Just when you think it can’t get any worse for SunEdison Inc (SUNE), it get worse.
Already struggling with rumors of impending bankruptcy that surfaced last week, SUNE shares fell another 40% on Tuesday after one of its yieldco partners/subsidiaries — TerraForm Global Inc (GLBL) — delayed filing its annual report with the SEC, and flat-out warned SunEdison could end up filing for bankruptcy.
It’s unusual for one publicly traded entity to cite bankruptcy risk for another publicly traded company; it’s not as if the two organizations share a balance sheet and income statement.
The market taking TerraForm Global’s warning about SunEdison at face value, sending SUNE stock sharply lower, underscores the notion that these two outfits are inextricably linked.
In other words, we need to take TerraForm Global’s warning seriously.
The SunEdison Trifecta
Here’s the Q&D explanation of how TerraForm Global, SunEdison and TerraForm Power Inc (TERP) work together: The basic “plan” is, SunEdison buys and/or develops budding solar power plants, gets them up and running and then sells them to TerraForm Global and TerraForm Power (for a reasonable profit), while the two TerraForms effectively become a REIT, or an MLP, passing a portion of their cash flow along to TERP and GLBL shareholders as a dividend.
The premise can work. It just isn’t, for several reasons. And in this particular arrangement (which some argue has always been dangerously codependent), if one aspect of the relationship fails, the whole house of cards falls down.
Well, one aspect failed, and the house of cards is now falling.
Today’s news pointed out that TerraForm Global has yet to submit its full-year filing with the SEC. What it didn’t make clear enough is that SunEdison and TerraForm Power have also delayed their full-year submissions to the SEC.
One delayed filing is a red flag, although it’s not necessarily damning when the company in question is established. Three delayed filings from three companies that are dependent on one another for survival — none of which have had time to prove themselves — is a different story.
Fanning the bearish flames that have scorched SUNE stock today is news from the Wall Street Journal that the SEC is now investigating the company’s stated cash balance as of its most recent SEC filing. It said it was sitting on $1.4 billion, though some observers have claimed that a portion of that money had already been committed to project purchases, as well as toward the now-failed acquisition of Vivint Solar Inc (VSLR).
It’s not a tough idea to digest: Vivint Solar backed out of the deal after SunEdison failed to bring any money to the table. A lack of accessible funds would explain a lot.
Delisting for SUNE Stock, Too?
As if SunEdison didn’t have enough on its plate already, the impact of today’s warning from TerraForm Global and the reports of an SEC investigation have created another issue for shareholders — it’s pushed the value of SUNE stock to well under a dollar.
It’s a problem, as the New York Stock Exchange requires a stock’s price to hold above $2, as well as, among other things, up-to-date SEC filings.
There is some leniency, however, The NYSE will give SunEdison some time to file its required documents and get SUNE back above the $2 threshold (even if that means a reverse split).
Eventually, the exchange will have to pull the plug on the stock if the company can’t resolve those issues. That’s when it gets sent to the OTC exchange — where stocks often go to die. If only because serious investors and potential lenders have a difficult taking over-the-counter stocks seriously.
Bottom Line for SunEdison
Never say never for SunEdison. On the other hand, as with any snowball rolling down a hill — and getting larger all the way down — there does come a point in time when the cascade effect makes that snowball unstoppable.
We may well have reached that point with SUNE stock. That is, the technical and psychological beating SunEdison shares have taken combined with the fiscal and perceptual beating the company has weathered may be too much for SunEdison to handle.
Don’t get the wrong idea. Odds are good there will be a company called SunEdison a few years from now, in one form or another. It’s apt to be a mere remnant of the company called SunEdison that was sitting on top of the world less than a year ago, though.
There’s just too much working against SUNE now.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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