SunEdison Cancels Yieldco Payments, Fraying Relationships

  • TerraForms were to get up to $161.1 million in interest
  • SunEdison filed this year’s biggest bankruptcy in April

SunEdison Inc.’s already-frayed relationship with its two yieldcos unraveled a bit more as the renewable energy giant notified them it would withhold $161.1 million of interest payments from the companies.

In filings Wednesday evening, TerraForm Power Inc. and TerraForm Global Inc. said they received letters July 29 from SunEdison canceling the interest-payment agreements. The letters arrived three days before an Aug. 1 payment SunEdison was scheduled to make on TerraForm Power bonds, and about three months after SunEdison filed for Chapter 11 bankruptcy protection.

The letters show the growing distance between SunEdison and the two companies it formed to buy its completed power plants. While the developer still owns the controlling shares in both TerraForm Power and TerraForm Global, it’s now seeking to sell the stakes to help pay its debts. The two yieldcos are disputing the move by their parent to withhold payment.

“TerraForm Power contests the purported termination of the agreement and believes that the termination letter is invalid,” the yieldco said in the filing Wednesday. TerraForm Global made a similar statement. A spokesman for the TerraForms declined to comment further Thursday. A spokesman for SunEdison didn’t immediately address an inquiry, and SunEdison bankruptcy attorney Eric Ivester didn’t immediately return an e-mail seeking comment.

Credit Rating

The news didn’t rattle the yieldcos’ stocks Thursday, and is unlikely to affect their credit ratings, Swami Venkataraman, an analyst at Moody’s Investors Service, said in an e-mail Thursday. TerraForm Power was unchanged and TerraForm Global was down 0.9 percent at the close in New York.

“This development is probably not a surprise to investors, nor for the companies, who are prepared to continue servicing debt obligation as needed even without receipt of these funds from the former sponsor,” Paul Coster, a research analyst at JPMorgan Chase & Co., said in a research note.

SunEdison controls the TerraForms’ voting rights via ownership of their Class B stock, but said last month it’s looking to sell the shares as part of the largest-ever sale of clean-energy assets. TerraForm Power plans to initiate an auction to sell itself in September.

Controlling Shares

The effort to sell itself follows several moves by the yieldcos to free themselves from their founder. In April, before SunEdison filed for bankruptcy, TerraForm Global sued SunEdison, alleging that the parent misused $231 million of its cash.

SunEdison’s interest payment agreement with TerraForm Power became effective July 23, 2014 -- near its initial public offering. The yieldco, in the Wednesday filing, said the “agreement was entered into as part of a suite of contemporaneous documents comprising SunEdison’s sponsorship of TerraForm Power.”

TerraForm Power expected SunEdison to pay amounts equal to a portion of each scheduled interest payment on the yieldco’s senior notes due in 2023 and 2025, from Aug. 1, 2015, through August 1, 2017. SunEdison was expected to pay $8 million to TerraForm Power in the second half of this year, Coster said, and $16 million to the yieldco in 2017.

Payment Due

TerraForm Global, meanwhile, expected an additional $37.1 million in the second half of this year, and as much as $40 million in 2017, $30 million in 2018, $20 million in 2018 and $10 million in 2020, Coster wrote.

The yieldcos’ bonds appeared unaffected by the news, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. TerraForm Power Operating LLC’s 6.125 percent bonds due in 2025 traded at 100.5 cents on the dollar on Tuesday, down about 1/10 of a cent. The 5.875 percent bonds due in 2023 were unchanged at 100.4 cents on the dollar, according to Trace.

Terraform Global Operating LLC’s 9.75 percent bonds due in 2022 traded 99.75 cents on the dollar, down about half a cent.

SunEdison did not list the TerraForm bonds in bankruptcy documents describing its major debts. The company may have given “limited guarantees” to various renewable energy projects, but those debts are not SunEdison’s responsibility, Patrick M. Cook, a vice president in charge of corporate finance, said in an April court filing.

“This debt has recourse to those separate legal entities but no or limited recourse to” SunEdison, Cook said in the filing, without providing details on the projects or the bonds.

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