SunEdison poised to exit bankruptcy

Posted

16/03/2017

Author

Richard Heap

SunEdison poised to exit bankruptcy

The bust was as spectacular as the boom.

Last April, troubled US solar and wind developer SunEdison filed for bankruptcy protection after the debts it ran up during an acquisition-led growth plan in 2015 finally became too much. The slump for US yieldcos in 2015 was damaging too. 

SunEdison’s plans included major growth in wind following its $2.4bn takeover of developer First Wind, which concluded in January 2015. But, while more buyouts were announced, few of these converted – and the final decline felt inevitable.

But SunEdison is now set to embark on the long process of rebuilding. To do this, the company first has to sell its yieldcos, TerraForm Global and TerraForm Power.

This month, it has been revealed that SunEdison is set to sell the duo to Brookfield Asset Management for around $2.5bn. Brookfield is expected to acquire TerraForm Global for $787m and assume $455m of its debt; and buy 51% of TerraForm Power for $1.7bn to replace SunEdison as the yieldco’s sponsor. Hugely significant deals.

The transactions are due to close in the second half of 2017, and will give Brookfield an additional 2.1GW of operational wind farms. They will also enable SunEdison to set out its plans as it seeks to exit the bankruptcy process later this year.

We believe this will affect its strategy in a few ways.

First, without the TerraForm duo to which it can sell completed schemes, this could force SunEdison to become more of a conventional developer. In other words, it will build schemes and then sell them on the open market. Even if it was tempted to set up another yieldco structure, we can’t believe there would be many potential buyers.

Second, it will force SunEdison to focus more on its core business of solar. One side effect of its expansion binge in 2015 is it took the firm into sectors in which investors did not feel confident. The planned buyout of Vivint Solar is a high-profile example of a deal that made little sense to investors. The firm will want to focus on its strengths.

But third, we do not expect a complete exit from wind. It still makes sense for the firm to operate in wind as well as solar, because it gives it a bigger geographical reach. It may not pursue much growth in wind, but it would be crazy to leave it altogether.

We’ve had the boom and bust. Now it’s time for the re-building – and, in our view, it looks like wind should still play a role.