shares sank to a52-week low on March 29 after it was reported the SEC is investigating thecompany's cash disclosures and an affiliate warned that the project developercould be headed for bankruptcy.
Theone-two punch drove SunEdison's stock price down 60% to 50 cents per share at11:30 a.m. ET on March 29. The company's unsecured convertible notes thatmature in 2020 were trading for about 4 cents on the dollar, according toS&P Global Market Intelligence.
Dueto "liquidity difficulties, there is a substantial risk that SunEdisonwill soon seek bankruptcy protection," TerraForm Global Inc., one of SunEdison's yieldcoaffiliates, said in a Form 8-K that was filed March 29 before markets opened inNew York.
Lateon March 28, The Wall Street Journal reportedthat SEC investigators are probing disclosures SunEdison made about how muchcash it had on hand. Analysts at CreditSights in the past pointed to aninvestor presentation that included incremental "warehouse" capacityand restricted cash as potential sources of liquidity.
SunEdisonhas twice delayed filing its Form 10-K, due in part to internal audit committeeinvestigations of thecompany's "anticipated financial position" and in its financialcompliance procedures. SunEdison risksdefaulting on a loan if it does not provide lenders with audited financialstatements by March 30. An event of default would be declared after a 15-daycure period, according to a letter of credit.
Untilabout eight months ago, SunEdison was seen as one of the "best-positionedsolar companies on the planet," S&P Capital IQ analyst Angelo Zinowrote in a March 29 note to clients. The company was an outspoken proponent ofthe yieldco business model that renewable energy companies turned to in aneffort to tap cheap sources of capital. Developers created publicly tradedaffiliates that could raise cash from equity markets in order to buy theirsponsor's contracted assets.
SunEdison'sdramatic collapse started in July 2015 when a costly buying spree collided witha downturn in the yieldco market. The company quickly found itself unable totap equity markets to fund acquisitions and raise cash for project development.Zino said a bankruptcy filing could be days away. "Our view is that thelifeblood of the industry hinges on access to financing and [SunEdison's]inability to obtain capital means its time may be running out," he said.
ASunEdison spokesman did not respond to a message seeking comment.
"BREAKING:Lack of basic common sense about how Financial engineering works driving demiseof great company," Generate Capital Inc. President Jigar Shah, who foundedSun Edison LLC, tweeted on March 29. Shah said SunEdison has been plagued bycash-management problems, compounding trouble stemming from the company'swillingness to overpay for assets.
SunEdison'sproblem is not that it grew too quickly, Shah said, but that it grew stupidly.
Atthe end of September 2015, SunEdison had $11.74 billion in total debt and $9.9million in earnings before interest, taxes, depreciation and amortization,according to S&P Global Market Intelligence. The company has not releasedfinancial results for the fourth quarter of 2015.
Withoutaccess to capital markets, work on at least some of SunEdison's projects hasground to a halt. Solar and wind projects in Uruguay and India are delayed,TerraForm Global said. In February, HawaiianElectric Co. Inc. canceled power purchase agreements with threeSunEdison solar projects because the developer missed financing deadlines.
SunEdisonplanned to sell the equity interest in the Hawaii projects as part of a largerportfolio of assets to an investor group that includes in exchangefor retiring more than $336 million in debt. D.E. Shaw, which still wants tobuy the projects, asked Hawaiian Electric to reinstate the contracts. However,the utility, a subsidiary of HawaiianElectric Industries Inc., is worried that the solar farms could getdragged into a SunEdison bankruptcy.
HawaiianElectric President and CEO Alan Oshima gave D.E. Shaw until April 1 to submit aformal proposal "addressing our bankruptcy concerns and containingenhanced terms and conditions."
RebeccaDayhuff Matsushima, the utility's senior associate general counsel, told theHawaii Public Utilities Commission that D.E. Shaw could have bought theprojects before the power purchase agreements were terminated "but chosenot to as D.E. Shaw was insistent on completing financing prior to completingthe purchase." Transferring the projects to D.E. Shaw would allowSunEdison to retire $90 million of debt.
SunEdison'smounting financial problems are causing trouble for its yieldcos. TerraFormGlobal and TerraForm Power Inc.have delayed filing their own Form 10-K reports, saying they found materialweaknesses in their own compliance procedures. TerraForm Global blamedSunEdison's "ineffective controls over accounting consolidation andreporting system," which the yieldco relies as part of a managementservices agreement.
ASunEdison bankruptcy "would have a material adverse effect on TerraFormGlobal given our reliance on SunEdison," the yieldco said in the SECfiling. However, TerraForm Global "does not rely substantially onSunEdison for funding or liquidity," the company added, saying it "willhave sufficient liquidity to support its ongoing operations" if itssponsor seeks bankruptcy protection.
TerraFormGlobal shares were down about 16% at $2.11 at 2:50 p.m. ET on March 29. Sharesin TerraForm Power were down about 1.5% at $8.35. Zino of S&P Capital IQlowered his 12-month price target on SunEdison to 50 cents per share from $3per share.