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SunEdison faces more than $3B in yieldco claims

A pair of holding companies affiliated with is in talks to resolvemore than $3 billion in claims against the bankrupt renewable energy developer.

TerraFormPower Inc. and TerraFormGlobal Inc., yieldcos that were set up to buy and operate powerprojects, said SunEdison failed to meet obligations under sponsorshipagreements and interfered with their businesses.

With a number of investors in TerraForm Power,resolving the claims appears to be a critical first step for SunEdison tomonetize its yieldco holdings, which are considered central pieces of thecompany's restructuring efforts.

After "catastrophic" breaches that wiped out "alarge part" of the yieldcos' value, "We have met with SunEdison tostart settlement discussions in the hope that we can resolve these matters on aschedule that allows the collaborative exploration of strategic alternatives,"Jack Stark, chairman of both companies' corporate governance and conflictscommittees, said in separate SEC filings.

SunEdison did not immediately respond to a message Sept. 26seeking comment. In late July, the developer said it would work with bothyieldcos to "explore value creation options" for its controllingClass B shares.

SunEdison filedfor Chapter 11 protection in April in U.S. Bankruptcy Court for the SouthernDistrict of New York. The company's downfall started in mid-2015 after excitement about itsaggressive growth strategy gave way to concerns about skyrocketing debt andcreative financial practices. Before filing for bankruptcy, SunEdisonsaid it was beinginvestigated by the U.S. Department of Justice and the SEC.

Among the claims outlined by TerraForm Power and TerraFormGlobal, the yieldcos said SunEdison breached its fiduciary duty, lost businessrecords and failed to provide timely audited financial reports.

The yieldcos, which have not filed financial reports sincelate 2015, are trying to determine whether control deficiencies at theirsponsor impacted their own results. In July, TerraForm Power it could not confirm the valuationof assets it bought from SunEdison. And TerraForm Global has its sponsor of illegallydiverting yieldco funds to pay off a margin loan.

TerraForm Power and TerraForm Global said they haveestimated claims against SunEdison in excess of $1 billion and $2 billion,respectively. Unless SunEdison remedies the alleged defaults, the yieldcos saidthey are not obligated to exchange their sponsor's Class B holdings for Class Acommon stock. Transferring Class B shares is prohibited during or afterbankruptcy, the yieldcos said, while the transfer of certain Class B units andincentive distribution rights of TerraForm Power LLC and TerraForm Global LLCare subject to limitations.

"We are prepared to enforce our rights and defenses inlitigation if necessary, whether in bankruptcy court or elsewhere. However, wealso recognize that resolving our relationship with SunEdison in the courtswould be complicated and expensive," Stark said, adding that a settlement "isoverwhelmingly in the interests of both sides."