How does a stock fall 96% to $1.21 from $31.66 in less than a year? Ask SunEdison (SUNE).
The Missouri-based renewable energy company saw its stock plunge over the last eight months after it announced plans to buy Utah-based Vivint Solar (VSLR) for $2.2 billion on July 20. Up to that point, the company had been on a bit of a buying binge and the Vivint deal was viewed as one too many.
We'll get to how SunEdison became a company whose shares could be bought for less than a trip to the local laundromat in a moment.
But first, here's some background.
SunEdison's origins trace back to 1959 when it went by the name Monsanto Electronic Materials Company. Its business had been in developing, owning and operating solar power and wind energy plants. It changed its name to SunEdison is 2013 as it became more focused on solar products. In July 2014, SunEdison launched TerraForm Power (TERP), the first of its two yieldcos. A year later, it launched its second, TerraForm Global (GLBL).
Yieldcos are companies that are formed to provide (ideally) stable cash flows for investors from operating assets. In that respect, they bear some similarity to the master limited partnerships more commonly seen in the oil and gas space. TerraForm Power was expected to acquire SunEdison's projects while TerraForm Global was expected to do the same with a focus on emerging markets.
Soon after the launch of TerraForm Global, the cracks in SunEdison's façade became apparent.
July 20, 2015: SunEdison, along with TerraForm Power, announces plans to acquire Vivint Solar for $2.2 billion. As part of the transaction, TerraForm Power was required to acquire Vivint's rooftop solar portfolio for $922 million. The sticker price of the transactions raised questions about SunEdison biting off more than it could chew. Also, TerraForm Power's involvement raised questions about SunEdison's liquidity and the appropriateness of residential projects for a business that mostly focused on commercial projects. SunEdison shares closed at $31.66 the day the deal was announced.
July 21 ¿ Nov. 19, 2015: Sentiment on SunEdison cooled over the next few months as analysts and investors took more notice of the company's ballooning debt load. There were also concerns that the company used a high-interest $160 million loan from Goldman Sachs to pay off a loan from Deutsche Bank.
"The reality is this: SunEdison's debt went from $2.6B to $11.7B currently," Gordon Johnson of Axiom Capital Management told Real Money in November. "A lot of that debt was due to the purchase of companies and projects they intended to drop down to the YieldCo. They can no longer do that so the questions is can they sell that stuff into the open market at accretive margins?"
Shares of SunEdison accelerated their decline from the previous months and fell to $2.86 after it was revealed via 13-F filings that Dan Loeb's Third Point fund exited its position and David Einhorn's Greenlight Capital reduced his stake in the company.
Dec. 2, 2015: David Tepper's Appaloosa Management announced a 9.3% activist stake in TerraForm Power. In a 13-D filing, Appaloosa wrote that it was "independently exploring potential claims of impropriety" against TerraForm Power, SunEdison and its advisors for how it handled and disclosed recent changes to TerraForm Power's board. The changes to the board, which included the resignation of members of the conflicts committee, were made public via an 8-K filing on Nov. 27, which was in the middle of the Thanksgiving holiday weekend.
"David (Tepper) did a very good job of summarizing the issues regarding the independence of the board," Michael Morosi of Avondale Capital told Real Money in December. He added that SunEdison faces serious capital constraints, which could create incentives for its management not to act in the best interest of its yieldcos.
Dec. 9, 2015: SunEdison announced a revised merger agreement with Vivint Solar. The revised terms included a $2-per-share reduction in cash consideration, a $0.75 increase in stock consideration and a commitment from Blackstone to provide a $250 million credit facility for business growth. While the terms were generally perceived to be more favorable, many still said the merger was a bad idea.
Dec. 22, 2015: David Tepper delivered a letter to TerraForm Power in which it demanded to review the company's books and records. Specifically, he wanted access to minutes of meetings that dealt directly with TerraForm Power changing its outside counsel to Greenberg Traurig from Cleary Gottlieb Steen & Hamilton. It is not clear if the law firm resigned or was fired.
Dec. 24, 2015: SunEdison filed an 8-K stating that it was in discussions to secure a new $650 million second-lien credit facility, the proceeds of which would be used in part to pay down its existing second-lien credit facility.
Jan. 7, 2016: SunEdison announced it planned to issue i$725 million in second-lien secured-term loans that mature in July 2018 with an interest rate of LIBOR plus 10%. (LIBOR is the benchmark rate financial institutions charge for making short-term loans to each other.) Existing creditors agreed to exchange $335.8 million in existing convertible notes coming due between 2018 and 2025 for $225 million of the newly-issued notes. The proceeds of these issues will be used to pay existing debts, interest, transaction costs and "general corporate purposes." Shares fell as much as 40% on the day the transactions were announced.
Jan. 12, 2016: Appaloosa Management filed suit against SunEdison in a Delaware Court for "breaches of fiduciary duty" in relation to the company's plans to acquire Vivint and require TerraForm Power to acquire Vivint's projects in turn under "unfavorable" take-or-pay arrangements. The complaint alleged that SunEdison's financial situation is so dire that it "needs to plunder TERP's liquidity and financial resources in order to complete its own acquisition of Vivint Solar."
Jan. 21, 2016: SunEdison announced the departure of its chief operating officer, Francisco Perez Gundin, whose termination was effective on Jan. 14. Gundin was also one of the members of TerraForm Power's board who resigned in November. He disagreed with actions taken by the board, which included replacing members of TerraForm Power's corporate governance committee and the appointment of SunEdison chief financial officer Brian Wuebbals as president and CEO of TerraForm Power.
Jan. 27, 2016: SunEdison confirms that David Einhorn's Greenlight Capital got a seat on SunEdison's board. As part of the arrangement, SunEdison also agreed that it will not be able to issue equity for a period of two years following its acquisition of Vivint without a supermajority vote of the board. Greenlight's seat on the board had been rumored for days before.
Feb. 12, 2016: Shares of SunEdison fell below $2 after a New York court issued a temporary restraining order on SunEdison and TerraForm Power that blocks the companies from "concealing, transferring or removing their assets, accounts or other property" without "fair consideration" in order to protect an "eventual international arbitration award" against SunEdison, court documents stated. The restraining order was tied a suit filed against SunEdison for its failure to acquire Latin American Power.
Feb. 25, 2016: A Delaware court denied Appaloosa's motion for a preliminary injunction on SunEdison's plans to acquire Vivint but left open the possibility of the case going to trial. A source close to the matter told Real Money that the judge didn't see "imminent harm" from the transaction but that he had serious questions about the fairness of the deal.
Feb. 29 ¿ March 1 2016: These two days produced a double whammy for SunEdison. First it announced that it was unable to file its 2015 financial results on time, due in part to an internal investigation, which was launched late in 2015 and tied to allegations former executives at SunEdison made about the company's financial position. Second, David Tepper's Appaloosa Management confirmed that it was seeking an expedited trial against SunEdison in an effort to block its acquisition of Vivint Solar. "We're going to continue on," Tepper told Real Money. "We don't just do things to do things."
March 4, 2016: SunEdison reached a settlement with Latin American Power over its failed bid to take over the company and pledged to pay $28.5 million in installments over the next year.
March 8, 2016: With one headache out of the way another potential headache emerged. Vivint Solar backed out of its deal with SunEdison, citing SunEdison's "failure to consummate the merger." While the end of the deal was viewed as a positive, Vivint said it would "seek all legal remedies available to it in respect of such willful breach."
March 16, 2016: SunEdison announced that it had to delay releasing its financials again. In a statement announcing the delay, SunEdison said that its failure to file was due to "material weaknesses" in its internal controls tied to "deficient information technology."
March 22, 2016: Shares of SunEdison fell nearly 26% following a report from Debtwire, which said the company was looking to fund a debtor-in-possession facility. A debtor-in-possession facility is typically used by companies that are in financial distress. The debt is typically senior to existing debt and other claims and it provides the troubled company with liquidity as it restructures.
March 24, 2016: Picking up off of Debtwire's report, Bloomberg News reported that SunEdison could find itself in technical default of a little more than $1.4 billion in debt if it fails to release its audited financial statements for 2015 by March 30.
For now, we wait to see what SunEdison brings next.
Stay tuned...
