunEdison has created to buy and operate power plants.
That transaction hasn’t closed yet, and as SunEdison’s shares slumped, investors began questioning whether it was a good strategic fit. Billionaire David Tepper disclosed this month that he controls 9.5 percent of TerraForm Power, and has criticized the Vivint deal as being more for the benefit of SunEdison than for the holding company.
He’s also said that a November corporate restructuring that placed SunEdison Chief Financial Officer Brian Wuebbels as chief executive officer of both TerraForm Power and sister company TerraForm Global Inc. has created too close a link between the ventures and their corporate parent. SunEdison announced Dec. 9 that it had revised the terms of the Vivint deal, which is now expected to close in the first quarter.
The second driver for SunEdison’s share slump came in August when it posted a wider-than-expected loss for the second quarter, its 11th straight money-losing quarter. The shares slumped 23 percent on the news, the most in two years. It didn’t help when the third-quarter results also missed analysts expectations.
The company’s decline in the second half was the most on the Bloomberg Intelligence Large Solar Energy index. SunEdison’s 50 percent increase in 2014 made it the biggest gainer on the index of 20 companies.
The company provided an update on its financial conditions on Dec. 24, including plans to install as much as 3.5 gigawatts next year, giving some analysts reason to expect the shares to rebound.
The “business update provided additional confidence in the company’s liquidity position, and we believe SunEdison is on track to reach its 2016 deployment guidance,” Ben Kallo, an analyst with Robert W. Baird & Co., wrote in a Dec. 28 research note.
Under Wednesday’s debt-for-equity deal, holders of $336 million of SunEdison’s 3.75 percent guaranteed exchangeable senior secured notes due in 2020 agreed to swap them for stakes in certain renewable projects under development and Class A shares of TerraForm Power. About $121 million of the notes will be extinguished after the agreement is signed, and the rest when the assets are transferred.
In the second agreement, SunEdison acquired from Dominion a one-third stake in 336 megawatts of solar farms, completing the first phase of a deal announced in September. As that $180 million transaction closed, the developer sold the portfolio to Terra Nova Renewable Partners, the partnership between SunEdison and investors advised by JPMorgan Chase. SunEdison expects the last phase of the 567-megawatt Dominion deal to close early next year.
Other analysts questioned the moves.
“This is hugely negative news for SunEdison,” Gordon Johnson, an analyst with Axiom Capital Management, said in an interview Wednesday. “They didn’t buy anything because they have no cash. Why are they giving away assets to 2020 debt holders? What will the other $11 billion in debt require? This is a sign of a company on the brink of bankruptcy.”