Why TerraForm Global Inc.'s Shares Dropped 19% Today

A big debt downgrade didn't sit well with TerraForm Global Inc. investors today.

Travis Hoium
Travis Hoium
Feb 25, 2016 at 4:21PM
Energy, Materials, and Utilities

Image source: SunEdison.

What: Shares of TerraForm Global Inc. (NASDAQ:GLBL) plunged as much as 19% in late trading after the company's debt was downgraded.

So what: Moody's recently downgraded its outlook on TerraForm Global, saying that bankruptcy was a possibility if parent SunEdison had to file for bankruptcy. The prepayment of $231 million to SunEdison for 425 MW of projects in India that are not completed and four originally planned acquisitions haven't yet been completed.  

Near term, the company should be able to operate with an estimated $800 million in cash, but the uncertainty for TerraForm Global and its ties to SunEdison can't be overlooked.

Now what: Yieldcos are supposed to be safe renewable energy investment with long-term contracts, but TerraForm Global is turning out to be anything but safe. The stock's dividend is now 25%, implying that investors don't believe that's going to last, and the fact that Moody's brought up the possibility of bankruptcy is concerning. I would be very cautious with this stock because its ties to SunEdison could be a fatal flaw in the long run. Even with the enticing dividend, I wouldn't be a buyer today.