What: If they hadn't figured it out already, Tuesday, March 29 2016 may be the day investors finally realized the future of SunEdison Inc (OTC:SUNE.Q) is destined for bankruptcy court in the very near future. In a filing with the SEC, SunEdison's yieldco TerraForm Global (NASDAQ: GLBL) said it would delay filing its 10-K beyond March 30 and "there is a substantial risk that SunEdison will soon seek bankruptcy protection".
To make matters worse, the Wall Street Journal is reporting that the SEC is investigating SunEdison's disclosures about its cash position in 2015. This could be a reason that SunEdison has delayed filing its 10-K with the SEC, an indication there are larger accounting problems in the company.
So what: SunEdison itself fell as much as 44% in early trading Tuesday, while TerraForm Power (NASDAQ:TERP) and TerraForm Global dropped as much as 14% and 21% respectively. The disclosure about SunEdison's finances, while not surprising, has almost eliminated any hope investors had of a recovery for the firm. SunEdison's financial position has been getting rapidly worse since last summer and a downward spiral or rising borrowing costs and financial losses have finally dragged the company down.
There is some worry that TerraForm Power and TerraForm Global will be dragged into bankruptcy with SunEdison, but there's no guarantee they will. TerraForm Global said that it has enough liquidity to support its business, even if SunEdison goes bankrupt and TerraForm Power should be in a similar position.
TerraForm Global has said that its India projects, bought from SunEdison last year, have provisions that allow lenders to accelerate debt maturity if SunEdison goes bankrupt. And some projects in South Africa have power purchase agreements that could default if a change of control in TerraForm Global takes place. Of the two yieldcos, TerraForm Global is the highest risk.
Now what: These three companies have been a mess for the past nine months and that could finally land SunEdison in bankruptcy, sooner than later. I think that would be good for both TerraForm Power and TerraForm Global, who could then get independent directors to oversee the company, reduce dividents to lower debt, and buy projects from third parties when conditions are right. So far, both have been like a piggy bank for SunEdison, which has been to the detriment of the yieldcos.
With that said, until we get some certainty about the financial future and independence of both yieldcos I wouldn't be very bullish on the stocks. There's still a risk that SunEdison could drag them into bankruptcy, even if that risk is fairly small, or there could be accounting irregularities that spilled into the yieldcos.
As for SunEdison, there's absolutely no reason to own the stock now. Any hope of recovery is all but gone and the delayed SEC filings and new SEC investigation show no sign that management is turning operations around. I've been saying it for months, but SunEdison is doomed.