SunEdison may be preparing to sell its stake in TerraForm Power (NASDAQ:TERP) and TerraForm Global (NASDAQ: GLBL), but that doesn't mean the yieldcos are in stable positions overall. Just last week, TerraForm Global and TerraForm Power said they wouldn't be able to file fourth quarter 2015 and first quarter 2016 financial statements as planned. That's right, we still don't have full financial filings from the quarter ended eight and a half months ago.
The reason, of course, is that they use SunEdison's back office services, and SunEdison is bankrupt. This complicates any sort of investment thesis investors may be looking at for the yieldcos.
Where do the financials stand today?
The past month has given us a little bit of information about the financial standing of TerraForm Power and TerraForm Global. But it hasn't given a complete picture.
TerraForm Power said on July 26 that cash available for distribution (CAFD) in the first quarter was $58 million-$66 million, and cash at the end of the quarter stood at $501 million.
TerraForm Power said first quarter CAFD was $42 million-$48 million and cash balance stood at $787 million.
Neither company gave an update on its debt position, though, and therein lies the problem. Bondholders have asked for a technical default on debt because the yieldcos haven't supplied financial statements in a timely manner. They're unlikely to push for bankruptcy right now given the strong cash balance and consistent cash flow renewable energy projects provide, but there's a lot of uncertainty around debt at the moment. And without clear financial statements, we can't determine whether they're good values or not.
Debt holders hold a lot of power
The potential default on debt could lead to higher interest rates by itself as management tries to negotiate concessions with debt holders. But that might not be the only problem.
One of the big uncertainties today is what debt holders would demand if control of TerraForm Power and TerraForm Global were to switch from SunEdison to another entity. The rumor is that an auction is already being set up for SunEdison's stake in the yieldcos. The new owner may have to renegotiate debt that's in default, as well as debt that technically goes into default or needs to be repaid when ownership changes.
I think a new owner and more independence would be good for both yieldcos and debt holders, but it'll also require drawn out negotiations to reach a final capital structure.
One step forward, one step back
It seems that both TerraForm Power and TerraForm Global are in a strange holding pattern. Whenever there's good news like the potential sale of SunEdison's stake in the company or some financial information released, we get bad news. Last week it was the further delay of financial statements that are already many months overdue.
Until we get answers to what these yieldcos' capital structures will look like and how much sustainable cash flow is left for shareholders, these remain risky stocks. They may be big winners once a restructuring is complete, but who knows when that's going to take place?