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SunEdison’s Stock Falls 24% – Solar Giant Doubts Ability to Fund Construction of Future Assets

November 11, 2015

SunEdison Inc., the world’s largest renewable energy development company, saw its stock price slide 24% on Tuesday, November 10th. The U.S. solar company posted wider-than-expected losses compared to analyst’s projections. The stock went down to $5.91 after losing $1.49 (20.1 percent) during mid day trade on the New York Stock Exchange. Since hitting a year high this summer of $33.44 on July 20th, SunEdison’s stock has lost 82 percent of its value. The company’s ability to fund its operations, projects, and acquisitions has provoked this fall in the stock’s price raising concerns amongst investors, analysts on Wall Street, and those in the solar sector.

SunEdison announced that it would stop selling projects to two of the company’s “yieldcos” – assets of solar, wind, and power that have been spun off into dividend paying entities. These yieldcos were a vital source of funding to SunEdison.  With the yieldco model, companies can bundle their power plants including other generation assets and spin them off into separate listed entities.  The contracts that they have with utilities produce a certain cash flow which then is used to pay dividends to the parent company and investors.  The remaining cash flow can then be used to invest in new plants.

Over the last two years, these yieldcos such as SunEdison’s Terraform Power Inc. and Terraform Global Inc. have become increasingly popular with solar developers and investors alike.  Because of the paid dividend, they provide consistent yield and less risk opposed to other methods of investing in the solar sector.  Yieldcos have suffered recently because of low oil prices which has made solar less attractive.  All renewable energy stocks have suffered from the price dip in oil as a whole.  In addition, the yieldco model is threatened by the Federal Reserve’s interest rate hike, which would give another reason why solar is a less attractive investment.

Unfortunately SunEdison’s troubles do not stop here.  In its quarterly report on Monday, SunEdison stated that they were unsure whether the company would be able to raise the necessary capital to continue funding the construction of renewable energy assets through the 2016 calendar year. An estimated value of this cost is between $6.5 billion and $8.8 billion.  The company has not turned a profit in three years and it reported a third-quarter loss of 91 cents per share, 20 cents higher than what analysts on average had expected.

To shore up investor confidence, CEO Ahmad Chatila has trimmed his workforce by laying of 15 percent of his staff as well as pausing asset sales to yieldcos.  On Tuesday, Chatila also said that SunEdison would stop expansion and withdraw from some countries in order to focus more on cash flow and gross margins.  The company still has not closed its biggest deal of the year, a $2.2 billion acquisition of Vivint Solar Inc, in hope of expanding more in the residential solar market.  With investor confidence at a new low and its stock price increasingly falling to that level, Chatila did say that SunEdison will seek to renegotiate and even terminate existing acquisition deals if necessary.

Brought to you by the EarlyBird Power Market Research Team