D.E. Shaw Bids for SunEdison’s TerraForm Power YieldcoBy
Non-binding bid made by D.E. Shaw Renewable Investments unit
‘Pedigree of the new sponsor is especially important’
D.E. Shaw & Co., a New York hedge fund that manages about $38 billion, bid to become the operating sponsor of TerraForm Power Inc., a yieldco founded and controlled by bankrupt clean-energy giant SunEdison Inc.
D.E. Shaw’s clean-energy unit D.E. Shaw Renewable Investments, or DESRI, made the bid on Oct. 21, according to a filing Tuesday. DESRI’s offer is preliminary and non-binding and didn’t include a price.
D.E. Shaw proposes to oversee TerraForm Power’s wind and solar farms and reorganize the yieldco’s project portfolio “to re-establish a growth objective, including by overseeing and executing acquisitions and divestitures of projects,” according to Managing Director Bryan Martin. In a letter dated Oct. 21, Martin said his company is prepared to give TerraForm a right of first offer on a portion of existing and future DESRI projects.
“The sponsor’s project pipeline, development capabilities and access to capital markets are all critical to the sustainability of the yieldco’s business model,” Swami Venkataraman an analyst at Moody’s Investors Service, said in an e-mail Tuesday. “Given the history with SunEdison, the pedigree of the new sponsor is especially important to restore TerraForm Power’s access to equity markets.”
D.E. Shaw owns 6.66 percent of TerraForm Power’s Class A shares, according to data compiled by Bloomberg, the fifth-biggest holder. The yieldco owns operating wind and solar farms in the U.S., Canada, U.K. and Chile, and its shares have slumped 31 percent in the past year as SunEdison’s financial woes mounted.
The hedge fund said it would “welcome a sale of the company at a fair price that properly reflects TerraForm Power’s intrinsic value,” according to the letter. “Unfortunately, a sale on such terms may not be currently possible. We believe that TerraForm Power’s current stock price reflects a significant discount to intrinsic value due to the company’s association with SunEdison’s financial distress, as well as TerraForm Power’s current operational and financial ailments.”
TerraForm Power shares slipped 0.2 percent to $13.27 at 10:15 a.m. in New York. It has a market value of $1.82 billion.
SunEdison has invited offers for TerraForm Power and sister yieldco TerraForm Global Inc. In July, the Maryland Heights, Missouri-based developer said it was working with both businesses to manage the sale of their assets, and last month the yieldcos said they’re seeking to sell themselves.
Several well-known companies have shown interest in Bethesda, Maryland-based TerraForm Power -- one of SunEdison’s prize assets. Funds of BlackRock Inc., the world’s biggest asset manager, and Golden Concord Holdings Ltd., a Chinese clean-energy group, have expressed interest in the company. Brookfield Asset Management Inc. and billionaire David Tepper’s Appaloosa Management LP had planned a joint offer, until Brookfield last month decided not to participate in an auction due to concerns about the process.
Bidders may seek all of the assets, or SunEdison’s Class B controlling shares in the yieldco, or devise a way to be a new equity sponsor for it. But a sale isn’t a given. SunEdison is also considering keeping its shares in TerraForm Power and restructuring around it.
DESRI’s portfolio of renewable energy projects currently includes 26 utility-scale wind and solar projects in North America totaling more than 1,300 megawatts of aggregate capacity.
“A strategic buyer with a proven track record in renewable development and possibly with a pre-existing project pipeline would see the most value in TerraForm Power,” Greg Jones, an analyst at CreditSights Inc., said in an e-mail Tuesday. “With a healthy sponsor, TerraForm Power could be positioned to start paying a dividend again and demonstrate some long-term growth.”
SunEdison’s Class B stake gives it about 84 percent of the yieldco’s voting rights and about 35 percent of the total shares outstanding, according to a July 26 regulatory filing.
Paul Coster, an analyst at JPMorgan Chase & Co., said in a research note Tuesday that “it is unrealistic to expect TerraForm Power to trade up immediately on this news because DESRI is unlikely to pay a premium (to intrinsic value) for these assets.”