I mean, if we are going to call them (the whole mag) out for rah-rahing oil and oil stocks waaay too early, we have to be ready to point out the fact they were willing to actually look under the hood on this one, over a year ago.
SUNE $4.60 down 6.73%; GLBL $6.79 down 1.6%; TERP $12.66 down 8.26%
Since the collapse last week we've been touting Global, the prima facie riskiest as the least risky but that's only relative to the other two.
Lifted in toto from Barron's:
The solar-power developer’s shares soared after Barron’s wrote skeptically about them in 2014. But then they plunged, and a former bull thinks they’re headed from $5 to $2.
When we cast a cold eye last year on the shares of SunEdison, they were going for 20 bucks apiece and Greenlight Capital’s David Einhorn was telling his hedge fund’s investors that the solar-power developer should be worth $35 a share (“Shining a Light on SunEdison’s Growth Strategy,” May 5, 2014). The stock was also a favorite of Dan Loeb’s Third Point Investors and Leon Cooperman’s Omega Advisors. By last week’s end, SunEdison shares were selling for $4.93 and it was hard to find anyone with a kind word for the company’s baroque business strategy.And from Forbes:
Our 2014 story described investor presentations in which SunEdison (ticker: SUNE) planned to grow profits by selling solar projects to SunEdison-controlled “yieldcos”—a then-popular financing vehicle designed to appeal to income-hungry investors. We noted that SunEdison’s related-party sales seemed to be at above-market prices. That could let the company claim inflated green-energy subsidies and tax breaks from the government. The prices of other firms’ related-party transfers were already being contested in court by the U.S. Treasury.
But SunEdison shares soared after our story. By May of 2015, with the shares around $30, well-known solar bear Gordon L. Johnson II, a brokerage analyst, even took the plunge with an Outperform rating that predicted the stock would reach $44. The stock rose to more than $33 and SunEdison announced a $2.2 billion deal to acquire Vivint Solar.
Then SunEdison reported a June quarter in which its overhead expenses jumped sequentially from $198 million to $259 million. The stock sank to less than $10.
The just-reported results for the September quarter haven’t reassured anyone. The company lost $287 million, or 91 cents a share and has more than $10 billion in debt. Gordon Johnson has a new price target: $2.
SunEdison's Big Slide: When Financial Engineering Goes Wrong
It’s the most disastrous big hedge fund trade of 2015. A highly leveraged, deal-hungry stock with a management team cheer-leaded by prominent funds that sought to use a complex financial structure and spongy capital markets to stay a step ahead of a fast-changing industry. Now the stock is crashing, exposing issues of leverage that are causing capital markets to pull back, clouding the company’s financial picture.
No we aren’t talking about Valeant Pharmaceuticals , the once high-flying specialty drugmaker that’s seen its shares battered in recent weeks amid scrutiny into its business practices and transparency. We’re talking about SunEdison, a wafer manufacturer that decided a little over a year ago to jettison its semiconductor business and list a series of publicly traded yield vehicles, called yieldcos, to buy and hold solar developments.
First the company’s stock surged. From November 2014 to July 2015 SunEdison’s shares roughly doubled. Now it has now collapsed, tumbling over 80% from highs hit four months ago. Its problems, while complex, are easy to diagnose. SunEdison leaned too heavily on financial engineering and took on more far more than it could handle over a short time span.
SunEdison created a set of yieldco’s to draw in dividend-oriented stock investors and help fund its growing pipeline of solar developments, similar to how MLPs financed the shale drilling boom. Yieldcos were designed to lower SunEdison’s cost of capital and they gave the company the ability to retain economic exposure to it solar developments, instead of dishing them off to utilities.
Under its new structure SunEdison ascended the solar energy industry, becoming the world’s largest renewable energy developer and the largest solar stock in the U.S. by market capitalization. At it peak in mid-July, SunEdison was worth well in excess of $9 billion, not counting its over $11 billion debt load. TerraForm Power, its first yieldco, listed on the Nasdaq at an over $3 billion valuation, and Terraform Global came in at an over $2 billion valuation.
At first the strategy paid off in spades and it allowed the company and its CEO Ahmad Chatila to make billions in acquisitions, ranging from the $2.4 billion acquisition of First Wind to Mark Group, the renewable portfolios of Atlantic Power and Invenergy, and rooftop installer Vivint .
These deals, in addition the company’s organic projects, helped SunEdison deliver 640 megawatts of power in the third quarter and a project pipeline of 7.9 gigawatts, an about tripling from a year ago, consisting of a 5.4 gigawatt backlog and 2.8 gigawatts of construction underway. Those figures make SunEdison one of the fastest growing power generation companies in the country.
The only problem is SunEdison stretched itself financially to pull off its growth spurt. The company not only has $11.6 billion in debt, it also requires up to $8.8 billion in capital to build out its pipeline over the next year.
SunEdison planned to lean on its two yieldcos, TerraForm Power and TerraForm Global, to house its developments and minimize financial commitments, but when the stock market turned summer it neutralized their advantages. It was then forced to create warehouse facilities to store assets that couldn’t be sent to yieldcos, but the more projects the company commits to those warehouses the worse its earnings outlook becomes....MORE