On July 25, 2017, SunEdison Inc (OTCMKTS:SUNEQ), the renewable energy development company, obtained final approval for its bankruptcy plan. The company used to be one of the biggest players in the sector, thus the news for the company was covered everywhere; Bloomberg, Seeking Alpha and The Wall Street Journal reported on the news. The reaction to the announcement is demonstrated below. Have a look:
SunEdison Inc. – The bankruptcy and the Asset Sales
SUNEQ is involved in the process of developing, owning and building solar power and wind energy plants. After back to back setbacks, the firm ended up with $16 billion in debt, which led to bankruptcy in April 2016. The firm filed for Chapter 11 bankruptcy protection on April 21, 2016. The bankruptcy of the firm was fuelled by the amount of debt this firm borrowed to fuel up its growth plan. At once, SunEdison Inc. was one of the biggest prospect on Wall Street. Early on, banks were more than happy to provide the necessary financial help. In its bankruptcy filing, the company informed that it has assets of $20.7 billion and liabilities of $16.1 billion as of September 30, 2016. TerraForm Power and TerraForm Global are the subsidiary firms and had 2,987 MW and 917 MW of capacity respectively. In March, Brookfield Asset Management bought TerraForm Global and a controlling stake in TerraForm Power.
The following happened in the year 2017. On March 9, 2017, it was noted that TerraForm Power would authorize and issue some additional Class A Shares to the Company immediately before the effective time of the TERP Merger. It will hold 36.9% of TerraForm Power’s outstanding Class A Shares. The TERP Settlement Agreement also provides reciprocal releases’ claims among the company and its subsidiaries. SunEdison creditors will receive $32 million in proceeds of directors’ and officers’ insurance settlements and $18 million as a result of negotiations with the yieldcos.
The firm also announced the sale of yieldco stakes to Brookfield Asset Management Inc in March 2017. It is one of its highly valuable assets. CNH Partners, LLC and AQR Capital Management, LLC are the holders of second-lien debt. As the agreement made on exit financing, they will get 90 percent of the company’s new common stock. They will also receive rights offering designed to raise $300 million.
On April 2016, the U.S. Department of Justice conducted an investigation into the company regarding its financial practices. Reuters quoted the following from Shayle Kann, senior vice president, and renewable energy research firm GTM Research:
“SunEdison had a balance sheet that is way out of line with any other solar company.The projects themselves are good. They just bought too much to quickly.” Source
Ahmad Chatila, SunEdison Chief Executive, was also quoted saying that the company had liquidity issues. The problem was obviously not liquidity, but insolvency:
“Our decision to initiate a court-supervised restructuring was a difficult but important step to address our immediate liquidity issues” Source
Additionally, according to Reuters, SunEdison planned to file for Bankruptcy “to reduce debt, shed non-core operations and take steps to get the most value out of its technology and intellectual property.”
On July 26, 2017, Bloomberg reported its bankruptcy plan that will create a shell company. U.S. Bankruptcy Judge, Stuart Bernstein, overruled objections from shareholders as well as two investors who had opposed the company’s exit financing. The following action will wipe out billions of dollars.
The SunEdison will exit according to Chapter 11 bankruptcy, but as a much smaller company. During the Chapter 11 process, the company lost nearly all of its assets. It has a total market cap of $4.4 million. Despite filing for bankruptcy, the firm might face allegation over fraudulent activities.
What happens now and Conclusion
Lenders will run now the profitable projects that SunEdison has. They will try to transform the company, restructure and recapitalize it. Many other big corporations have gone on to similar processes. The problem is that the little guy is that one that gets screwed. To sum up, the bankers got everything here, leaving shareholders left out. If there’s any value, it will come from litigation. At the current level, we expect shareholders to be wiped out. If things change, we will inform our subscribers.
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Disclosure: We have no position in SUNEQ and have not been compensated for this article.