SunEdison Faces Lawsuits, Cash Crunch After Vivint Cancels Deal

  • Biggest clean-power developer announced Vivint deal in July
  • Vivint sues SunEdison in Delaware over failed acquisition

In the short term, SunEdison Inc. investors may be relieved that the company’s troubled deal to buy Vivint Solar Inc. finally fell apart. That feeling is unlikely to last.

SunEdison climbed Tuesday after Vivint canceled the $1.9 billion acquisition. The world’s biggest developer of clean-energy projects still faces liquidity issues, and Vivint is suing for damages.

SunEdison said the deal was a key part of its growth strategy when it announced the acquisition in July, giving the company access to the rapidly growing residential solar market. Investors were skeptical, questioning both the strategy and a growing debt load. The transaction was delayed, the terms were renegotiated in December and now that it’s finally fallen apart, the fallout may be significant.

“With this decision, Vivint Solar may be positioning for a potential SunEdison bankruptcy,” Colin Rusch, an analyst at Oppenheimer & Co., said in a research note Tuesday. Vivint investors, who saw their shares lose more than two-thirds of their value since the deal was announced, may also “line up for compensation through the courts.”

Vivint said it terminated the deal after SunEdison missed a Feb. 26 deadline to complete the transaction. Greg Butterfield, Vivint’s chief executive officer, and a spokesman, didn’t return calls. Spokesmen for SunEdison and Blackstone Group LG, Vivint’s majority owner, declined to comment.

In a lawsuit filed Tuesday, Vivint said SunEdison is liable for damages after its officials failed “at every turn to satisfy their financing obligations and to take other reasonable steps toward consummating the merger.”

SunEdison executives attempted to justify the failure to consummate the buyout by citing financing problems, according to the suit in Delaware Chancery Court. Vivint’s lawyers noted that having financing in place wasn’t grounds for pulling out of the deal. SunEdison didn’t immediately respond to a request seeking comment on the lawsuit after regular business hours on Tuesday.

SunEdison rose 5.3 percent to $2.00 at the close in New York, after opening up as much as 33 percent Tuesday. TerraForm Power Inc., a holding company formed by SunEdison that had agreed to buy some of Vivint’s assets, gained 3.8 percent. Vivint fell 20 percent.

SunEdison’s liquidity remains murky. The company said last week that it would delay filing its 2015 results, in part because of an internal investigation into its financial condition that was prompted by questions from current and former employees. 

Analysts are unsure how much cash the company has to fund its operations. Paul Coster, an analyst at JPMorgan Chase & Co., sees a “weak liquidity position and internal disarray,” according to a research note Tuesday that downgraded SunEdison shares to the equivalent of sell.

‘Liquidity Crunch’

“SunEdison may still survive its current liquidity crunch, but the company will be cutting it very close,” he said. “We think financing options are running out.”

In the short term, the canceled deal is good for SunEdison’s balance sheet, buying the company time and freeing up about $206 million cash that would have been used for the deal, according to Credit Suisse Group AG analyst Patrick Jobin.

It may be a short reprieve. “While this incrementally improves SunEdison’s current liquidity position, it also highlights how precarious the liquidity position likely is,” Jobin wrote in a research note. “We expect a legal battle to remain an overhang with an unknown magnitude.”

The canceled deal may also close another door to SunEdison, a $250 million credit line that Blackstone had offered as part of the renegotiated terms, according to Gordon Johnson, an analyst at Axiom Capital Management Inc. Any short-term benefits may be outweighed by a long-term threat, he said in an interview. 

“It frees up liquidity that would have been used for the acquisition, and it basically allows them to get out of the rooftop solar market, which was going to be a major drain. That’s why the stock is performing well,” Johnson said. “What does it mean from a liquidity position? I don’t know.”

Liquidity will remain one of SunEdison’s main challenges, Swami Venkataraman, a vice president at Moody’s Corp., said in an interview.

“I’m almost thinking what took so long to call it off?” he said in an interview. “There still exist questions of SunEdison’s solvency.”

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