SunEdison Cash Reserves Shrinking Amid Lawsuits, Canceled Deal

  • Vivint lawsuit poses threat to SunEdison's liquidity
  • Hawaii cancelation `raises the question' about business model

SunEdison Inc. is burning through its cash.

The world’s biggest clean-power developer was expected to have about $1.2 billion at the start of the year, an amount that may drop to $270 million if a pending court case doesn’t go its way, according to an estimate by Patrick Jobin, an analyst at Credit Suisse Group AG.

The company spent billions last year acquiring developers and power projects around the world. Now it’s spending more to convert in-progress wind and solar farms into electricity-generating assets that can be either sold off or retained for their long-term revenue streams. In the meantime, its balance sheet is dragged down by interest on almost $11.7 billion in debt, and two legal cases that threaten to crimp its cash position.

“Put simply, SunEdison has tried to run too quickly -- seeking hyper growth at the same time capital markets are challenged -- constraining their balance sheet,” Jobin said in a research note Thursday when he downgraded the company’s shares to the equivalent of hold. The company got another downgrade Friday from Janney Montgomery Scott, also to the equivalent of hold.

Ben Harborne, a SunEdison spokesman, declined to comment on the Maryland Heights, Missouri-based company’s financial condition.

Vivint Deal

The most immediate threat to SunEdison’s liquidity is a legal challenge to its pending $1.9 billion acquisition of Vivint Solar Inc. The deal was announced in July and revised in December amid strong criticism from investors. They included billionaire David Tepper, whose Appaloosa Management LP is the third-biggest shareholder in SunEdison’s TerraForm Power Inc. yieldco unit.

As part of the complicated Vivint deal, TerraForm is supposed to pay $799 million for 470 megawatts of Vivint’s assets. Tepper has said the deal has more benefits to SunEdison than TerraForm and he filed a lawsuit to block that portion of the transaction. A judge in Delaware Chancery Court heard the case Feb. 16 and a ruling is expected soon.

If the judge agrees with Tepper, SunEdison may be forced to cover that portion of the deal. That, combined with charges the company is incurring to restructure its polysilicon operations, costs related to a canceled deal in Hawaii and other expenses may reduce its cash position to about $270 million, Jobin estimated.

“A positive ruling on the Tepper suit could relieve near-term pressure,” Jobin said in an interview Friday. “But they still have a lot of issues.” 

In a second suit, shareholders of Latin America Power BV are seeking more than $150 million in damages because SunEdison backed out of a deal to buy the company last year.

Hawaii Deal

In Hawaii, the utility Hawaiian Electric Co. canceled contracts to buy power from three solar farms under development, asserting that SunEdison had missed some deadlines. In a Feb. 12 filing, the utility also cited “SunEdison’s apparently precarious financial condition” as a risk factor.

Analysts are increasingly questioning SunEdison’s ability to meet some of its goals.

“We have clear doubts that SunEdison will be able to hit the utility-scale and residential development targets for 2016,” Julien Dumoulin-Smith, an analyst at UBS Group AG, wrote in a research note Thursday. “We expect management to lower expectations in the near future.”

Chief Executive Officer Ahmad Chatila in November reiterated his forecast that the company would install as much as 3,700 megawatts this year.

“The loss of the Hawaii contracts is material in the sense that it kind of raises the question of SunEdison’s ongoing project development model,” Swami Venkataraman, a vice president with Moody’s Corp., said in an interview. “Certainly their liquidity is in question. It’s not clear how much cash they actually have that’s unencumbered.”

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