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The end is finally here for once red-hot solar stock
). The solar operator's tale of overexpansion, failed deals
and high debt is finally coming to an end. As expected,
SUNE is finally filing for bankruptcy
to right-size itself and try to get back to the business of
making solar and grid-scale solar farms.
While the bankruptcy news isn't good for long suffering SUNE
shareholders, those investors in its two yieldcos -
TerraForm Power Inc
TerraForm Global Inc
) - might want to put on their party hats.
The situations for TERP and GLBL still are complex given their
relationship with SunEdison, but breaking free of the yoke
might actually be one of the best things to happen to these to
Wall Street would agree, given its reaction over the past two
days. TerraForm Power and TerraForm Global are up a respective 7%
and 20% since the announcement. And for those investors just
joining in, the pair might make an interesting dividend/value
A risky play, but an interesting one nonetheless.
TerraForm Power and TerraForm Global Break Free!
The basic idea behind yieldcos is that solar farm developers
like SunEdison could chuck some of their renewable energy
assets into a new firm, add a splash of tax credits/benefits and
reap steady cash flows and dividends. That formula worked out
well in the beginning - and actually still works well for a few
yieldcos, such as
8Point3 Energy Partners LP
Nextera Energy Partners LP
For TerraForm Power and TerraForm Global, however, that hasn't
worked out so well, at least on the surface. That's on SUNE.
Shares of the two yieldcos have plunged right alongside
SUNE amid concerns about SunEdison's debt and legal
issues spilling over and causing headaches for GLBL and
The truth is, that's simply not the case.
For starters, neither of the TerraForms are liable for
SunEdison's debts. Both are separate legal entities from their
parent, and as such, respective wind and solar power plants
are owned by TerraForm Power and TerraForm Global - not
SunEdison. That's a key provision, as these solar and wind farms
not available to satisfy the claims of creditors
. In short, a bank can't go after TERP to pay SUNE's debts.
What's important here is that these renewable energy assets -
all 3,565 megawatts between the two - generate cash flows on
long-term power purchase agreements with utilities. And that
won't change regardless of what SunEdison does from here.
Secondly, investors may have overstated the relationship
between the yieldcos and SUNE.
While the original setup was for SunEdison to drop its own
assets into GLBL and TERP, the truth is that the bulk of its
purchases have come from third-party sources. For example,
SunEdison's purchase of
First Wind Holdings, LLC
came from outside its umbrella. The failed
Vivint Solar Inc
) deal was another example.
SunEdison basically provided the cash (or in this case, debt)
- not actual solar farms or anything else. So both yieldcos will
continue to shop outside SunEdison's umbrella as they did
Finally, both yieldcos have
expressed the fact
they have enough liquidity
to operate as ongoing concerns. Both TERP and GLBL are still
waiting to file earnings reports, thanks to issues with
SunEdison's internal auditing controls, but their claims of
liquidity stand true as of the most recently reported
And while TERP
did acquire assets
- again, outside SUNE's umbrella - since it last filed earnings,
it still should have plenty of cash left.
TERP and GLBL Still Are Gambles
The problem for TerraForm Power and TerraForm Global could
come down to growth.
SunEdison, if nothing else, was very generous with the capital
it provided its yieldcos (part of why it has $11 billion-plus
debt). That's clearly going to dry up, so the question is: How
will the pair raise enough money to buy more assets to tuck into
Given their price drops and low credit ratings, that will be
more difficult than before … but not impossible.
Removing SunEdison from the picture could actually benefit
their ratings. Secondly, both TERP and GLBL could be forced to do
thing the old fashioned way - by paying in cash. Again, their
assets are real cash-generating items. So while that might take a
while - they'll need to save up to by something - both still
could make this happen.
Dividend cuts might be in the cards, too. GLBL, for instance,
is yielding in excess of 36%.
So where does that leave investors?
The TerraForms are two interesting, high-yield instruments
that have been (somewhat unfairly) lumped in with their
They're not risk-free plays. Far from it. There's plenty that
could go wrong - especially with TerraForm Global, which isn't as
far along in its development as TerraForm Power. But with
SunEdison essentially out of the picture, it might be time for
the sun to shine on both.
TERP might be the better pick of the pair. As of its last
filing, it was profitable and had enough coverage on its dividend
- which make sense, as it "only" yields 13%, or roughly a third
of GLBL's. The key will simply be growth. But for now, TerraForm
Power shouldn't be filing for bankruptcy, nor should it have any
liquidity risk. Power could end up rewarding investors over the
As for Global? Well … that one is for
As of this writing, Aaron Levitt did not hold a position in
any of the aforementioned securities.
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