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SunEdison Inc (SUNEQ) Stops Making Interest Payments to Yieldcos

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SunEdison Inc (OTCMKTS:SUNEQ) may be cutting ties with its two yieldcos – TerraForm Power Inc (NASDAQ:TERP) and TerraForm Global Inc (NASDAQ:GLBL). The bankrupt solar firm confirmed that it would not make $161.1 million in interest payments to the firms. Analysts and investors wonder if this is finally the end between SunEdison and the yieldcos.

SunEdison Inc Ending Yieldco Payments

The future of the relationship between the solar firm and its two yieldcos has come into question again.

SunEdison Inc (SUNEQ)

It was recently reported that SunEdison has been trying to sell its stake in the yieldcos. A new report suggests that it’s ending its interest payment agreement with them. The reason for this is because of its Chapter 11 bankruptcy protection process.

SunEdison sent the letter to the companies on July 29. The firm was scheduled to make a payment on Aug. 1.

Both firms are trying to fight the termination. They say that announcing the move in a filing does not actually acknowledge the agreement has been legally and properly ended. The yieldcos say that if their parent company does not make the interest payments then they will cover their debt obligations with their cash flow and liquidity.

“TerraForm Power contests the purported termination of the agreement and believes that the termination letter is invalid,” the yieldco said in the filing Wednesday.

Here are two important points from the first Aug. 5, 2015 contract hat SunEdison agreed to:

  • SunEdison would cover interest payments of TerraForm Global of $81.2 million (2016), $40 million (2017), $30 million (2018), $20 million (2019) and $10 million (2020).
  • SunEdison would cover interest payments of TerraForm Power of $8 million (2016) and $16 million (2017).

The news did not harm the yieldcos’ stocks at all. It also didn’t affect their credit ratings.

Analysts say that the filing did not surprise many investors.

“This development is probably not a surprise to investors, nor for the companies, who are prepared to continue servicing debt obligation as needed even without receipt of these funds from the former sponsor,” said Paul Coster, a research analyst at JPMorgan Chase & Co., in a research note.

TerraForm Power shares were up two percent near the end of Monday’s trading session. TerraForm Global shares were up more than six percent at $3.61.

The Rocky Relationship Between SunEdison Inc, Yieldcos

Ever since the firm filed for Chapter 11 in late April, the future of its yieldcos has constantly come into question.

Due to their questionable finances, analysts have regularly opined about how the yieldcos will follow SunEdison into bankruptcy. Though, TerraForm Power and TerraForm Global have refuted the reports. The yieldcos have been saved by the likes of Appaloosa Management and Brookfield Asset Management this year.

Nevertheless, SunEdison is gradually veering away from its yieldcos.

Last month, the firm said that it wanted to sell its stake in TerraForm Global. The purpose is to sell off its assets in order to pay back its creditors. SunEdison has been entrenched in an asset sale since early May. The firm has also given the OK in TerraForm Power going into auction next month.

It’s estimated that the firm has assets that are worth up to $1.5 billion. However, its liabilities are sitting at around $16 billion. SunEdison has been selling off its assets in the U.S., India and Australia.

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Andrew Moran

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