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For the past year, TerraForm Power's (TERP) shares have been in a tailspin because of its ties with sponsor SunEdison. The company hasn't filed financial statements, it's in technical default on debt, and the stock price has fallen to such a level that there's no way for the company to grow.
We may finally be moving toward some closure for TerraForm Power, with Bloomberg reporting that SunEdison is planning a September auction of its B shares in the yieldco to raise funds to pay off creditors in its own bankruptcy. With 60.4 million B shares available, and A shares trading for $11.70 as of the time of this writing, the price tag on the deal could be over $700 million. Better yet, there are some big names lining up for the assets.
The big bidders for TerraForm Power
Two likely bidders for TerraForm Power's B shares are already teaming up. Appaloosa Management and Brookfield Asset Management, who collectively own 21.5% of TerraForm Power's A shares, have signed a "letter agreement" to bid on the B shares, as well. They're not required to bid on the shares, and could go their separate ways, but teaming up is an interesting option.
If their bid is successful, the hedge-fund powerhouses could take firm control of the company, and likely reform a management structure that Appaloossa's David Tepper has been critical of for months. That alone could help drive shares higher, especially if the dividend is unaffected.
Will more bidders emerge for TerraForm Power?
Appaloosa and Brookfield have been building positions in TerraForm Power for months, so we know they're interested in the company. But they may not be the only bidders. Private equity firms, utilities, and even other solar developers may be interested in the assets.
This could be an ideal time for utilities to bid on a yieldco they can build around. Southern Company (SO 0.38%), Duke Energy (DUK 0.58%), and Edison International (EIX -0.21%) are three big utilities with the balance sheets to pull off the acquisition, and a growing interest in renewable energy. They could even use TerraForm Power as a place to put renewable energy projects that are already on the balance sheet. In theory, if the yieldco is stable enough, it should have an even lower cost of capital than the utility, so it would be a valuable asset for the utility to own.
A sale would be good for investors
Given the long-term contracts underlying the assets TerraForm Power owns, I think there's a lot of value in the company. The question for a bidder on SunEdison's B shares is around how much the balance sheet and dividend need to be adjusted to create a sustainable company.
Appaloosa and Brookfield would likely try to unlock value as quickly as they can, especially given the short-term profit motives of a hedge fund. But a utility could emerge as a buyer, as well. No matter what happens, some stability at TerraForm Power would be good for shareholders, and maybe allow the company to live up to its promise as a cash-flow machine for investors.
