Where much of the market sees trash, some see treasure.
Shares of SunEdison (SUNE) plunged over 15% and were halted several times on Wednesday morning following news that David Tepper's Appaloosa Management filed suit against SunEdison and its yieldco, TerraForm Power (TERP).
Despite the generally negative connotations associated with any legal action, and the SunEdison family's broader problems, Avondale analyst Michael Morosi sees potential wins for SunEdison.
Appaloosa Management's complaint takes issue with SunEdison's plans to acquire Vivint Solar (VSLR) and to subsequently unload Vivint's projects onto TerraForm Power. The complaint alleges that the reasoning behind the plan to sell Vivint's projects to TerraForm Power was "not for the benefit of TERP but rather to provide SunEdison with a much needed way to bankroll its acquisition." The complaint goes on to say that SunEdison is in "financial distress."
Indeed, shares of SunEdison are down over 90% since the deal was announced in July.
Morosi wrote on Wednesday that the suit could have three possible outcomes, two of which would be beneficial for SunEdison.
The worst of the outcomes would have the Vivint deal closing and SunEdison being entangled in a lengthy legal battle. In another scenario, SunEdison could use to lawsuit to back out of the deal by electing to use a "material adverse change" clause. Finally, the outcome Morosi believes to be most likely is that SunEdison could strike a deal to sell Vivint's operating assets to a third party.
Morosi upgraded SunEdison to Outperform from Market Perform on Friday and has a $7 price target on the stock. In November he downgraded SunEdison to Market Perform from Outperform after the company reported third-quarter results. At the time he wrote that SunEdison's business model "lacks the simplicity and transparency needed to rebuild investor confidence."
One has to wonder if a lawsuit makes things more simple.