Liquidity may help companies under stress in the short term. But in the case of capital-intensive companies like SunEdison (SUNE), it’s the quality of fixed assets that plays an important role if the stress period extends.
SunEdison and its balance sheet
Over the last few quarters, SunEdison’s balance sheet has become bloated due to acquisitions and the change in its business model. FirstWind, acquired in 2014, and some projects dented the last few quarters of the company’s balance sheet. The company also shifted its business model to “build, own, and operate” from an earlier model of developing solar (TAN) projects for third parties. As a result, total assets increased to $20.7 billion as of September 30, 2015, out of which $11.4 billion (or 55%) was in the form of net fixed assets. Moreover, $2 billion was in the form of intangible assets. This compared with total assets of $6.7 billion as of December 31, 2013, out of which $3.1 billion (or 47%) was in the form of net fixed assets. SunEdison’s peer, FirstSolar (FSLR) employs an asset-light business model.
Out of $20.7 billion assets with SunEdison as of September 30, $2.9 billion lied with TerraForm Global (GLBL) while $5.5 billion lied with TerraForm Power (TERP). TerraForm Global (GLBL) and TerraForm Power (TERP) held $1.2 billion (41% of total assets) and $3.9 billion (72% of total assets), respectively.
Compared to SunEdison and TerraForm power, TerraForm Global seems to be in a better financial position with a large part of total assets parked in cash. SunEdison recently announced the sale of some Indian assets to TerraForm Global for $231 million to pay off a loan. Although TerraForm Global enjoys a better balance sheet than other two companies, investors should note that GLBL operates in riskier emerging markets.