How the liquidity crisis burned down SunEdison’s business

The sun is finally setting on SunEdison: why did it happen?

(Continued from previous part)

SunEdison’s liquidity position

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

As we saw 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 the acquired assets into the existing business. As a result, the company must finance its acquisitions by raising additional capital in the form of debt rather than cash generated from operations.

SunEdison’s debt has steadily increased over the years. As of September 30, 2015, SunEdison’s consolidated book debt was ~$11.7 billion.

The increase in debt resulted in an increase in interest costs, which further worsened the company’s cash situation.

As of September 30, 2015, on a consolidated basis, SunEdison had cash and cash equivalents of $2.4 billion. Of this, $1.1 billion belonged to TerraForm Global (GLBL), $636 million to TerraForm Power (TERP), and $207 million to foreign subsidiaries that were not part of TERP and GLBL. Most of the available cash is held by profitable SunEdison companies that are not in Chapter 11 filings.

Impact on SunEdison

Liquidity problems impacted SunEdison’s ongoing operations and led to some project deadlines being missed. For example, on February 12, 2016, Hawaiian Electric Company terminated its PPA (power purchase agreement) with SunEdison due to failure to meet project deadlines.

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

Additionally, on March 4, 2016, SunEdison settled a dispute related to the termination of its acquisition of Latin America Power for a payment of $28.5 million. The outcome of the termination of the contract with Vivint Solar is not yet known.

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