Image source: SunEdison.
What: It was another wild day for the SunEdison Inc (SUNEQ) family of companies today. SunEdison itself jumped as much as 61%, TerraForm Global Inc (NASDAQ: GLBL) rose as much as 21%, and Vivint Solar (VSLR) shares jumped 34%. TerraForm Power Inc (TERP) actually dropped as much as 7% in early trading, but is about flat mid-day.
So what: Yesterday, SunEdison shares popped after Vivint Solar shareholders approved the proposed acquisition. But after the market closed SunEdison also found out it won a lawsuit against TerraForm Power shareholder David Tepper, who was trying to get TerraForm Power out of funding $799 million of the acquisition by buying 523 MW of Vivint operating assets.
Winning the lawsuit means SunEdison won't have to either fund $799 million of the acquisition itself or sell assets at a distressed price to a third party. So the news may be bad for TerraForm Power today, but it's great for SunEdison. Being forced to complete the acquisition without TerraForm could have weakened the balance sheet further and even led to bankruptcy, so this gives some temporary reprieve.
Vivint Solar popped along with SunEdison because the acquisition is now imminent, and part of the compensation is shares of SunEdison. So the two stocks are invariably linked in day-to-day trading.
TerraForm Global's pop has less to do with this individual deal and more to do with the fact that it may have been tied to SunEdison's fate. In a note to debt investors this week, Moody's raised concerns that TerraForm Global could be pulled into bankruptcy if SunEdison were to go bankrupt. That fear has subsided, for now.
Now what: Short-term, this is very good news for SunEdison and all of its related companies. Early this year, management laid out plans to make it through 2016 from a cash standpoint, but that was contingent on TerraForm Power helping fund the Vivint Solar acquisition. Now that we know that's actually happening it takes a lot of risk off the table.
The question now is whether SunEdison has a viable business going forward. And there are too many unanswered questions to know for sure. What has me concerned is that execution on building projects has been weak, margins on sales to third parties has been low, and debt costs have been on the rise. Add to that the fact that SunEdison is reporting massive losses quarter after quarter and there's still too much risk of bankruptcy long-term for investors to dive in. Vivint Solar will actually increase SunEdison's losses and needs for cash, so good news today doesn't mean good news for investors long-term.
