How Its Liquidity Crisis Burned SunEdison’s Business

The Sun Finally Sets on SunEdison’s Business: Why Did It Happen?

(Continued from Prior Part)

SunEdison’s liquidity position

The upstream solar (TAN) sector is a capital-intensive sector. Solar companies such as SunEdison (SUNEQ), First Solar (FSLR), Canadian Solar (CSIQ), and SunPower Corporation (SPWR) are required to maintain liquidity positions to fund their projects and raise capital at a low cost.

As we have seen earlier in this series, SunEdison went on an acquisition spree to diversify and grow its business. However, there was a time gap between these acquisitions and the integration of its acquired assets with its existing business. As a result, the company has to fund its acquisitions by raising additional capital in the form of debt rather than cash generated from its operations.

SunEdison’s debt has been consistently increasing over the years. As of September 30, 2015, SunEdison’s consolidated debt on its books stood at ~$11.7 billion.

The increase in debt resulted in an increase in interest expenses, which further deteriorated the company’s cash position.

As of September 30, 2015, on a consolidated basis, SunEdison had $2.4 billion of cash and cash equivalents. Of this, $1.1 billion was held by TerraForm Global (GLBL), $636 million was held by TerraForm Power (TERP), and $207 million was held by foreign subsidiaries not part of TERP and GLBL. Most of the available cash is held by SunEdison’s yieldcos, which are not a part of the Chapter 11 filing.

Impact on SunEdison

The liquidity crunch impacted SunEdison’s ongoing operations and led to missing certain project deadlines. For instance, on February 12, 2016, Hawaiian Electric Company terminated the PPA (power purchase agreement) with SunEdison for missing project deadlines.

Moreover, the liquidity crisis also impacted the company’s previously announced acquisitions. On December 2, 2015, SunEdison terminated its proposed acquisition of a 16% stake in Renova Energia.

Also, on March 4, 2016, SunEdison settled the dispute regarding the termination of acquisition of Latin America Power for a payment of $28.5 million. The outcome termination deal with Vivint Solar is yet to be known.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - SunEdison Files for Chapter 11 Bankruptcy: Market Reaction

• Part 2 - What Was SunEdison’s Path to Bankruptcy?

• Part 3 - Vivint Solar Acquisition Announcement Triggered SunEdison’s Fall