US solar manufacturing giant SunEdison is reportedly nearing bankruptcy, the culmination of a “swift and brutal” decline that has seen the former market leader’s share price tumble 98 per cent since June of last year.
As Business Insider tells it, the former “hedge fund darling” that was once worth more than $10 billion is now valued at $150 million, with close to $8 billion in long-term debt.
BREAKING: SunEdison preparing to file for bankruptcy in coming weeks — Dow Jones, citing sources
— CNBC Now (@CNBCnow) April 1, 2016
“This is because the company’s business structure, which was once considered quite complex, was in a matter of months found to be quite simple — it simply could not generate enough cash.”
The Wall Street Journal was the first to report, on Good Friday, that SunEdison was in the process of preparing a Chapter 11 filing and was in talks with two creditor groups to obtain a loan to fund its operations during the process.
As Greentech Media has put it, the news – which saw SunEdison stock settle at a new low of 24 cents a share in after-hours trading over the weekend – is not, in itself, surprising, “but the actuality of the human and financial scale of this implosion is breathtaking.”
A review of the company’s “disastrous March” includes a $2 billion deal to buy Vivint Solar’s portfolio of residential rooftop PV assets. The deal – which was characterised by a major investor as “an unfortunate departure” from SunEdison’s business model – went spectacularly awry, and its failure is now the subject of an investor lawsuit, and investigations by both the US SEC and Department of Justice.
In the Australian market, SunEdison made significant inroads through its 2014 acquisition of local solar installer Energy Matters – a deal that was sealed soon after the US company secured $70 million of finance from the Clean Energy Finance Corp towards a major Australian solar leasing initiative.
More recently, SunEdison was named as the co-developer with Australia’s Solar Choice of the proposed 2GW Bulli Creek mega solar project in south-west Queensland, tipped to be the largest in the world once fully developed.
Construction of the project, which has planning approval for a staged deployment of up to 2GW over eight years, was tipped to start mid-way through the year, depending on the success of negotiations for a power purchase agreement.
How this and other projects might be affected by SunEdison filing for a Chapter 11 is unclear. The WSJ has reported that creditors including senior bank lenders led by Deutsche Bank were “likely to take control of the company and its portfolio of power projects.” Another group of creditors includes the hedge funds that joined in a $725 million junior-debt offering earlier this year.
As the WSJ has also pointed out, one of the major complications of a SunEdison bankruptcy filing revolves around its two YieldCos, TerraForm Power and TerraForm Global.
YieldCos are publicly traded entities that house solar and wind projects sold to them by their parent companies. And as this Energy Post article noted in July 2015, their emergence has been touted – both by investors and industry majors like SunEdison – as a market “game changer that will enable spectacular growth of solar PV.”
dAs Tim Buckley explained here in 2014, the capital recycling nature of YieldCos is use to leverage the existing knowledge, management expertise and asset base of global utilities.
“Utilities can recycle their capital by selling off fully operational, technologically proven renewable assets and then reusing the proceeds to develop new renewable projects.”
On top of this, they are supposed to be safe bets for people looking to invest in the volatile solar market.
The decline of SunEdison has brought this last point into question, although market watchers have said the current state of affairs at SunEdison is more a reflection of the company’s business strategy – the subject of a legal challenge by US hedge fund Appaloosa – than the yieldco structure itself.
According to the WSJ, SunEdison’s YieldCos “are in far better financial shape than SunEdison”, although they still depend on it “for many services.”
The YieldCos “don’t plan to file for bankruptcy protection, but their shares represent much of SunEdison’s value,” the paper said.
Whatever happens, don’t expect a rapid resolution. As an unnamed industry expert told GTM: “Given the complexity of the SunEdison financings, I can see this bankruptcy taking a while to sort out. Lawyers will make a lot of money.”