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TerraForm Global sues SunEdison, claiming it diverted funds to pay off margin loan

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TerraForm Global sues SunEdison, claiming it diverted funds to pay off margin loan

Faced with a need for cash to avoid an imminent default on amargin loan late last year, SunEdisonInc.'s management manipulated its TerraForm Global Inc. affiliate into providing a $231 million"pre-payment" for solar projects that it was developing in India and thendiverted those funds to prop up its "flagging liquidity position," theyieldco alleged in anApril 3 lawsuit.

SunEdison management, the suit charges, "falsely represented" that TerraFormGlobal needed to make the payments in order to retain the portfolio of solar projectsin India. Instead, the funds went to pay off a margin loan, the lawsuit states.SunEdison also diverted funds earmarked for projects in Uruguay, resulting in afailure to drop down those projects into the yieldco by the promised date.

The lawsuit adds yet another twist to the unwinding of SunEdison,whose stock price closed April 4 at 21 cents a share and is widely expected to declare bankruptcy. The firm is also beinginvestigated by the U.S.Department of Justice and has been unable to file its Form 10-K for fiscal year2015 because of an ongoing internal investigation.

Among the charges laid out by the lawsuit are breaches of contractualand legal duties by the solar project developer and its senior executives, namelySunEdison CEO Ahmad Chatila, General Counsel Martin Truong and CFO Brian Wuebbels.Chatila and Truong remain on the board of TerraForm Global, for which SunEdisonholds 98% of the combined voting power. Wuebbels resigned his board position as well as his positions as presidentand CEO of TerraForm Global Inc. and TerraFormPower Inc. on March 30. Wuebbels was scheduled to be as CFO of SunEdison "no laterthan April 4."

SunEdison declined to comment on the lawsuit.

According to a timeline laid out by the lawsuit, SunEdison managementon or about Nov. 18, 2015 — just over a week after having purported to have approximately$1.4 billion in liquidity — began making inquiries about how to repay a margin loan,which was secured by the company's holdings of TerraForm Power Inc. stock.

After the management at the two yieldcos declined to make financingavailable, SunEdison moved on Nov. 20 to terminate their CEO and replaced him withWuebbels, who retained the CFO role at SunEdison. SunEdison also terminated andreplaced the yieldcos' CFO and made board-level changes and changes to the companies'"conflicts committees."

With the margin loan due within hours, Wuebbels told the newlyreconstituted conflicts committee that if the funding did not occur immediately,SunEdison would lose the India projects altogether, the lawsuit alleges. Within"minutes" of the transaction being approved, Wuebbels wired $150 millionfrom TerraForm Global's bank account to SunEdison, soon using those funds to payoff the margin loan, the lawsuit states. Another $81 million would subsequentlybe provided in a second payment.

TerraForm Global added that the original terms of the transactionprovided for a 10-day "lookback" to allow the yieldco to recall its fundsover that period, a condition that SunEdison could not have fulfilled had it beenrequested.

"The termination right and promised refund were illusory,"the lawsuit states. "Had SunEdison told Global the truth about its liquidityposition, Global would have exercised its right under the November 20 Agreementto terminate that Agreement and demand the return of the $150 million it had paidto SunEdison on November 20."

Further, the lawsuit states that while SunEdison assured TerraFormthat the India projects were on track, by Jan. 7, 2016, it had learned there were"significant delays" in construction and that there were "substantialunpaid bills" to vendors and a "sizable equity funding gap" associatedwith the projects.

The lawsuit states that SunEdison has told TerraForm Global thatdespite its $231 million prepayment, the only way for the India project to be completedis for it to pay at least $73 million more to refresh the equity.

The lawsuit alleges a similar diversion of funds related to projectsin Uruguay, which were originally promised to be delivered to TerraForm Global byDec. 31, 2015. TerraForm Global states in the lawsuit that the projects have a shortfallof at least $34 million and that construction has ceased.

The lawsuit was filed in Delaware Chancery Court.