What Was SunEdison’s Path to Bankruptcy?



Factors that led to SunEdison’s bankruptcy

The major factors that led to SunEdison’s bankruptcy were leveraged acquisitions and the liquidity crisis. More than the macro factors, SunEdison’s fall appears to be self-made.

In order to gain market share and diversify its business across geographies, SunEdison resorted to aggressive inorganic growth. The company made too many acquisitions in a short time, and some of these acquisitions were highly leveraged.

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Leveraged acquisitions

On January 29, 2015, SunEdison completed the acquisition of First Wind Holdings. According to the terms of the purchase agreement, SunEdison (SUNEQ) and TerraForm Power (TERP) paid a total consideration of $2,442 million, which comprised a cash consideration of $762 million paid by SunEdison and $864 million paid by TerraForm Power.

SunEdison funded the acquisition partly from the available cash reserves and remaining through the issuance of guaranteed exchangeable senior secured notes due in 2020. The aggregate principal amount issued was $337 million and the exchangeable notes bear an interest rate of 3.75% per annum, which is payable semiannually.

On June 26, 2015, SunEdison and TerraForm Power completed the acquisition of Atlantic Power for a purchase consideration of $350 million. The acquisition was funded mainly through the TerraForm Private Warehouse debt facility.

Apart from the above-mentioned acquisitions, SunEdison also acquired Silver Ridge Power, a global solar (TAN) power company, and 35% interest in the joint venture between SUNEQ and Samsung Fine Chemicals for a purchase consideration of $179 million and $141 million, respectively.

According to company filings, the cumulative value of acquisitions made by SunEdison and its yieldcos, TerraForm Power (TERP) and TerraForm Global (GLBL), during the last two years corresponds to more than $5 billion.

Impact on SunEdison

As a result of leveraged acquisitions, SunEdison’s liquidity position crumbled and its interest expenses increased over the years. According to company filings, SunEdison also incurred substantial non-recurring regulatory costs associated with its First Wind acquisition.

In the next part of this series, we’ll learn why Vivint Solar’s (VSLR) acquisition announcement triggered SunEdison’s bankruptcy.


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