Cohocton Wind Watch: The Predetermined Death of SunEdison
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Monday, April 18, 2016

The Predetermined Death of SunEdison

I will keep the necessary introduction to the company’s activities relatively as short and sweet as possible, but it is hard. This report is mainly meant to help retail investors understand the full story and grave nature of the situation for SunEdison shareholders.

SunEdison ($SUNE) is a company that installs solar panels, and they do it in very high volumes globally. SunEdison, the company, is one of the leading forces driving the implementation of solar panels across the globe. SunEdison, the stock, is exactly the opposite.

SUNE went from all-time highs to multi-year lows in a few months time, bringing the entire solar sector along with it. The company also has public former-subsidiary companies, which is where the story truly becomes interesting.

TerraForm Power ($TERP) is SUNE’s primarily domestic-focused “yield co.” utility, and a second yield co., TerraForm Global ($GLBL), serves the same function but for emerging market assets. These companies are a key part of my thesis, so let’s keep them in mind.

SunEdison was a key participant of inflating (what I believe we will look back upon in the future) the solar bubble [along with companies like SolarCity ($SCTY)], and ultimately was the needle that popped it. I’m a believer that the industry (and stock prices of most companies) will recover in the distant future, so don’t count renewables out. It’s just been a very long time since the market has had many participants try and build a new industry, and I believe investors became over-exuberated.

This is an industry full of smart CFOs and financial engineering. But, SUNE has been the worst offender. SUNE was seen as a “roll-up”; buying tons of decent assets and companies while raising over $11 billion (yes, billion) in debt. This was somehow overlooked, and as the market cap would increase, so would the debt. Every new deal, every new debt raise, the stock went up to almost mirror the financing. Then, SUNE made “one deal too far” and made a deal with Vivint Solar ($VSLR) to buy the company for less than the VSLR IPO price, and that set off a red flag for investors. And, as the stock continued to fall from the peak the day of that announcement, debt still increased as SUNE continued operations.

So now, here we are just a few months later and the company is worth around $1.5B with still no real dent into the debt payments. Along with the rapid decline in stock price, the yield co.’s stock prices have been nearly equally as damaged.

History lesson over.

Now it is time to focus on the daughter company TerraForm Power. Both TERP and SUNE reported their quarters, 11/9/15 and 11/10/15, respectively, and provided details regarding future deals and projects; normal company-type things. The key takeaway from these conference calls & presentations was actually from the TERP call, where it was mentioned that two deals still have to close by the end of 1H16: The purchase of private company Invenergy’s wind power assets, and also the acquisition of Vivint Solar.

These two acquisitions are key in turning Terraform Power into an even more diverse renewable utility with the addition of more wind turbines and then residential solar. To be clear, in order to be a successful & sustainable business, these assets are not necessary for TerraForm Power. What they do, however, is rapidly grow the distribution paid to Daddy, SunEdison. Currently, SUNE is receiving distributions from TERP, and GLBL will follow [in a time period I don’t recall but don’t care to look up because it won’t matter anyway. It’s in the GLBL IPO filing if you really must know.].

What’s my point? How about I take some time to put all of the pieces together in what I believe to be the correct order. This is a very well-organized game of chess.

My thesis:



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