SunEdison, Becoming So Big It Fails, Prepares for Bankruptcy

Source: By DIANE CARDWELL, New York Times • Posted: Sunday, April 17, 2016

Sheep graze among solar panels installed by SunEdison in Bicester, England. Credit Andrew Testa for The New York Times 

SunEdison, which grew from making chemicals and components for solar modules to become a giant of the renewable energy business, is preparing for bankruptcy, according to a filing with regulators on Friday.

The filing signaled the potential end to SunEdison’s ambition to become the world’s leading renewable energy development company. And it comes after the fall of another clean energy company, Abengoa, which is going through proceedings in the United States and Spain as it seeks to avoid becoming that country’s largest corporate failure.

In the end, SunEdison’s fall offers a cautionary tale on the dangers of trying to grow in too many directions at once, analysts said.

“They got ahead of themselves,” said Walter Nasdeo, managing director at Ardour Asset Management, a clean energy investor. “It’s a mess.”

According to the filing, made with the Securities and Exchange Commission, the company is negotiating with creditors to finance its restructuring in a potential bankruptcy filing.

Those talks, though, are “still ongoing, and there can be no assurance that any agreement will be reached,” the company said in the filing, which included a presentation made to creditors on March 17. According to that, the company was running out of cash and would need a $310 million loan to make it through the bankruptcy process. It has already reduced staff 40 percent from October 2015 levels, a reduction it plans to push to 50 percent.

SunEdison’s precarious situation was hardly a surprise. It was once a Wall Street darling, but its stock price began plummeting last summer as investors lost confidence in the industry and criticized its decision to move into the residential rooftop solar business by trying to acquire Vivint Solar.

From the start, the Vivint deal drew resistance from prominent investors, including David Tepper, whose hedge fund, Appaloosa Management, sued to block the deal. The proposed merger was scrapped last month.

But the company’s outlook continued to deteriorate in recent weeks. One of its subsidiaries, TerraForm Global, publicly raised the possibility of its parent’s bankruptcy. In addition, SunEdison acknowledged that it was under investigation by the Securities and Exchange Commission and the Justice Department over financing activities in connection with its subsidiaries, the attempted Vivint purchase and a project in Uruguay.

Now, Vivint is suing SunEdison for failing to complete the acquisition, as are investors, creditors and one of SunEdison’s own subsidiaries.

SunEdison’s troubles stemmed from its rapid growth across several areas, analysts said. Not only did it expand its financing options with the formation of two newfangled subsidiaries known as yieldcos, but it also went on a buying spree as it moved into different kinds of energy projects. Those included forays into wind, energy storage and residential solar, while at the same time the company looked to expand its manufacturing operations in large markets like India, China and Brazil.

The result was a ballooning debt, which grew to more than $11 billion by the end of the third quarter of last year. Analysts saw signs of distress as the company used some of that money to acquire new projects to help satisfy the company’s cash-hungry yieldcos. The yieldcos are affiliated public companies that help raise cheaper capital by buying and operating the power plants that the parent companies develop, collecting the contracted electricity fees and paying the bulk of them out as dividends.

But investors in the yieldcos complained that SunEdison was improperly using their money to finance its own ventures and striking terms that were more favorable to the parent company.

“They’d kind of created a three-headed dog where all the heads were biting at each other,” said Tyler Ogden, a research associate at Lux Research.

As the pressure to raise revenue mounted, SunEdison began looking to sell off power projects and close manufacturing plants to stave off bankruptcy.

Now, it is unclear how it and its affiliates will emerge. But, analysts said, SunEdison’s difficulties were largely of its own making rather than a sign of impending doom for renewable energy.

“A company needs to focus in on one core strength,” Mr. Ogden said, “growing from that as a base instead of expanding rapidly into all possible markets, as well as different applications.”