SunEdison Officially Files For Chapter 11 Bankruptcy Protection

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After months of rumors and over a year of catastrophic business dealings, SunEdison has filed for chapter 11 bankruptcy protection in the US.

A Brief and Torrid History

It’s been a long road since SunEdison announced its acquisition of First Wind back in November, 2014, in a deal worth $2.4 billion that would result in SunEdison becoming the world’s largest renewable energy development company. Since then, as has already been widely and thoroughly documented, SunEdison’s rise and subsequent fall from grace has been nothing less than catastrophic.

SunEdison started December 2014 with shares sitting around $20, eventually climbing to around $32 in June and July of 2015, before falling off a cliff-face to end August around $10 per share — a trend which continued through to yesterday, when the company’s shares finished at $0.34.

 

Chapter 11

In a press release published Thursday evening, SunEdison revealed that it “has commenced a process to restructure its balance sheet and position the Company for the future.” Subsequently, “SunEdison and certain of its domestic and international subsidiaries have filed voluntary petitions for reorganization under chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court for the Southern District of New York” — however, its two publicly-traded yieldcos, TerraForm Power and TerraForm Global, are not part of the filing, and currently remain independent.

“Our decision to initiate a court-supervised restructuring was a difficult but important step to address our immediate liquidity issues,” saidAhmad Chatila, SunEdison chief executive officer.

“The court process will allow us to right-size our balance sheet and reduce our debt, providing the opportunity to support the business going forward while focusing on our core strengths. It also will facilitate our continued work towards transforming the Company into a more streamlined and efficient operator, shedding non-core assets as well as taking other steps to help us get the most value out of our technological and intellectual property. As a result of this process, we expect that SunEdison will be in an even better position over the long term to utilize our capabilities in the renewable energy sector in service of our customers, business partners, and employees.”

SunEdison also announced that it had acquired new capital totaling $300 million in debtor-in-possession financing from a consortium of first and second lien lenders. SunEdison has said that the new financing will support day-to-day operations during the reorganization, including:

• Proceeding with work on ongoing projects, both in the U.S. and elsewhere
• Paying wages and benefits for employees
• Continuing to provide services to customers
• Paying vendors and suppliers in the ordinary course for goods and services provided on or after the date of the chapter 11 filing
• Complying with all regulatory obligations.

Yieldcos Weigh In

To coincide with their parent’s announcement, both TerraForm Power and TerraForm Global published press releases separating themselves from the bankruptcy filing in an attempt to allay investor fears.

“TerraForm Power and its sister company, TerraForm Global, Inc., are not part of the SunEdison bankruptcy filing and have no plans to file for bankruptcy themselves,” they wrote in near-identical press releases. “TerraForm Power and TerraForm Global are publicly listed companies that are separate legal entities and are traded separately on Nasdaq. The equity interests of TerraForm Power and TerraForm Global in their respective wind and solar power plants that are legally owned by their respective subsidiaries are not available to satisfy the claims of creditors of SunEdison.”

Both companies believe they have “sufficient liquidity to operate its businesses” independent of SunEdison, though they acknowledge that “SunEdison’s bankruptcy will present challenges.” Both yieldcos expect “to continue to operate in the ordinary course and to meet its financial obligations on a timely basis,” and both companies expect SunEdison to continue to be “an important partner” while also coordinating “with SunEdison so that the Company’s facilities and their operations continue to perform uninterrupted.”

Reaction

Unsurprisingly, many within the industry have commented in reaction to SunEdison’s ultimate Chapter 11 filing, and often in defense of the solar industry as a whole.

“SunEdison’s bankruptcy says more about the company’s strategic decisions than about the solar industry as a whole,” said Jenny Chase, Head of Solar Insight at Bloomberg New Energy Finance. “Comparable companies SunPower and First Solar have managed a develop-and-sell business profitably over the past three years.”

“What has distinguished SunEdison has been the relentless and unfocused pursuit of growth, in which it has invested vast amounts of borrowed money. Not all of its ventures succeeded, which is inevitable in the project development business, but SunEdison’s win to loss ratio was evidently insufficient. It borrowed a lot of money and lost it – or at least tied it up in projects at various degrees of completion, which it needs to sell to realise the gains and pay back creditors. On the eve of the bankruptcy filing, these projects were for sale.”

Joining in the defense of the solar industry was Dan Whitten, Vice President of Communications for the Solar Energy Industries Association.

“This is a highly competitive industry with a massive upside,” said Whitten. “As with other rapidly growing and successful industries, not every company in the solar market is going to stand the test of time. SunEdison is just one company and today’s development does not reflect a trend of the broader industry. The solar industry is growing at warp speed. It took us 40 years to get to 1 million installations (which we have just done) and it will take us just two more years to hit 2 million and that, I think, illustrates the direction of the solar industry.”