What: Shares of SunEdison Inc. (SUNEQ) jumped as much as 14.5% today while its yieldcos, TerraForm Power Inc. (TERP) and TerraForm Global Inc. (NASDAQ: GLBL), both rose as much as 11% as a convergence of factors lifted the family of companies.
So what: SunEdison's operating chief, Perez Gundin, left the company abruptly last week, something that was revealed to investors on Thursday. This is the same executive who resigned his COO job at TerraForm Power and left the board of directors of that company in November. His presence was likely a thorn in SunEdison's side since he was opposed to some of TerraForm Power's cozy dealings with SunEdison in 2015.
Image source: SunEdison.
Depending on how you look at the companies, having more alignment among the three could be a good or a bad thing. On the positive side, they can coordinate actions in acquisitions, including Vivint Solar, and help keep the parent company solvent. But it's that exact relationship that some shareholders are trying to fight, feeling the independence of TerraForm Power and TerraForm Global isn't being upheld.
David Tepper, the billionaire hedge fund manager, is leading the charge for TerraForm Power, arguing in a lawsuit that it's not in the yieldco's best interest to buy residential solar assets as part of the Vivint Solar buyout. If SunEdison is forced to complete the acquisition without TerraForm Power's financing, it could threaten the parent company's solvency.
The ups and downs of SunEdison and its yieldcos seem to be based on the market's feelings of the Vivint Solar deal that day. Today, better alignment is seen as a good thing and a way to push forward with their current strategies. But that feeling could change tomorrow.
Now what: Until the Vivint Solar acquisition is resolved, for better or worse, all three stocks have a huge warning sign. There are renewed fears that SunEdison's solvency could be at stake depending on how lawsuits play out in the next month and that's a terrible position for the company to be in. Combine that uncertainty with losses and rising interest costs on nearly $12 billion in debt and it's no wonder SunEdison is in trouble.
The yieldcos should be in a better financial position, but there's uncertainty for them as well. Current dividend yields in double digits make growth nearly impossible and acquisitions from SunEdison made in recent months have arguably been made at higher than market prices. If returns aren't as high as investors expect or interest rates on debt rise -- as they have in the solar industry lately -- both companies could slash dividends and see shares fall even further.
