SunEdison Bankruptcy Update

September is a big month for SunEdison, TerraForm Power, and TerraForm Global (SUNE, TERP, GLBL) as the lawyers continue to wrangle over what remains of last year's energy darling.

SUNE has received offers and/or locked up “Stalking Horse” agreements for over 90% of its pipeline and portfolio. Auctions are scheduled for both the Stalking Horse bids and SUNE’s ownership of TERP and GLBL (including Class B shares with 10 to 1 voting rights superiority) before the end of the month. SUNE’s advisors state that the awarding of winning bids will take only 3-4 business days following the auctions. D.E. Shaw, Madison Dearborn, Appaloosa Capital (in partnership with Canadian Brookfield Asset Management) and an unnamed Chinese energy firm are said to have the most interest in acquiring the subs. All sales of no-bid project assets previously approved by the Court are expected to close during September.

To date, the aggregate amount of offers on the table for SUNE’s portfolio is less than $500 million. However, two motions to the Court this week for sales indicate that SUNE gets little or nothing from the sales. A Texas wind project (27 MW) reported on “the books” with an asset value of $31.4 million was offered $13 million in cash but $11 million goes to pay off a Letter of Credit which was drawn on due to failure to meet project construction deadlines and the remaining $2 million goes to the project's vendors. A UK deal on the books with an asset value of $14.3 million was offered $9 million but $6 million goes to pay off non-recourse debt and $3 million goes to pay off project vendors.

The sales of Maine's Oakfield Wind (operating) and Bingham Wind (under construction) to Terra Nova (a JP Morgan fund) apparently did not go off without a hitch. SUNE/First Wind boasted prior to the construction start of both projects that they had lined up debt and equity for the full $787 million costs. Terra Nova reported in December 2015 that they had purchased the equity in both projects for a total of $202 million. However, SUNE is reporting in its June Monthly Operating Report to the Court that it still has a gross investment in Oakfield of $141.3 million ($72.5 million net with $68.8 million written off) and a net investment of $82.5 million in Bingham.

This data indicates that SUNE received far less equity investment than it had projected, and/or the cost of long term debt was far more expensive than their expectations (lowering the principal amount of the non-recourse loan), so SUNE was forced to provide the balance of investment (more project debt) with its own funds. The write-off on Oakfield shows that there was insufficient projected cash flow to cover the needs of the non-recourse debt lender and equity so SUNE was forced to take a below-market interest rate over the term of the PPA below its funding cost.

The subs are struggling and had to renegotiate their indentures last week due to default for no audited financials. They have until early December to comply. TERP ($1.2 billion loan outstanding) had to pay an upfront fee of $6.25 million, and saw its interest rate permanently increased 50 basis points to 6.375%.  They also saw an added on penalty rate of 300 basis points to 9.375% until the financials are filed but, in any case, not for less than a minimum 90 days. TERP is selling its UK portfolio and looking to sell other poor performing projects in its portfolio. This could include Stetson 2 in Maine and Cohocton in New York. Both projects showed energy rates on FERC filings for 2Q2016 of less than $22/MWH.

GLBL ($810 million loan outstanding) saw its interest rate increase from 9.75% by 400 basis points to 13.75% until it complies with providing up to date audited financial statements. 

The current “junk bond” market rate is around 7% - 8%. Given the rates TERP and GLBL are now paying, if their auctions fail to attract new deep pocket owners capable of turning the two companies around, they too may find themselves in bankruptcy or liquidation in the near future.

The Boards of both TERP and GLBL made firm offers last week to hire away two senior SUNE employees each (a CFO and COO) upon their expected departure from SUNE. There will most likely be a mass exodus of experienced employees during Sep/Oct if it hasn’t started already.

NOTES

Since SUNE filed Chapter 11 with the Court on April 21st there have been a total of 1,119 filings to date. Letters from shareholders are entertaining. There are some who insist on telling the Judge that he must appoint an Equity Holders Committee because they fund the renewables companies that will help stop climate change and save the planet.  The Message Boards on E*TRADE show that many SUNE stockholders still think that it is a good time to buy SUNE stock (trading at 5 cents per share) since they believe it will be resurrected by a white knight buyer or new fortunes in sales of unreported assets. The reorganization legal expenses are running about $40 million per month. The chances of this bankruptcy going Ch. 7 are remote. SUNE has managed to attach provisions in its PSAs for projects that would pay them bonuses 1, 2 or 3 years after a project is completed if a project outperforms minimum thresholds. While the amounts are small it is enough that payments would require an ongoing trustee to manage the recoveries. 

Bingham at last report was on schedule to go commercial sometime 4Q2016.