SunEdison Scrambles to Secure Creditor Deal on Bankruptcy Loan

  • Yieldcos seek assurance company can pay for its own wind-down
  • Hearing to resume Friday on $1.34 billion financing package

SunEdison Inc. is trying again to hammer out a deal with creditors for a loan the renewable energy giant says it needs to avoid an immediate “fire sale” liquidation.

A hearing Thursday before U.S. Bankruptcy Judge Stuart Bernstein in Manhattan was halted after a hallway negotiation failed to completely resolve objections from creditors who said the company will probably liquidate even if it does get the $1.34 billion financing package. 

SunEdison will go before Bernstein again Friday in an effort to avoid a frantic sell-off of its assets. With the so-called debtor-in-possession, or DIP, financing in place, a reorganization is possible, while a wind-down would be more orderly and bring better returns for creditors, the company has said in court filings.

The loan should be approved “because it’s the best we could get, and because we need the money,” Jay Goffman, a lawyer for SunEdison, told Bernstein Thursday.

Creditors disputed how much new money the loan would actually bring the company, as opposed to just repackaging existing debt. They also bridled at the amount of control that SunEdison was ceding to the DIP lenders, saying it would give them exclusive rights to decide whether to liquidate the wind and solar energy developer as early as next week.

Yieldco Pushback

The DIP proposal also drew fire from yieldcos TerraForm Power Inc. and TerraForm Global Inc. -- public, non-bankrupt companies that SunEdison created to buy the wind and solar projects it develops. They said in court papers that the loan would leave the company unable to meet the expenses of its own liquidation, a worst-case scenario in bankruptcy known as administrative insolvency.

Andrew Dietderich, a lawyer for the TerraForms, said after Thursday’s hearing that his clients would support a loan if it includes assurances “that SunEdison can pay its administrative liabilities reliably.”

Goffman said he thinks a resolution is close.

“I believe the parties want to reach a deal,” he said in an interview after court adjourned. A meeting with creditors was set for Thursday afternoon. The yieldcos were invited, too, Goffman said.

“Anyone who would be reasonable can be part of this deal,” he said.

Biggest Creditors

Together, the TerraForms are among the company’s biggest creditors. In early April, TerraForm Global filed a lawsuit accusing SunEdison of misusing $231 million of the yieldco’s cash “to prop up its flagging liquidity position.” That suit and other litigation were automatically halted by SunEdison’s April 21 bankruptcy filing.

The official committee of creditors has said that the DIP package amounts to a $1.34 billion hit to their recoveries while providing SunEdison less than $300 million in new money because the package includes fees and a “roll-up” of the old debt of some pre-bankruptcy lenders. Debtor-in-possession loans, whether they involve roll-ups or not, are the first to be repaid -- giving their providers a distinct advantage.

The committee also said the DIP package gives lenders sole discretion to liquidate the company by May 25 and comes with “so many gifts and handouts” that unsecured creditors may fare better in liquidation anyway.

‘Orderly Sale’

SunEdison, which got permission to draw $90 million on the loan package last month, has said any liquidation would be an “orderly sale process and wind-down.” It also said the ratio of new money to rolled-up debt isn’t excessive, as creditors claim.

Without the loan, SunEdison’s only option would be a “fire-sale liquidation,” Homer Parkhill of Rothschild Inc., the company’s financial adviser, said in court papers filed late Wednesday.

SunEdison will have to wait until at least June 7 to learn whether it can continue managing its own cash, after the creditor committee and holders of $1 billion in unsecured notes objected to what is usually a routine request.

In court papers, the committee said SunEdison has a “large, opaque capital structure” and other features “that have led many commentators to draw parallels with the Enron Corp. Chapter 11 cases.” 

Goffman called the Enron reference slanderous. Such “gamesmanship and false statements” are improper, he told the court.

The case is In re SunEdison Inc., 16-10992, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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