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SunEdison Inc.'s Problems Are Only Getting Worse

By Travis Hoium - Apr 2, 2016 at 7:00AM

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A new Department of Justice subpoena is the latest bad sign for SunEdison Inc.

Image source: SunEdison.

It seems like every day there's some sort of bad news for SunEdison Inc. (SUNEQ). Already, SunEdison has delayed is annual filing with the Securities and Exchange Commission (twice) and there's no indication that we'll see the report anytime soon. As if that weren't bad enough, the SEC is investigating the company's disclosures that are part of the delayed filings and those of its cash position.  

Earlier this week, one of its yieldcos said in an SEC filing that there was "substantial risk that SunEdison will soon seek bankruptcy protection." The latest blow was a subpoena from the U.S. Department of Justice seeking information about former acquisition targets, project financing, and transactions with TerraForm Power (NASDAQ: TERP) and TerraForm Global (NASDAQ: GLBL). It should be plain to all that the mess for SunEdison is far from over.

What the DOJ wants from SunEdison
Let's look at the latest government agency is specifically looking for. The DOJ has requested documents about the following five items:

  1. Certain financing activities in connection with the Company's acquisition of Vivint Solar;
  2. The conduct of a former non-executive employee who is alleged to have committed wrongdoing in connection with the Vivint termination negotiations;
  3. The previously disclosed investigations by the Company's audit committee;
  4. Intercompany transactions involving the Company and each of TerraForm Power and TerraForm Global;
  5. The financing of the Company's Uruguay projects in connection with project costs and equity contributions that remain to be contributed by the Company.

You might remember that questions about the Vivint Solar transaction and dropdowns to TerraForm Power and TerraForm Global were central to billionaire hedge fund manager David Tepper's attack on SunEdison starting late in 2015. This seems to be even more vindication that he was right that SunEdison wasn't being run properly, especially when it came to the yieldcos.

The biggest problem management has faced yet
Given the massive collapse of SunEdison and the billions of dollars shareholders have lost, it's not surprising that the SEC is investigating the company. But the DOJ investigation goes beyond the norm and could support Vivint Solar's accusation that there was a "willful breach of the merger agreement" between the companies.  

Given all of the distractions, it's hard to see how SunEdison could avoid bankruptcy much longer. It needs a fresh start as a company and to refocus with a new management team and less bloated balance sheet/business. That's likely on the near-term horizon.

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