Mercom Capital Group's Raj Prahbu predicts a slight chance that SunEdison could emerge from chapter 11 filings.
SunEdison can emerge from the other side of the restructuring process following its Chapter 11 filing under the US Bankruptcy Code, according to Raj Prahbu, CEO of market intelligence firm Mercom Capital Group.
The world’s former "largest renewable energy company" owes its upstream suppliers more than US$321 million and harbours listed liabilities of up to US$50 billion. Despite securing US$300 million in debtor-in-position (DIP) financing from first and second lien lenders, the embattled wind and solar giant entered the restructuring process last week.
“Restructuring is always a tough deal once you enter chapter 11,” Prahbu told PV Tech. “Chances of coming out successfully are very small, but it can be done. [SunEdison] have the resources; some of their big investors are big names, hedge funds and private equity funds. So they can come out.”
Whilst many analysts are drawing a blank as to the future direction of the former acquisition enthusiast, Prahbu cites a similar situation from 2009 as proof that while difficult, emerging from chapter 11 is not impossible:
“For example if we take General Motors in the US, during the recession they had similar problems. They…went down and went into chapter 11 [but] the government provided a lot of funding and they have been doing really well. It can happen.
“But the chances of success of coming out of chapter 11 and doing great – I’ve heard it’s around 10% – but it can happen. So if they come back, obviously they cannot do what they were doing before. I would expect management to change and the strategy to get much smaller…it might be based completely on how to get project development done to feed the yieldcos and keep that model going; but whatever they are going to do is going to be much smaller scale and more conservative, because investors are going to be very sceptical to jump back on that wagon again, for a while.”
Whilst SunEdison’s future is presently bleak, Prahbu was adamant that the solar industry’s as a whole, is not.
“I don’t want anyone to think, especially investors, that SunEdison is a reflection of the whole solar industry – it is not at all. It was just mis-managed and the management got a little greedy and then they overreached, and tried to do too much, and took on too much debt, which is always bad for any sector.”
The immediate future of SunEdison’s two yieldcos, TerraForm Power and TerraForm Global is equally ominous, considering the model they have always followed required their sponsor, SunEdison, to supply their projects. With TerraForm Global suing SunEdison for US$231 million, the relationship is obviously strained at best. Despite being separated from the bankruptcy proceedings, the yieldcos have not been left in an ideal position.
“The yieldcos in general I would say got affected a lot by SunEdison mismanagement,” said Prahbu. “They were one of the first ones to come out and make this model popular, and once they went down, I think investors generally got very sceptical about yieldcos in general – even though they work very well – there is nothing wrong with the yieldco model….but the way it was run was just a nightmare.
There is a lot of potential for the yieldcos to continue however, as they have a strong investor base and do not necessarily need to depend on their parent company for projects. Unfortunately, third party projects would likely invoke less of a return.
“Because of [SunEdison’s mismanagement] yieldcos which were very well managed have suffered. I hope perception will change in the future. But it’s a little dicey for SunEdison’s yieldcos; how they will strategise and move forward in terms of business model.”
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