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Why TerraForm Power Inc.'s Shares Plunged 10% Today

By Travis Hoium - Apr 4, 2016 at 4:18PM

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A new lawsuit against the yieldco could be a big problem for shareholders.

Image source: SunEdison.

What: Monday was another rough day for the SunEdison family of companies. Yieldco TerraForm Power Inc. (TERP) fell as much as 10% after SunEdison slid closer to bankruptcy and the company was sued by project partners.

So what: There were rumors in the market on late on Friday that SunEdison was preparing for bankruptcy, which didn't come to fruition over the weekend. But its shares did plunge to $0.20 per share, and it seems like bankruptcy is just a matter of time. If the company does file for bankruptcy, it could have adverse effects on TerraForm Power, although it's difficult to know what the ramifications will be for TerraForm Power.

The bigger problem was a lawsuit filed by D.E. Shaw & Co. LP and Madison Deerborn Capital Partners IV LP over an earn-out from the First Wind acquisition last year. They're saying that $510 million of the $1.9 billion acquisition price was deferred in earn-outs and $231 million remains unpaid. They're deeming TerraForm Power responsible.  

Now what: Being tied to SunEdison could end up being an ongoing nightmare for TerraForm Power and this is one reason why. There could be even more contractual obligations or defaults if a bankruptcy takes place, so the stock is a huge risk for investors.

TerraForm Power should have value considering its project assets and cash flows, but with the uncertainty SunEdison provides, I can't see buying the stock now. Investors should wait to see what other land mines are uncovered in SunEdison's bankruptcy and wait for a cleaner company to emerge before jumping in.

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