The last year has been rough for TerraForm Power (TERP). It watched as its sponsor, SunEdison, went bankrupt and is now stuck in limbo. With renewable energy projects that are generating consistent cash flow there should be value in the business, but it's impossible to know how much today.
As we look back on what has happened so far this year, here are the major mistakes TerraForm Power made.
Not cutting ties with SunEdison
Last year when hedge fund manager David Tepper took a stake in TerraForm Power, his complaint against the company was that it wasn't running independently of SunEdison, as it should have. By late November, there was almost complete overlap between SunEdison's management team and TerraForm Power's. And it was hard to argue that TerraForm Power was buying projects at "arm's length", as it was supposed to.
SunEdison could have changed TerraForm Power's management team to operate more independently, but it didn't. And it wasn't until early 2016 that it became apparent SunEdison was in serious financial trouble, which eventually led to bankruptcy.
If TerraForm Power had ousted management early this year and put both a board of directors and management team in place that would have run the company independently, the stock may not have fallen as far as it did. And it may have filed financial statements by now (which I'll cover below). But it didn't, and SunEdison tried to use TerraForm Power to stay afloat, but even that didn't work.
The financial failure
The ties between SunEdison and TerraForm Power are so deep the yieldco used SunEdison for its accounting and other back-office functions. And SunEdison hasn't files financial statements since Q3 2015, so neither has TerraForm Power.
If there's one thing that would keep me from buying TerraForm Power stock today it's that we haven't seen real financial statements for nearly a year. Limited financials were released in a presentation for bondholders in July, but that only included ranges of cash flow and very limited balance sheet items. If you're looking to figure out what TerraForm Power's dividend might be when it's reinstated or what its rate of return on projects has been, you're out of luck.
A brighter future could be coming
The mistakes TerraForm Power has made so far this year are remnants from its relationship with SunEdison, but that relationship could be ending. As part of SunEdison's bankruptcy process, it could be selling the TerraForm Power stake it still owns. And with that, the yieldco could break free of its sponsor, building a more independent business and providing up-to-date financials.
If this uncertainty is cleared up, it may lead to significant gains for investors. But we've seen in the last year that the market doesn't like uncertainty. So, until the yieldco's question marks are cleared up investors should be cautious jumping in.