Aninternal investigation of SunEdisonInc.'s finances found "no substantial evidence" of fraudor willful misconduct of management, though it did identify an "overlyoptimistic culture" that influenced cash forecasts provided to the boardof directors, the company said in an SEC filing.
Triggeredby allegations from inside the company in late 2015 and early 2016, theprobe of SunEdison's "anticipatedfinancial position" added to pressure that has been building sincemid-2015 when investors started scrutinizing the project developer's ballooningdebts and murky financials. SunEdison warned that, depending on the outcome ofthe investigation, it could have to reassess its liquidity position.
Basedon the review, which was aided by independent counsel and accounting andfinancial advisors, SunEdison's independent directors are requiring the companyto implement a new cash-forecasting system with controls to manage, monitor andcommunicate changes in the outlook directly to the board, according to theApril 14 filing. The independent directors are also demanding more transparencyregarding cash management practices.
Thosemeasures responded to findings that the company's cash forecasts lackedsufficient controls; that assumptions about cash forecasts were overlyoptimistic and that deeper discussions by the board about risks and adjustmentswere warranted; that management did not respond "appropriately" whenforecasts were not met; and that controls for managing cash flows wereinsufficient and disclosures to the board were not comprehensive or timely.
Theprobe, as well as "material weaknesses" found in SunEdison'sfinancial compliance procedures, forced the company to the filing of its 2015 financialreport. It is not clear if SunEdison will be able to file the report now thatthe audit committee probe is complete.
Complicatingmatters for the company, the annual report, which has been delayed twice, wasdue to lenders by March 30 under the terms of a letter of credit. An event ofdefault would be declared after a 15-day cure period, according to the $750million letter of credit. The facility was backing up $716 million of outstanding third-partyletters of credit as of Sept. 30, 2015.
Accordingto a lawsuit filed against SunEdison by TerraForm Global Inc., one of its yieldcos, formeryieldco executives in October 2015 raised concerns with SunEdison's board ofdirectors "about the extent of SunEdison's liquidity and the accuracy ofSunEdison's public statements regarding its financial condition."
InNovember 2015, a little more than a week after SunEdison told analysts that ithad around $1.4 billion in cash, TerraForm Global management learned thatSunEdison needed $100 million to repay a margin loan.
Theconclusion of the internal investigation is not the end of SunEdison'sproblems. The company missed a bond payment April 1. A grace period extendsthrough May 1.
"Whatwe find troubling is that the missed interest payment was only for $2.6 millionand [SunEdison] reported in an [investor relations] presentation that it hadover $50 million in cash" as of the fourth quarter of 2015, CreditSightsanalyst Greg Jones said in an email April 13.
Thecompany is also under investigation by the Department of Justice and the SEC.
Thecompany did note that a former "non-executive" employee wasterminated as a result of alleged wrongdoing in connection with negotiationsover the termination of the VivintSolar Inc. acquisition.
SunEdisonshares were up just over 72% at 64 cents at 9:51 a.m. ET on April 14.