The recent global stock market sell-offs, including US majors NYSE and NASDAQ, are having repercussions for both SunEdison and its US-centric yieldco, TerraForm, according to Baird Equity Research analyst, Ben Kallo.
Kallo said in a research note to investors that the major fall in both companies' share price has made it more difficult for TerraForm to gain access to finance using its equity strategy to feed SunEdison’s aggressive growth plans.
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The challenges are compounded by recent planned acquisitions by SunEdison as the yieldco would be expanding near-term debt that would be expected to carry higher interest rates than before, due to the share values having dropped considerably.
Kallo stated in his research note: “The precipitous decline in share value makes it more difficult for TERP to finance its growth targets using equity. We believe TERP has three primary options including: (1) defer future project drop downs until shares appreciate, (2) source funds from a strategic investor or do a stock deal to purchase assets from a private equity firm, or (3) finance drops with debt. Importantly, our checks indicate new issuances by TERP would likely have higher costs than previous issuances (which are currently trading at >7% yield). Additionally, issuing new debt could cause previous issuances to further decline in value and potentially impact management’s credibility with investors.”
The financial analyst is also concerned about ‘visibility’ into SunEdison’s long-term growth plans due to the lack of clarity surrounding a “high capital cost scenario”.
The key is whether SunEdison would be forced to provide lower cost projects to its yieldco for purchase so that it can remain attractive to investors, but it would take a hit on margins in the process.
An alternative scenario raised by Kallo was that SunEdison could be forced to slow TerraForm’s growth plans, impacting its shares further.
SunEdison purchase of Vivint Solar
In related concerns to SunEdison’s and Terraform's share price fall, the deal recently agreed to purchase US-based PV installer, Vivint Solar for US$2.2 billion has come into question.
Vivint Solar stockholders were to receive US$16.50 per share from SunEdison, including US$9.89 per share in cash, US$3.31 per share in SunEdison stock and US$3.30 per share in SunEdison convertible notes, which meant SunEdison would issue approximately US$370 million of its common stock and approximately US$350 million of SunEdison convertible notes to Vivint Solar stockholders.
On paper, the current share price of SunEdison in comparison to that of Vivint Solar means the deal could be potentially delayed or withdrawn altogether.
