What: Shares of hedge fund favorite SunEdison Inc (SUNEQ) fell a whopping 33% in September as the company's future began to be questioned by investors.
So what: September's fall continues a terrible year for this renewable energy developer and the poor performance of its yieldco TerraForm Power and skepticism of its acquisition of Vivint Solar.
The falling prices of TerraForm means it'll be harder to push projects down from SunEdison and still have them be accretive and add to dividends and IDRs (incentive distribution rights). It's a downward spiral because TerraForm's low stock price makes acquiring projects less attractive, which means it will grow dividends more slowly, which means a lower stock price.
To top it off, SunEdison has $10.2 billion in debt, so it needs to fund project construction and financing somehow. Without the yieldco vehicle being an attractive option it's turned to warehouse vehicles, which have higher costs and could unwind the value in the business model.
Now what: This is one reason why renewable energy investors should look for companies who are profitable and have strong balance sheets. SunEdison tried to dig out from under its losses by growing quickly, but that became a liability when the stock prices began to fall. Some stock dips are an opportunity to buy, but this isn't a stock I would try to catch on the way down because it has far too many problems ahead to be comfortable with.
