The Dark Side of Acquisitiveness

SunEdison Inc. filed for bankruptcy protection after a two-year, $3.1 billion acquisition binge that drove its debt to unmanageable levels and sent investors running for the exits.

The clean-power giant listed $16.1 billion of debt in Chapter 11 filings Thursday in Manhattan federal court, making it the biggest U.S. bankruptcy in more than a year. While the buying spree ultimately did SunEdison in, the bankruptcy comes as energy companies of all sorts are succumbing to a slump in prices.

The company's business model—building clean energy plants around the world and then spinning them off to publicly held companies it controls—may also complicate its reorganization effort. While two of its best known companies, TerraForm Power Inc. and TerraForm Global Inc., are not part of the bankruptcy, SunEdison acknowledged responsibility for some of their debt in court papers.

“SunEdison will have to figure out what to do with its interests in the TerraForm entities,” Julia Winters, an analyst with Bloomberg Intelligence said. “Are they going to give equity interest in the TerraForms to its creditors on account of their debt?”

TerraForm Power was founded as an indirect unit of SunEdison to buy the parent's clean-energy power plants. Shares and other assets owned by the publicly traded company and its sister entity, TerraForm Global, aren't available to help pay SunEdison's debts, it said in a statement Thursday.

The companies, which haven't yet filed their 2015 annual reports, “have no plans to file for bankruptcy,” according to the statement. The units have hired AlixPartners LLP as a financial adviser to protect their financial interests in any reorganization, two people familiar with the situation have said.

In its bankruptcy filing, SunEdison also listed more than $750 million worth of unsecured claims that it plans to dispute, including $200 million allegedly owed to the Brazilian renewable energy company, Renova Energia SA.

Liquidity Issues

Bankruptcy was the best way to deal with a cash crisis, SunEdison said Thursday. Its shares plunged to less than 40 cents before trading was suspended.

“Our decision to initiate a court-supervised restructuring was a difficult but important step to address our immediate liquidity issues,” SunEdison CEO Ahmad Chatila, said in a statement. The company will use the bankruptcy process to cut debt and shed “non-core assets,” he said.

SunEdison has commitments for $300 million in financing to support day-to-day operations during the reorganization. The money is being supplied by a group of first- and second-lien lenders, the company said in the statement. In court papers, the company said it may also refinance as much as $350 million worth of second-lien loans and second-lien notes.

The $300 million loan will help stabilize some of the company's unfinished projects while it restructures, Jenny Chase, an analyst at Bloomberg New Energy Finance, said in a research note Thursday.

Many Faces of Trouble at SunEdison

SunEdison's spending spree ended in March when the company's $1.9 billion deal for Vivint Solar Inc. fell apart. Federal regulators are probing the canceled sale, and Vivint has filed suit.

The Maryland Heights, Missouri-based company began its shopping binge in 2014, buying up wind and solar projects on every continent except Antarctica. At first the market responded positively, driving SunEdison's shares to a peak of $32.

Investors began to question the company's business model when it announced plans to purchase Vivint in July at a 52 percent premium. At $2.2 billion, it would have been SunEdison's biggest deal. Furthermore, Vivint installs rooftop solar systems, a very different market from SunEdison's other acquisitions, which were mainly big, utility-scale power plants.

The transaction was delayed, renegotiated down to $1.9 billion, and finally canceled in March when lenders pulled financing after SunEdison said it needed more time to prepare its 2015 annual report. Analysts were left wondering whether a lawsuit over the failed deal would drive the company into bankruptcy.

The company's troubles have been manifold. It recently disclosed that it received a subpoena from the U.S. Justice Department and a similar inquiry from the Securities and Exchange Commission. The government is seeking information about the scrapped Vivint deal and the conduct of a former employee alleged to have committed wrongdoing “in connection with the Vivint termination negotiations,” SunEdison said in a regulatory filing.

This month, SunEdison said an independent counsel hired by its board identified “wrongdoing” by a former employee and an “overly optimistic” culture fostered by management. According to the company, an unidentified non-executive employee was fired for actions related to the Vivint deal, which weren't described.

There are also squabbles involving TerraForm. Two creditors have sued TerraForm Power seeking $231 million related to an acquisition last year. TerraForm Global sued SunEdison over renewable-energy projects in India.

SunEdison hired Skadden, Arps, Slate, Meagher & Flom LLP as its main bankruptcy law firm and named as its restructuring advisers Rothschild Inc. and McKinsey & Co.'s Recovery & Transformation Services unit.

The case is In re SunEdison Inc., 16-10992, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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