SunEdison Creditors Seek to Undo Lenders’ ‘Sweetheart Deal’

  • Renewable-energy company hid ‘toxic’ finances, suit alleges
  • Unsecured creditors seek ‘hundreds of millions’ back

SunEdison Inc. hid its “toxic” financial state while granting hundreds of millions of dollars in benefits to its most powerful lenders before its April bankruptcy, creditors of the clean-energy giant say in a lawsuit that seeks to claw some of the money back.

Thursday’s lawsuit comes as SunEdison attempts to sell off assets, including yieldcos TerraForm Power Inc. and TerraForm Global Inc., while in bankruptcy -- and more than a year after the developer’s finances began deteriorating.

In January, in an effort “to put off the day of reckoning” for alleged financial manipulations and to hide a failed business strategy and mismanagement, SunEdison gave a “sweetheart deal” to its first- and second-lien creditors through a series of transactions,” according to the lawsuit, filed in Manhattan as part of the company’s bankruptcy.

Having already raised $24 billion in debt and equity since 2013, but in a bad financial state, the company didn’t want to seek out new lenders, the creditors allege. Instead, it turned to existing lenders and replaced their unsecured notes with secured debt that would give them a leg up in any bankruptcy, they say.

In January, SunEdison arranged a two-tranche $725 million second-lien term loan. It also completed a series of “exchange transactions” for either debt or equity of SunEdison, according to the creditors.

Given its undisclosed financial condition, SunEdison knew that the transactions, “by pledging whatever remaining unencumbered assets they had to their secured creditors, would hinder, delay and defraud their existing and future unsecured creditors not if but when the money to perpetuate their financial improprieties eventually ran out,” the creditors say in the suit.

John Dubel, SunEdison’s chief executive officer, declined to comment on the case. The company hired Dubel as chief restructuring officer after it filed for bankruptcy and appointed him CEO in June.

Buying Binge

SunEdison became the world’s largest clean-energy developer through a global buying binge for wind and solar farms, using cheap easy debt to fuel some of the shopping spree.

In June and early July 2015 alone, the company announced or closed four acquisitions, pushing its shares to $31.66 on July 20. But that date also marked the start of SunEdison’s undoing. That day, it announced it would pay $2.2 billion for rooftop solar installer Vivint Solar Inc., a 52 percent premium.

SunEdison executives attempted a series of fixes to shore up the balance sheet. In November, seeking funds to make a payment on an imminent margin-loan deadline, SunEdison allegedly misrepresented its financial health, withheld details about the deadline and ousted several independent directors at the TerraForm yieldcos, according to lawsuits filed against SunEdison prior to its bankruptcy. One of the suits called the culmination of that 11-day stretch the “Friday Night Massacre.”

In March, the Vivint deal collapsed.

Delayed Bankruptcy

The latest lawsuit is against first-lien lenders represented by Wells Fargo Bank NA and second-lien lenders represented by Wilmington Savings Fund Society FSB, and names dozens of lenders including Apollo Capital Management LP, BlackRock Financial Management Inc., Cerberus Capital Management LP and Goldman Sachs Bank USA. 

A Goldman Sachs spokesman declined to comment, and a spokesman for Apollo didn’t immediately address an inquiry. Spokesmen for Wells Fargo, Wilmington, BlackRock and Cerberus didn’t immediately return calls seeking comment.

The creditors also accused the parties of gaming federal bankruptcy law’s time limits on recovering so-called fraudulent transfers. 

“The secured lenders made sure the debtors waited exactly three months and ten days to file for bankruptcy, thus avoiding the 90-day window applicable to preferential transfers under the Bankruptcy Code for non-insiders,” according to the suit.

The filing describes in heavily redacted passages actions taken by then-Chief Financial Officer Brian Wuebbels and Vice President Jeremy Avenier but doesn’t name them as defendants. SunEdison terminated Wuebbels in May. He left the company the following month.

A lawyer for Avenier, Wuebbels and other SunEdison executives named in shareholder lawsuits against them didn’t immediately return a call seeking comment. Officials at Kobre & Kim LLP, the New York-based law firm that filed the suit, also didn’t immediately return a call.

The case is In re SunEdison Inc., 16-10992, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The lawsuit is Official Committee of Unsecured Creditors v. Wells Fargo Bank NA, 16-ap-1228, in the same court.

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