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The most valuable asset in SunEdison's bankruptcy portfolio is close to finding a home. Bloomberg is reporting that hedge funds Brookfield Asset Management and Appaloosa Management LP are bidding on the stake of TerraForm Power (TERP) currently owned by SunEdison. Presumably, the incentive distribution rights SunEdison holds in the yieldco would be transferred as well.
If a deal is reached, this could bring some stability to TerraForm Power, and drive the stock significantly higher. Here's what to watch for.
Stability coming to TerraForm Power
If SunEdison's stake in TerraForm Power is sold to Brookfield Asset Management and Appaloosa Management, the next step would be to finalize the company's financial statements and solidify its debt positions. Financial reports have been delayed because of SunEdison's own financial problems and its own accounting problems. Splitting from SunEdison would be positive from a financial perspective.
The debt situation may be more complicated. There are as many as 10 project level loans that are technically in default due to SunEdison's bankruptcy, and bondholders have made initial filings in court that could lead to an overall default. A new ownership structure would definitely be welcome for debt holders, but there will likely need to be negotiated deals to stave off default in the meantime.
Will TerraForm Global be left hanging?
The sale of TerraForm Power would be a positive for the company's shares, and it could be a positive omen for TerraForm Global (NASDAQ: GLBL) as well. The company recently released limited financial data for the fourth quarter of 2015 and first quarter of 2016, and said it was seeking a sale. It was far from catching up with full financial filings, but progress is something.
If there's interest in SunEdison's stake in TerraForm Power, it's likely there's interest in TerraForm Global as well. The company also has delayed full financial reports, and is technically in default of its debt. But it did generate between $42 million and $48 million in cash available for distribution in the first quarter, which will have value to some investors.
That said, we don't have any idea what someone may want to pay for the stake SunEdison owns in TerraForm Global.
Bringing sanity back to the yieldco market
If TerraForm Power and TerraForm Global indeed find buyers and end up being independent companies outside of SunEdison, it could bring some more sanity back to the yieldco market. TerraForm Power, in particular, was one of the first yieldcos, and the spectacular collapse of SunEdison made some investors question the value yieldcos can bring to the renewable energy market. But with more independent ownership, the companies could return to the stable operations that were intended when they were formed. That could be good for other yieldcos and the renewable energy market in general, making these two companies worth watching as SunEdison moves through bankruptcy.
