By Laura Ojea.
The American SunEdison lives its darkest hours. One of the largest developers of renewable energies worldwide, especially photovoltaic, could be in bankruptcy although company sources have assured to EnergyNews that it is “an unfounded loss of confidence because the 2015 Q1, Q2 and Q3 results meet all expectations. “
Everything was fine, and SunEdison seemed to sail in calm waters with the perspective of exponential growth and new business opportunities worldwide. However, analysts point out that for more than five years the company has not presented a clear accounting of its income statement, despite announcing record profits in the second quarter of 2015. According to experts, operations and acquisitions would have made the company loose nearly one billion dollars in the first three quarters of 2015.
Difficulties in the capital market
In addition, last year, just as the Sun Edison shares were at their peak, the company raised its debt rather than consolidating its accounts, which has caused a suffocating financial situation. “Access to capital markets has been closed to us because of low oil prices,” explained company sources to EnergyNews, “we had to readjust our strategy and this is why, from now on, instead of acquiring new projects we will sell some in some cases and in others we are going to bet on a new investment formula which are the warehouse * “.
In 2014, SunEdison took an important step in its growth strategy, jumping into deep waters. First it acquired the company First Wind, to double its market capacity and enter the wind industry, and then it became a YieldCo ** when acquiring TerraForm Power and TerraForm Global. It also continued with the acquisitions of projects that have been put into question, but the final blow was when it initiated the acquisition of Vivint Solar, specializing in solar panels for the residential segment, because it is now becoming very expensive.
The fact is that on 8 March, the company announced that it would cancel the merger agreement with SunEdison, a deal worth 2.2 billion dollars. The board of Vivint Solar decided to revoke the operation considering that SunEdison did not meet the conditions that had been agreed in the merger agreement, and announced in a statement their intention to take legal action.
The deal was first announced in July 2015, and provided that SunEdison would pay about 1,900 million dollars for Vivint, but later the economic conditions were renegotiated to 2.200 million.
According to The Wall Street Journal, SunEdison has not fulfilled its commitment to submit their updated financial statements while this was one of the agreed conditions.
Precipitous stock market crash
A lack of liquidity by closure of the capital sources and legal problems with Vivint Solar add to another more dangerous circumstance, a lack of confidence in the stock markets. In fact, compared to about a year ago, the share price has fallen by 60.7% and analysts point to it as a low value. The debt-equity ratio is very high, higher than the industry average, implying a greater risk associated with the management of debt levels within the company, and this could lead to the inability to avoid liquidity problems in the short term.
“There are many analysts pointing us as Chapter 11, ie, at risk of bankruptcy, but from the company what we see is that an unjustifiable lack of confidence from the investors has built since our balance sheet so far is very good “SunEdison sources added.
Are we witnessing the end or maybe the reconstruction of SunEdison? It is one of the largest companies in the world in the renewable energy sector, and it has now lost about 10 billion in market capitalization. Doubts about the lawsuits, governance and growth are poisonous for any company, but they have an added dimension in that SunEdison is one of the largest issuers of convertible debt in the solar sector. It has 2.2 billion in payable maturing between 2018 and 2025, according to Bloomberg data.
* Warehouse: It is a financial instrument, a fund of assets, where different partners lend an amount to SunEdison: 700 million dollars of debt as a 500 million dollars loan within five years and 200 million dollars to four years. This money will finance the construction and acquisition costs of operating assets.
** YieldCo: A corporate structure focused on generating dividends, which are based on the assets of the company. They take the form of exchange-traded funds, tax-advantaged. It is similar concept to REITs (real estate funds) or the MLPs (funds normally found in the oil and gas sector) which is a structure designed to distribute dividends to its investors. The difference is that YieldCo specialize in energy assets, normally renewable sector.