Image source: SunEdison.
SunEdison Inc got the lifeline it needed from a courtroom in Delaware on Thursday. The company defeated billionaire David Tepper's -- who holds about a 9.3% stake in TerraForm Power -- effort to block TerraForm Power buying Vivint Solar assets as part of SunEdison's takeover of the residential solar company. TerraForm is scheduled to buy 523 MW of operating assets for $799 million and without that money the deal was in question and, in an extremely-but-possible outcome, SunEdison could have even been forced into bankruptcy.
The news was a relief for SunEdison and sent its shares higher Friday, along with Vivint Solar. While this is a short-term reprieve, it may not solve all of the company's problems long-term.
Image source: SunEdison investor presentation .
Now, as management sees it, the company should have $1.3 billion in cash at the end of the year, even after financing operations. This assumes projects will be completed and sold on-time, which we could probably call into question , but there's now time to show that project execution will live up to plan.
The big worry for SunEdison
Short-term, the ruling against Tepper gives SunEdison some leeway. It doesn't have to find $800 million to complete the Vivint Solar acquisition or find a way to wiggle out of it. But long-term the company's challenges are the same. Debt is piling up and losses are mounting.
One of the assumptions management laid out in its January presentation is that it would be able to sell projects to third parties for a 17% gross margin. That would put SunEdison among the highest margin developers in the renewables market, something it has never demonstrated the ability to execute on. There's also the fact that financing markets have slowed dramatically for renewable energy projects as of late, so willing buyers may be few and far between.
Then there's SunEdison's own debt costs. It recently refinanced some debt at the incredibly high interest rate of LIBOR + 10%, with an 11% floor. This compares to competitor SunPower , who recently said its revolver capacity was at LIBOR plus 1.5%-2% and FirstSolar who has a revolver for LIBOR + 2.25%. Long-term, SunEdison can't compete in the renewable energy markets with higher financing costs than competitors and that's the biggest concern long-term given the company's debt load.
A short-term win with long-term costs?
What's strange about the excitement in acquiring Vivint Solar is that it does nothing to lower SunEdison's borrowing costs or its operating costs. If fact, operating costs will only go up with the new subsidiary and that puts further pressure on executing operationally.
I think the deck is still stacked against SunEdison, although it has a longer runway now than it might have a week ago. Now, investors' focus will turn from the courtroom to earnings reports. And that's what SunEdison will really show if these transactions are going to make the company stronger or weaker long-term.
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The article Live to Fight Another Day: Battered SunEdison Bites Back Agains Billionaire Lawsuit originally appeared on Fool.com.
Travis Hoium owns shares of First Solar and SunPower. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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