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TerraForm Power Inc.'s Biggest Win in 2016 So Far

By Travis Hoium – Sep 30, 2016 at 9:48AM

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Settling a lawsuit with one of its major investors could be the best thing to happen to the solar energy company this year.

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Slowly but surely, TerraForm Power (TERP) is setting itself up for a future without SunEdison. Its bankrupt parent company has agreed to settle a lawsuit brought by Appaloosa Investment Limited Partnership I, a hedge fund run by billionaire David Tepper, by providing the yieldco with more independence. 

The three major provisions of the settlement include TerraForm Power segregating its information technology systems from those of SunEdison, putting Thomas Studebaker in the role of COO, and seeking to appoint an independent director to the board of directors. If these are done, they'll lay the foundation for the company's operations independent of SunEdison. 

Breaking the ties that bind

One of the biggest problems that both TerraForm Power and TerraForm Global (NASDAQ: GLBL) faced over the past year was their lack of public financial statements. Investors haven't seen a quarterly report from either of them since the third quarter of 2015, nearly a year ago. The delay can be traced to both TerraForm Power and TerraForm Global sharing their IT with SunEdison. And when SunEdison found deficiencies in its own accounting, that spilled over the the yieldcos. 

TerraForm Power's agreement to segregate its IT systems from SunEdison's will likely allow TerraForm Global to do the same, which will bring about the biggest change that's needed for both companies. 

Lawsuits far from over

The Appaloosa settlement doesn't completely resolve all the lawsuits SunEdison, TerraForm Power, and TerraForm Global are involved in. In fact, the bigger issue for them could be the $3 billion lawsuit the yieldcos themselves filed against SunEdison. They allege breach of fiduciary duty, a loss of business opportunities, and a higher cost of doing business due to SunEdison. 

The three parties are reportedly in settlement talks, but any resolution could have an impact on how SunEdison's bankruptcy is settled and how the company's shares in the yieldcos are treated. 

This opens up the possibility of a sale

At the end of the day, TerraForm Power and TerraForm Global would really like to be able to operate independently of SunEdison. Separating their IT systems is a step in the right direction, but the bigger battle may be for the controlling stake in TerraForm Power and TerraForm Global that SunEdison owns. The yieldcos have said that SunEdison can't sell its shares of them because of clauses in their corporate charters, which will at least give them leverage as potential bidders emerge. 

That could prove to be significant, because SunEdison is starting to look for buyers of its stakes in the yieldcos, and its debtors would like to see them sold so they can get paid part of what they're owed. Resolving these lawsuits will help unlock the value currently residing in TerraForm Power and TerraForm Global, so news of the settlement with Appaloosa and the ongoing discussions between  SunEdison and its yieldcos will be welcome to investors.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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