SunEdison and Its Yieldcos: Value Plays or Distressed Companies?
SunEdison
Based on our preliminary analysis, we can see that SunEdison (SUNE) seems to be under a lot of stress, financially and operationally. The company has undergone many transformations—from a semiconductor company to a solar developer to a major renewable energy player. With the Vivint Solar (VSLR) deal, the company expects to enter the residential solar space as well. However, the deal seems to be ill-timed, as SunEdison itself is struggling to manage its current operations profitably. Negative tangible net worth would mean that the company would have to sell assets at a profit over book value to create any value for shareholders. Under stress, the company may try to sell its assets desperately, making it a less-than-favorable deal for shareholders.
TerraForm Power
While TerraForm (TERP) Power has a cleaner balance sheet than its sponsor, its operating efficiency remains subdued, as you can see from its debt-to-EBITDA of over 12x in 3Q15. Note that TERP’s debt-to-EBITDA has trended downward since its inception. Moreover, the company’s stock is currently trading at a decent price-to-book-value multiple of 1.7x. TERP’s future hangs on the future of the Vivint Solar (VSLR) deal as well as the company’s ability to improve its operating efficiency.
TerraForm Global
The newest kid on the block, TerraForm Global (GLBL), offers a much cleaner balance sheet loaded with cash. Based on a price-to-tangible-book-value multiple of 0.9x, we can see that TerraForm Global looks undervalued. But TerraForm Global invests in riskier solar (TAN) assets in emerging markets. How TerraForm Global deploys its available cash and how the cash flows shape up will be the key things to watch out for.
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