Image source: SunEdison.
What: Shares of SunEdison Inc. (NYSE: SUNE) surged an incredible 59.6% in December and its yieldcos, TerraForm Power (NASDAQ: TERP) and TerraForm Global (NASDAQ: GLBL), jumped 82.3% and 38.7%, respectively. Long story short, there were a number of announcements and transactions that could help the trio of companies survive.
So what: SunEdison's stock has been decimated in 2015 after its yieldcos dropped and debt started to become a huge concern for investors. Just looking at a few of the announcements SunEdison made in December will help explain why the stock was up so much.
- On Dec. 2, SunEdison said it was backing out of a $250 million purchase agreement with Light Energia S.A. to acquire a 16% stake in Renova. A $4 billion agreement to acquire as much as 2.7 GW in projects was also terminated, most of which were intended for TerraForm Global.
- On Dec. 9, SunEdison said it had modified its acquisition of Vivint Solar to include $2 per share less in cash. The company will also try to sell some residential solar assets rather than keep them in TerraForm Power.
- Dec.10, SunEdison said it was selling 333 MW of wind projects to TerraNova Renewable Partners for $209 million. The company is a partnership between SunEdison and institutional investors advised by JP Morgan Asset Management Global Real Assets.
- On Dec. 30, TerraNova Renewable Partners also bought a 33% stake in 336 MW of solar projects from Dominion. The partnership has the option to buy the other 67% based on "certain triggering events."
- Also on Dec. 30, SunEdison said it had agreed to exchange $336 million in 3.75% secured notes for shares in TerraForm Power and a stake in "certain under development renewable energy assets."
That's a lot of transactions all aimed at reducing debt, something that has to be a priority for SunEdison. But we don't know exactly how much debt has been reduced or what the margins of projects were until fourth-quarter results are announced.
For TerraForm Power and TerraForm Global, I think the recovery in shares was driven more by the realization that dividend yields had gotten too high when they were well into double digits. Even today, both yield dividends of over 10%, which is incredibly high given the long-term contracts underlying renewable energy assets.
Now what: Is this a small, temporary recovery or the start of a major one for SunEdison and its yieldcos? I really don't know, but I have my doubts. SunEdison isn't likely selling these projects at high margins, and in making transfers of debt for assets, it's giving up potential long-term assets just to reduce debt.
We still don't know if SunEdison will be able to fund its business long term or what margins will be now that it plans to sell projects to third parties rather than drop them down to yieldcos. Even the promise of that strategy change is in question given the asset acquisitions in the quarter.
I would stay out of all three stocks until we get a clear idea of what SunEdison's long-term future looks like and what role the yieldcos will play. Until then, I think they're all too high-risk and there are better opportunities for stable growth in renewable energy.
