TerraForm Power and TerraForm Global, the two yieldcos set up by now-bankrupt SunEdison, are seeking billions in settlement claims from its parent company, in the hopes of avoiding having to take SunEdison to court.
After months of silence from both yieldcos, the last fortnight has seen both TerraForm Power (Power) and TerraForm Global (Global) reveal their preliminary second quarter financial results, information regarding the “strategic alternatives” each company is taking in the wake of its parent company’s filing for bankruptcy, and most recently, has made public their claims and defenses against SunEdison.
The future of both TerraForm Power and Global has been up in the air for some time now, ever since SunEdison officially filed for bankruptcy in April — which itself came after months of speculation and poor performance from SunEdison. Once the darling of the clean energy industry, SunEdison’s share history depicts in graphic detail its failing fortunes before it was forced to file for bankruptcy.
A lot of attention following SunEdison’s filing has been on what will become of its numerous assets around the world — a story which has played out over the past few months, with companies all around the world picking up handfuls of solar projects here and there, though never enough or at suitably high prices to mitigate SunEdison’s financial woes.
However, caught amidst it all were TerraForm Power and Global, SunEdison’s US-based and global-based yieldcos, respectively.
On September 16, the two yieldcos published their preliminary and unaudited second quarter financial results. Preliminary as they were, a cursory glance reveals that Power finished the second quarter with 2,987 MW owned, took in revenue between $182 million and $190 million, but walked away with a net loss of between $20 million and $6 million. Conversely, Global finished the quarter with 917 MW owned, net revenue of between $52 million and $56 million, and a net income of at maximum $8 million.
A few days later, both companies released identical press releases announcing their intention to explore strategic alternatives, which included the possible merge or sale of its entire business.
“Our Board and management team have been working to preserve and protect stockholder value and, after careful review, we have decided that exploring all possible alternatives to maximize that value is in the best interests of all our stockholders,” said Peter Blackmore, Interim Chief Executive Officer. “With a diverse portfolio of assets and record of strong operating performance, TerraForm [Power & Global] offers a unique opportunity for a broad range of potential acquirers and investors.”
This was followed this week by another two identical press releases published by both companies making public their claims against parent company SunEdison. The full list of claims and defenses that both Power and Global are making against SunEdison can be read here, but unsurprisingly, the companies are seeking billions in settlement from their parent company. Specifically, TerraForm Power has made claims against SunEdison that are estimated to be in excess of $1 billion, while TerraForm Global has made claims in excess of $2 billion.
“TerraForm Power has lost a large part of its enterprise value as a result of SunEdison’s catastrophic breach of its sponsorship and legal duties,” said Jack Stark, Chairman of the Company’s Corporate Governance and Conflicts Committee.
“We are prepared to enforce our rights and defenses in litigation if necessary, whether in bankruptcy court or elsewhere. However, we also recognize that resolving our relationship with SunEdison in the courts would be complicated and expensive. A settlement is overwhelmingly in the interests of both sides. We have met with SunEdison to start settlement discussions in the hope that we can resolve these matters on a schedule that allows the collaborative exploration of strategic alternatives for TerraForm Power in the best interests of all stockholders.”
Specifically, both yieldcos have laid claims before SunEdison that include, without limitation (emphasis mine):
“claims for damages relating to breach of SunEdison’s obligations under the sponsorship arrangement and other agreements; contribution and indemnification claims arising from litigation; claims relating to SunEdison’s breach of fiduciary, agency and other duties; and claims for interference with and the disruption of the business of TerraForm [Power & Global] and its subsidiaries, including the loss of business opportunities, loss of business records, failure to provide timely audited financials, and the increased cost of financing and commercial arrangements.”
The only reason we have access to these claims now is that both TerraForm Power and Global are now in talks with SunEdison to resolve these claims consensually, rather than in court. These discussions are also important as both Power and Global look toward the aforementioned exploration of strategic alternatives. Both companies are also quick to note that the current negotiations may yield nothing of much value to creditors, stating that “recoveries in the SunEdison bankruptcy cannot be predicted at this time and could be insubstantial as a percentage of the face amount of creditor claims.”
In the end, it looks more and more likely that both yieldcos are going to have to rely on outright acquisitions by larger companies, and are unlikely to remain together for much longer, unless someone steps out of the shadows to purchase them both together.