Yieldcos enabled SunEdison's debt-fueled acquisition spree

At an early 2015 investor conference, SunEdison’s then-chief financial officer, Brian Wuebbels, trumpeted the profit potential in the solar developer’s relationship with a venture it had recently spun off.

SunEdison had established TerraForm Power Inc as a “yieldco,” a complex financing vehicle to purchase energy projects from SunEdison and other developers. TerraForm lured investors with the promise of reliable dividends based on long-term power contracts.

As Wuebbels’ presentation made clear, the yieldcos also created incentives for SunEdison to rapidly acquire more power projects.

“It’s all about growth, creating a pipeline, feeding that pipeline into TerraForm,” he told investors.

The resulting acquisition spree would drive SunEdison deeply into debt – and ultimately into bankruptcy. SunEdison’s Chapter 11 filing last week has brought new scrutiny to the company’s relationship with TerraForm Power and a second yieldco it formed in 2015, TerraForm Global.

A spokesperson representing both yieldcos declined to comment. SunEdison officials did not respond to a request for comment.

Wuebbels – who became CEO of both yieldcos late last year – resigned last month and could not be reached for comment.

Yieldcos have become relatively common in the alternative energy sector since their launch in 2013. But unlike the earliest such entities, TerraForm Power and TerraForm Global were structured to include “incentive distribution rights,” or IDRs, designed to direct additional cash to SunEdison as the yieldcos reached certain levels of dividends to investors.

Under the arrangement, SunEdison would collect a rising share of TerraForm’s dividends as they grew – reaching a high of 50 cents for every additional dividend dollar beyond 45.14 cents a share.

Getting to that level quickly, Wuebbels told investors in February of 2015, would require rapid expansion of the yieldco’s holdings.

“In doing that, we get more cash and IDRs back to the company,” he said.


By September of last year, SunEdison reported more than 800 projects in the pipeline or in backlog, and it had branched out from its core business of utility-scale solar into wind power and residential solar. The company – which owned a controlling interest in both yieldcos – launched deals across the United States as well as in Europe, Latin America and Asia.

The rapid growth required prolific borrowing, and SunEdison’s debt level nearly doubled between September of 2014 and September of 2015, from $9 billion to $16.1 billion.

As investor skepticism mounted, the company’s stock plunged by 84%, from a lifetime high of $33.45 in July to $5.09 at the end of 2015. By the time the company filed for bankruptcy last week, the stock was trading at 34 cents a share.

In March, the company announced it had received a subpoena from the U.S. Department of Justice seeking information about SunEdison’s relations with its yieldcos and about its failed attempt to acquire residential solar company Vivint Solar Inc.

Earlier this month, SunEdison said in a regulatory filing that an audit committee investigation had found no evidence of fraud. The company conceded, however, that the counsel hired by its independent directors had “identified issues with the Company’s overly optimistic culture and its tone at the top.”

Neither TerraForm Power nor TerraForm Global was included in the Chapter 11 filing, and both have said in statements that they expect to continue operations. On Friday, shares of TerraForm Power and TerraForm Global closed down 57 percent and 79 percent from their respective IPO prices.


The industry’s first yieldcos were broadly viewed as a success through 2014. They worked as intended, lowering capital costs for their parent companies and delivering stable returns to investors.

But strong appetite for their stocks among hedge funds and institutional investors drove share prices up for many yieldcos, including those formed by SunEdison.

That created more pressure for acquisitions to bolster dividend yields and drove up prices for power projects as yieldcos competed with one another to purchase them. Their voracious appetites soon led investors to nickname them “growthcos.”

“It becomes a treadmill whose speed is constantly ramping up,” said Keith Martin, a project finance attorney at Chadbourne & Park LLP, which has represented yieldcos in asset acquisitions.

Ed Feo, president of renewable energy developer Coronal Group LLC, described the dynamic as “trying to fill up a bucket that has a hole in the bottom.” INVESTOR ANGST

As SunEdison and its yieldcos continued to pile on debt to expand, analysts and investors became increasingly skeptical.

In 2014 and 2015, SunEdison’s yieldcos raised more than $7.5 billion through debt and equity, according to data compiled by research firm Clean Energy Pipeline.

In November of 2015, billionaire hedge fund manager David Tepper’s Appaloosa Management, which acquired a 9.3 percent stake in TerraForm Power, sent a letter to TerraForm’s board of directors criticizing the Vivint deal, saying it was motivated by the SunEdison’s thirst for cash payouts from IDRs.

An outspoken critic of how SunEdison uses the IDRs – and what he called its outsized influence on TerraForm Power’s project purchases – Tepper filed suit in January in an attempt to block the yieldco’s Vivint acquisition. Initially priced at $922 million, the deal eventually fell apart, and Vivint sued SunEdison for breach of contract.

One industry observer attributed SunEdison’s woes to the risks inherent in an emerging industry toying with experimental financial instruments.

“You are combining a relatively new energy sector with a brand new investment vehicle,” Dan Reicher, executive director of Center for Energy Policy and Finance at Stanford University. “We shouldn’t be terribly surprised that we’ve had some problems.”

(Editing by Sue Horton and Brian Thevenot)

Source link


Pin It on Pinterest

Share This
NBC tries to promote karate for 2020 Olympics, shows taekwondo
Ala. lawyer busted trafficking methamphetamine, 369 grams seized
Former Cuomo aide killed in crash on Long Island Expressway
Critics rip Cuomo plan that combines tax and wage subsidies
Oil prices fall as analysts say August price rally has been overblown
Asian shares slip, dollar stands tall on Fed hike bets
Japan Inc unenthused over Abe's stimulus, BOJ easing: Reuters poll
Facebook can climb more than 20 percent on ad growth: Barron's
Singapore Luxury Real Estate: Back to a Buyer's Market
Sail The Seven Seas With Ease In The Oyster 625 Bandido
The Montblanc Meisterstück Is On Point
The Wining Wines of the 2015 En Primeur Campaign
Can’t believe you ate the whole thing? Blame ‘false hunger’
Lead in NYC tap water is a danger despite quality system
Seattle toddler speaks first words after nearly drowning
Humans first infected Neanderthals with herpes, tuberculosis
Barbra Streisand Tells Apple to Fix Siri's Pronunciation of Last Name
Watch Metallica Debut Punishing 'Hardwired' Live at Minneapolis Concert
Matt Roberts, Original 3 Doors Down Guitarist, Dead at 38
Frank Ocean Reflects on Creating 'Blonde' in Tumblr Posts
Obama wants more choices for consumers using cable boxes
Sanders preaches economic equality at the Vatican
Senator calls out CUNY boss Milliken on campus anti-Semitism
Angry campaign making strange bedfellows out of bedfellows
Basketball Football Other Sports
SEE IT: Softball player pulls off behind-the-back bunt
Nets owner Mikhail Prokhorov’s office raided in Moscow
Isola: Phil Jackson no longer the cool, calm man on bench
Mobile Social
How carbon nanotubes could give us faster processors and longer battery life
Facebook’s new teens-only app Lifestage turns bios into video profiles
Looklive helps men shop by mimicking celebs’ styles