After a brutal six months, David Tepper (Trades, Portfolio)’s 11% stake in Terraform Power Inc. is swinging to a profit after it issued a statement Thursday that the bankruptcy of SunEdison (SUNE, Financial), its sponsor company, would not materially impact its business.
TerraForm (TERP, Financial) said in a statement that it had no plans to file for bankruptcy after SunEdison filed Thursday morning. The two companies operate as separately traded entities, with TerraForm Power owning and operating clean energy power plants. SunEdison would continue, TerraForm said, to provide asset management and operations and maintenance services to those power plans after the bankruptcy.
TerraForm will also have enough cash to continue operation and meet its financial obligations. As of Sept. 30, the date of its last public quarterly filing, the company had $635.8 million in cash and equivalents.
“In addition, TerraForm Power intends to coordinate with SunEdison so that the company’s facilities and their operations continue to perform uninterrupted,” it said.
Before SunEdison’s bankruptcy, it acted as the global sponsor of TerraForm, acquiring and developing clean energy assets that it then transferred to TerraForm to operate. It was the largest clean energy developer in the world.
In the month of March, David Tepper (Trades, Portfolio), president of the third most profitable hedge fund in the world, Appaloosa Management, bought 1,072,949 shares of TerraForm with an average price of $8.44 a share. With stock rising 6.09% Thursday to $10.46 a share on the SunEdison news, Tepper gained approximately 24% on those shares.
Tepper also bought 7.6 million shares of TerraForm in the fourth quarter, when the price averaged higher at $14 per share. He likely bought his shares when the stock plunged significantly in November, however, to as low as $6.90. In December the shares rebounded to as high as $13.20 each. As of his most recent filing on March 29, Tepper held a total of 8,708,708 shares, or 10.9% of those outstanding, TerraForm power stock has dropped 44% in the past six months.
Tepper, a distressed asset specialist, also won a victory in his lawsuit against TerraForm for alleged breach of fiduciary duty, when the company complied with his call for removal of its CEO. TerraForm president, CEO and board member Brian Wuebbels, resigned March 30. Peter Blackmore, an independent director and chairman of the company, has led the company on an interim basis.
Tepper also called for more corporate governance changes, such as the replacement of the Corporate Governance and Conflicts Committee with members elected by shareholders, appointment of a board member to represent shareholder interests and other unnamed changes.
Several other investors, such as David Einhorn (Trades, Portfolio) of Greenlight Capital (GLRE, Financial), became caught up in a potential turnaround at SunEdison. On April 15, he sold 75% of his stake, more than 15.8 million shares. SunEdison stock closed at 34 cents Thursday after a 99% drop over the past year.
TerraForm paid an attractive 15.3% forward dividend yield on its steadily earning assets that it may not be able to sustain in the near future with consensus earnings estimates for 2016 down to 40 cents from 50 cents. If Tepper continues to reform the company, however, he may send the stock up even higher.
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