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Why TerraForm Global Inc.'s Shares Plunged 25% in February

By Travis Hoium – Mar 8, 2016 at 12:18PM

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A big downgrade from a ratings agency made investors uncomfortable with TerraForm Global Inc. last month.

Image source: SunEdison.

What: Shares of TerraForm Global Inc. (NASDAQ: GLBL) dropped 25% in February as the company's future financial picture became more uncertain and its debt was downgraded.

So what: TerraForm Global's parent company, SunEdison (SUNEQ), has had a plethora of financial difficulties in the past eight months, and that's starting to spill over to TerraForm Global. In February, Moody's downgraded the company's debt and questioned its ties to SunEdison.

The dropdown of certain assets, like 425 MW of not-yet-completed assets in India, and the conflicts among board members made Moody's uncomfortable. But the increased risk of SunEdison's bankruptcy is the biggest red flag. The rating agency said the "yieldcos will face collateral consequences from a SUNE bankruptcy" and said the boards may eventually have to consider bankruptcy themselves. That's not the kind of stock investors are jumping to buy right now. 

Now what: On the surface, TerraForm Global's operations seem safe, but there's more than meets the eye. If its parent does file for bankruptcy, it could call into question assets that have been paid for and aren't completed, and could lead to even more operating uncertainty going forward. The stock's 30% dividend yield looks attractive at the moment, but it may not be around for long, and the possibility of collateral consequences of a SunEdison bankruptcy will keep me out of this stock right now.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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