Sun sets on SunEdison

June 2016 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Renewable energy firm SunEdison Inc, the former darling of Wall Street, has enjoyed a meteoric rise in the world of renewables. Following the decision to change MEMC Electronic Materials’ name to SunEdison in 2013, the company became the poster child for the clean energy boom. However, as rapidly as the company expanded, it has now collapsed. The company, which was worth around $10bn in 2015, has filed for Chapter 11 bankruptcy protection.

SunEdison had been subject to months of speculation about its financial future before finally succumbing to its fate in late April. For months analysts had questioned the company’s overreaching ambition and its poorly handled acquisition strategy. The company aggressively used debt and ‘yieldcos’ – companies created to own and operate power plants – to facilitate its rapid growth, yet the firm tried to grow too big, too quickly and in too many different directions. Rather than focus on one element of the renewable space the company appeared to spread itself too thinly.

SunEdison borrowed heavily to complete acquisitions of wind and solar developers, building up a considerable debt load in the process. With investor sentiment turning against the firm, and increasing pressure on the company, SunEdison’s future had appeared contentious for a while. The drop in the price of fossil fuels has also had a significant impact on the clean energy space, and no doubt contributed to SunEdison’s difficulties. Indeed, thanks to recent volatility in oil prices, renewable energy has become much more expensive in comparison.

Given the difficulties experienced in the renewable space, and the conjecture around the company’s future, it was no surprise when SunEdison filed for Chapter 11. In its court documentation the company listed assets of $20.7bn and liabilities of $16.1bn as of 30 September 2015. The company’s bankruptcy appears to be one of the biggest non-financial bankruptcies of the past decade. “Our decision to initiate a court-supervised restructuring was a difficult but important step to address our immediate liquidity issues,” said the firm’s chief executive, Ahmad Chatila. “The court process will allow us to right-size our balance sheet and reduce our debt.”

Despite the doom and gloom, the company has high hopes for its restructuring, Mr Chatila believes that the reorganisation process will allow SunEdison to transition “into a more streamlined and efficient operator, shedding noncore assets as well as taking other steps to help us get the most value out of our technological and intellectual property”. Furthermore, the company has secured $300m in financing in order to ensure the smooth running of its operations. SunEdison expects to continue its ongoing projects and will continue to pay wages and benefits to staff moving forward.

Should SunEdison be able to successfully complete its restructuring, the company will be ideally placed to benefit from the strong investment market for solar and wind developments. In 2015, a record $330bn was invested in the renewables space. With the G20 group of nations pledging to curb greenhouses gas emissions, the outlook for the sector appears strong, particularly in the US.

Regardless of how the company’s restructuring progresses, there are still a number of difficulties that the company must overcome in the future. SunEdison executives are under investigation by the Department of Justice and the Securities and Exchange Commission regarding allegations that they misled the general public over the company’s financial difficulties. Prior to the company’s bankruptcy filing, SunEdison’s independent directors announced that they believed that management had an “overly optimistic culture” which was facilitated by a lack of sufficient controls around forecasting efforts and wrongdoing by a former non-executive.

The DoJ and the SEC are also believed to be investigating the company over its failed deal to buy Vivint Solar. SunEdison’s $2.2bn cash-and-stock deal for Vivint collapsed in March, after SunEdison failed to close on the acquisition within an agreed timeframe. The company’s inability to complete the Vivint deal was the catalyst for the loss of investor confidence in SunEdison, and in many respects the company has been unable to recover since that failure.

TerraForm Power and TerraForm Global, two of SunEdison’s listed affiliates, have announced that they are not involved in the Chapter 11 filing. In a joint statement, the two firms said they had “no plans to file for bankruptcy themselves”. TerraForm Global is in the process of suing SunEdison for breach of contract; the yieldco claims that SunEdison misappropriated $231m of TerraForm’s cash.

Richard Summerfield