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TerraForm Power Inc. (TERP) knows it has missed debt covenants that could send it into default, and the company is pleading with investors to give it more time to get its house in order. And given the request it's made to bondholders, it could be quite some time before the company reports annual and quarterly statements required by the SEC.

The extensions TerraForm Power is looking for

As of today, bondholders on a reported $1.25 billion of the company's notes have made a filing that set an Aug. 29, 2016, deadline before a default is triggered that could send the company into bankruptcy. The default notice bondholders gave the company was initiated because TerraForm Power has yet to file quarterly or annual filings since the third quarter of 2015.  

TerraForm Power would obviously like to avoid bankruptcy, so it's asking bondholders for an extension, or a series of potential extensions. It wants a first extension until Sept. 30, 2016, and a series of one-month extensions after that until the end of the year if it can't file financial statements. For the extension, the company has offered a consent fee of $2.50 per $1,000 in notes for those who consent, and $2.50 more for each extension that's triggered.

A 0.25% monthly payment might not seem like a lot, but it shows that the company is willing to use financial incentives to work with bondholders, which could be a sign of things to come.

Where this could lead TerraForm Power

The real risk for stockholders is that they have no idea how to evaluate the company right now. Under previous dividend payments, the stock is yielding a very attractive 16.1% from its dividend, and with long-term contracts to sell energy to utilities, it would seem that those payments are relatively safe.

But the safety of TerraForm Power's dividend depends on the cash flow from projects minus financing costs. If financing costs rise because the company has to negotiate higher interest payments after a technical default or if bondholders demand more in reserves, the company's financial position might be eroded.

There's also the future to consider. The notes due 2023 come with a 5.875% coupon rate, and 2025 notes come with a 6.125% coupon rate. Those rates will likely go higher after SunEdison's bankruptcy and the resulting fallout at TerraForm Power.

Buyer beware

It's never a good idea to focus too much on an implied dividend yield when looking at a stock. In the case of TerraForm Power, a high dividend may look attractive, but creditors are coming after the company, and we still have no idea what its financial position is like. In all likelihood, the dividend yield is too good to be true, and with no idea where it may end up, buyers need to beware of the big downside in this stock.