Through the end of 2015, TerraForm Power Inc. could not confirm the valuation ofassets it bought from SunEdisonInc., its sponsor, nor could it verify revenue recognized from itssolar projects in North America, according to SEC filings.
The accounting problems were identified in updated riskdisclosures that the yieldco released July 26 alongside .SunEdison's other yieldco, TerraForm Global Inc., has said it, too, failed to"maintain an effective control environment." Both holding companiesrely on SunEdison for financial reporting and control measures.
The yieldcos, which are believed to account for the vastmajority of SunEdison's assets, are central to the developer's restructuring inbankruptcy. In a recent financial statement filed in U.S. Bankruptcy Court forthe Southern District of New York, SunEdison only included revenue fromthird-party sales because it said pre-bankruptcy accounting for intercompanytransactions "was not always accurate."
With SunEdison shopping its class B yieldco shares, outstanding accountingissues could complicate a potential deal, Moody's Vice President and SeniorCredit Officer Swami Venkataraman said. "Unless they have clarity, it willbe hard to value" SunEdison's stake in the holding companies, Venkataramansaid in an interview July 25.
A spokeswoman for Brookfield Asset Management Inc., which it would partner with hedgefund Appaloosa ManagementLP to bid on SunEdison's shares in TerraForm Power, declined tocomment on the accounting problems the developer identified.
TerraForm Power on July 26 said it has not found anymaterial misstatements in past financial reports.
Last year, Appaloosa Management a leadership shakeup thatincluded installing SunEdison's CFO at the time, Brian Wuebbels, as the chiefexecutive of both yieldcos. The move was described as binding the family ofcompanies closer, with Appaloosa charging that it shifted SunEdison's"financial stress" on to its affiliates.
In resignation letters at the time, two of TerraForm Power'sboard members said they could no longer "protect the interests of thestockholders." TerraForm Global said in a lawsuit that SunEdison made the leadershipchanges in order to divert funds away from the company.
In its latest financial filings, the first in about eightmonths, TerraForm Power estimated that it had between $151 million and $159million in revenue during the first quarter of 2016, down from $163.3 millionin the third quarter of 2015. Cash available for distribution during the firstquarter was estimated at between $58 million and $66 million, down from $71million in the third quarter of 2015.
The company had $523 million in unrestricted cash as of June30, up from $499 million at the end of 2015. Its portfolio of wind and solarprojects in the U.S., Canada, Chile and the U.K. stands at 2,987 MW, up fromabout 1,918 MW in the third quarter of 2015.
The preliminary information was prepared for bondholders whoare being asked to waive a notice of default and to give TerraForm Power untilthe end of the year to submit its full financial reports.
Avondale Partners LLC senior analyst Michael Morosi on July26 increased his price target for TerraForm Power by $3 to $18 per share."While the equity is not without risk, the debate around [TerraForm Power]and the steps the company must take to create shareholder value going forwardare becoming clearer," he wrote in a note.
Morosi said "multiple strategic parties [are] involvedin the process" to acquire SunEdison's class B shares in TerraForm Power,"some of which could serve as ample surrogates to the projectpipeline" the yieldco lost when its sponsor filed for bankruptcy.
TerraForm Power on July 25 announced a rights agreement, orpoison pill, intendedto elicit competitive bids to counter Brookfield Asset Management and AppaloosaManagement.
"We think if [TerraForm Power] does get sold to a thirdparty the rights agreement would help cover the legal backlash fromshareholders who could potentially claim the entire company wasn't sold for aproper control premium or through a competitive bid process," CreditSightsanalysts Greg Jones and Andy DeVries wrote in a July 25 note.
TerraForm Power shares closed at $13.20 on July 26, up about1.5%.