In 2014, SunEdison was a hedge fund darling. Greenlight Capital founder David Einhorn touted the Maryland Heights, Missouri-based developer of renewable power plants at a conference that year, saying the sum of its parts was far greater than its then share price of $19 and was worth more like $32.
In early February, SunEdison was trading at less than $3 a share, falling more than 90 percent after hitting Einhorn’s target price in July 2015. The stock retains its hedge fund fan base: Greenlight is still invested, as are Glenview Capital Management, Omega Advisors, Point72 Asset Management and others. But the company has racked up serious debt, along with a host of legal problems, raising questions as to whether it can ever return to the level Einhorn predicted when he first bought the stock.
SunEdison’s troubles ramped up in 2015, when it announced a sweeping plan to build operations on every continent, then started buying billions of dollars in renewable-energy assets, which loaded its balance sheet with speculative debt. SunEdison financed the deals with a captive yieldco it operates - publicly traded TerraForm Power - while warehousing energy assets to either develop in-house or flip to another developer for a profit. But SunEdison continued to spend, with little profit to show for it. Then in January, TerraForm stakeholder Appaloosa Management, founded by David Tepper, sued to block that company’s proposed acquisition of assets from Blackstone Group-backed Vivint Solar, a provider of residential solar energy systems, following Vivint’s acquisition by a SunEdison subsidiary. Tepper has an approximately 9.25 percent stake in SunEdison’s TerraForm Power and said the deal terms were not favorable for TerraForm shareholders and accused SunEdison executives of self-dealing on the Vivint acquisition by using their control over TerraForm to set up financing for the deal. As of early February the Vivint deal still hadn’t closed, and SunEdison was shopping around for another buyer for Vivint’s assets.
In early January things appeared to be stabilizing. Just before Christmas, SunEdison announced it would be shedding $336 million in debt by selling energy assets and shares in TerraForm to a creditor group consisting of D.E. Shaw & Co., Madison Dearborn Partners and Northwestern University. The company also sold the first half of another deal involving solar assets from Virginia-based Dominion Energy to Terra Nova Renewable Partners.
But on January 7 the company’s stock fell 39 percent in a single day following an announcement that it planned to strengthen its balance sheet by taking on new debt to pay off existing convertible debt. On balance, the shift made sense - the new loans paid off more-expensive debt and added much-needed liquidity to the company’s ledger - but it came at the price of destroying almost all remaining investor confidence.
Still, a growing number of analysts have upgraded their view of SunEdison, and calls now range from hold to market outperform. Michael Morosi, senior analyst at Nashville-based research shop Avondale Partners, has a price target of $7 on the stock. “While we were clearly early in upgrading SUNE, we maintain our conviction that this valuation disconnect will ultimately lead to material upside from current levels," Morosi wrote in a recent research note. But he cautions that with key operating positions up for grabs, management will need to set a clear path forward and that the board must leave all options on the table.
That path may be starting to emerge. The company’s balance sheet is improving, and on January 25 SunEdison gave one of its recently vacated board seats to Einhorn. Greenlight is reportedly seeking the sale of SunEdison assets or even the company itself. Shares rose approximately 1 percent on the news in afterhours trading on January 25. But the reprieve was short-lived: Since then the stock has resumed its downward spiral.
