We are witnessing the end, or perhaps the remaking, of SunEdison, briefly the world's largest renewables developer -- and now the destroyer of $10 billion in market value.
(Breaking: Vivint Solar Pulls Out of the SunEdison Merger, Citing a 'Willful Breach' of the Agreement)
We've seen epic failure at Suntech, Solyndra and the like -- but this is in a different league.
In 2014, SunEdison jumped into deep YieldCo waters with TerraForm Power and TerraForm Global. The company made a series of large, questionable acquisitions in First Wind and Vivint, as well as a slew of lesser corporate additions.
SunEdison has not reached GAAP profitability in more than five years and lost almost $1 billion in the first three quarters of 2015. When SunEdison's stock was at its peak, the company raised debt rather than equity, and that debt load has returned with a vengeance.
It takes a very special type of ineptitude to fail on such a massive scale in what is, by most metrics, a healthy, capital-rich, high-growth renewables market. Other comparable vertically-integrated solar companies with YieldCos such as First Solar and SunPower have managed their capital, acquisitions and personnel in a much more well-paced and judicious fashion. It's evident in their steady growth, global pipeline and more-than-occasional profits.
SunEdison April 2015 to now
SunEdison shares are at $1.78 today, and the company has a market cap of $560 million. Its shares peaked at over $32 in July 2015.
Base chart: Google Finance
SunEdison's tale of woe timeline
June 2014: The launch of SunEdison's first YieldCo, TerraForm Power.
Nov. 2014: SunEdison and TerraForm acquire wind developer First Wind for $2.4 billion.
July 2015: TerraForm Global, a YieldCo focused on investment in Africa and Asia, launches.
July 2015: SunEdison's $2.2 billion plan to acquire residential installer Vivint in cash, stock and notes does not delight investors. The stock price collapses upon the announcement.
Sept. 2015: CEO Ahmad Chatila sends a memo notifying employees of a 15 percent workforce cut. GTM's Stephen Lacey reports: "Sources within the company expressed worry and surprise that the cuts didn't impact the architects of the Vivint acquisition."
Dec. 2015: SunEdison revised the terms of its acquisition of Vivint.
Jan. 2016:
- David Tepper, billionaire hedge-fund founder and 10-percent-owner of TerraForm, sues SunEdison in an attempt to block Vivint assets (and debt) from being moved to the YieldCo
- Steve Tesoriere, an activist investor and architect of SunEdison’s YieldCo strategy, resigns from the board. COO Francisco Perez Gundin and Paul Gaynor (former First Wind CEO) depart.
- SunEdison announced the pricing of $725 million of a second lien secured term loan intended to improve the company's liquidity position.
Feb. 2016:
- SunEdison named Claire Gogel, formerly of David Einhorn's hedge fund Greenlight Capital, to its board of directors. Greenlight Capital has a 6.8 percent stake in SunEdison
- Vivint Solar shareholders approve SunEdison's $1.9 billion acquisition of the residential solar company.
- Hawaiian Electric cancels three SunEdison projects on the islands worth $350 million, with $42 million already spent. Almost 100 workers lose their jobs, according to PBN.
- SunEdison to sell its Japanese solar unit to Thai oil company Bangchak for $82 million, according to Fortune.
- UBS cut its price target for the company from $2.00 to $0.75 per share. Many other equity analysts downgrade the shares as well.
- SunEdison is selling its Malaysian silicon wafer factory and plans to close its Texas polysilicon factory
March 2016:
- SunEdison delays its 2015 and Q4 financial report as it resolves two internal investigations into the accuracy of its financial disclosures.
- Goldman Sachs, Barclays, Citigroup and UBS, the banks loaning SunEdison ~$2 billion for its Vivint acquisition, “have balked at providing [the] loans” according to the The Wall Street Journal. If the deal is not closed by March 18, either party could then walk away, reports WSJ.
- SunEdison and TerraForm Power announce a $28.5 million settlement and termination of the Latin America Power acquisition.
Lawyers, suns and money
Rumors are rampant that SunEdison will file for bankruptcy this month. That might get it out of the Vivint deal, as well as pummel Vivint's stock price and prospects. Blackstone is a majority shareholder in Vivint Solar and holds convertible notes with SunEdison.
Since the "TerraForms" hold the finished projects, SunEdison's asset is really its development pipeline. Unfortunately, the Hawaiian Electric (HECO) and Latin America Power terminations "add to the concerns that SunEdison will not be able to continue developing projects," said equity analyst UBS, adding, "We have clear doubts that SunEdison will be able to hit the utility-scale and residential development targets for 2016, and we expect management to lower expectations in the near future."
What can SunEdison do in the meantime?
- With the hedge funds holding more power on the board, CEO Chatila might feel some pressure to take on a new role or spend more time with his family. Chatila, with an annual compensation of $7.7 million (according to website 24/7 Wall St.), has seen the company's stock value drop 94.5 percent in the last year.
- Renegotiate the Vivint merger
- Founder of SunEdison, Jigar Shah, said, "They should get rid of everything that is not core. Everyone who works in energy storage at SunEdison should no longer have a job."
- Partner with more stable parties such as SunPower or First Solar on crumbling HECO-like projects.
Could the company be sold and taken private? Well, there's the pressing matter of SunEdison's $11 billion debt load to be assumed by the new owner.
An investment banker colleague suggested that a Chapter 11 reorganization with a lesser debt load could be driven by Blackstone, a very interested party in this debacle deal.
S&P Capital IQ delivers a sober assessment: "While we would view a [Vivint] deal cancelation as a positive, it could result in more legal issues. In addition, SUNE has suspended preferred dividend payments, which we believe further illustrates SUNE’s highly constrained financial position. If SUNE cannot sell its existing assets, we see a greater probability for a liquidity crisis. We believe access to the debt and equity markets is elusive, given mounting issues."
It's a countdown now between the merger deal's termination date (March 18), SunEdison's declaration of bankruptcy (?), and a March 15 SEC Form 10-K filing. The clock is ticking.