SunEdison Finds Control Flaws, Wrongdoing by Former Employee

  • Independent counsel finds fault with cash forecasting systems
  • Tighter controls and new CFO are proposed as a remedy

SunEdison Inc. said an independent counsel hired by its board identified “wrongdoing” by a former non-executive employee and an “overly optimistic” culture fostered by management.

The worst-performing clean-energy company also said counsel didn’t identify material misstatements in its financial statements nor did it find substantial evidence of fraud or willful misconduct by management, according to a filing Thursday.

The report comes as the company faces default on at least $1.4 billion in loans and credit facilities, and it failed to make a $2.6 million interest payment April 1 on convertible bonds. SunEdison is teetering on the edge of bankruptcy and analysts said the disclosure may please creditors.

“SunEdison is acknowledging that there’s a problem and they’re taking steps to fix it,” said Julia Winters, a bankruptcy litigation analyst at Bloomberg Intelligence. “They’re expressing a willingness to right the ship and not being in denial that there’s a problem.”

The markets responded favorably. SunEdison shares, which have slumped more than 99 percent since July and are now below $1, climbed 58 percent to 59 cents at the close in New York.

SunEdison spent much of 2014 and 2015 on a multi-billion-dollar buying binge, snapping up wind and solar projects and developers on six continents. On the way to becoming the world’s biggest clean-power company, it also racked up almost $11.7 billion in debt, as of Sept. 30.

The report concluded that SunEdison’s cash-forecasting efforts “lack sufficient controls,” and were sometimes based on assumptions that were “overly optimistic.”

Doubts over SunEdison’s finances began several months ago. Inquiries by current and former SunEdison employees into the accuracy of its anticipated financial position prompted an internal review late last year. The Securities and Exchange Commission is also investigating the developer’s finances, and the U.S. Justice Department in March subpoenaed SunEdison for information about its failed $1.9 billion acquisition of Vivint Solar Inc.

Vivint Deal

According to the filing, an unidentified non-executive employee was fired for actions related to the Vivint deal, which weren’t described. Vivint scrapped the acquisition last month after SunEdison missed some deadlines.

“It seems like to some degree one guy is blamed for everything,” Gordon Johnson, an analyst at Axiom Capital Management, said in an interview Thursday. “That’s hard to stomach given how robust and how complex the capital structure is.”

Given the company’s heavy debt level and complicated finances, Johnson expressed doubt that SunEdison will be able to avoid seeking protection from creditors. “Even if there’s no fraud or accounting improprieties, I still think there’s a high probability they file for bankruptcy,” he said.

SunEdison yieldco units TerraForm Global Inc. and TerraForm Power Inc. have both said in recent weeks that there’s a “substantial risk” their parent will seek bankruptcy protection.

In the filing Thursday, SunEdison said tighter financial controls, greater transparency and the appointment of new Chief Financial Officer Ilan Daskal will help remedy its liquidity management practices. Daskal recently replaced Brian Wuebbels.

“Investors always value transparency, but at this point it seems like the shot clock has been run down since SunEdison skipped an interest payment,” Greg Jones, an analyst at CreditSights, said in an e-mail Thursday.

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