SunEdison: Why $2.4 Billion in Liquidity May Not Be Enough
SunEdison and Its Yieldcos: Value Plays or Distressed Companies?
Importance of liquidity
For companies going through tough times, available liquidity plays a major role in surviving a downturn. This is especially true for companies or industries going through a temporary phase of stress or a cyclical downturn.
SunEdison
SunEdison (SUNE) reported $2.4 billion in cash and cash equivalents (including marketable securities) as of September 30, 2015. The company got a billion-dollar liquidity boost in 3Q15 despite burning over a billion dollars in free cash due to proceeds received from the IPO of TerraForm Global (GLBL) as well as additional debt and equity issuance. Note that the liquidity quoted above is on a consolidated basis. Due to the liquidity boost, SunEdison’s consolidated current ratio jumped to 1.1x as of September 30, 2015, from 0.9x as of June 30, 2015.
Most of the liquidity with yieldcos
Out of $2.4 billion in liquidity as of September 30, 2015, $1.1 billion was available with TerraForm Global (GLBL) while $636 million was available with TerraForm Global (GLBL). TerraForm Global (GLBL) and TerraForm Power (TERP) are the yieldcos sponsored by SUNE. TERP operates solar (TAN) and wind (FAN) power plants in the United States while GLBL operates primarily in emerging markets.
What does this mean?
While SunEdison and its subsidiaries seem to have large liquidity, most of this is sitting in the yieldcos, which run operational power plans. The cash is sitting in the yieldcos, which probably don’t need it to continue their operations. On the other hand, SunEdison, which runs the capital-intensive renewable energy development business, has only $674 million liquidity available. The liquidity is considerably lower than the $1 billion free cash that the company burned in 3Q15. So SunEdison (excluding yieldcos) remains under a visible liquidity crunch. On the other hand, how the yieldcos deploy available liquidity will be something to watch for in 4Q15 and beyond.
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