I have been warnings investors of a SunEdison (SUNE, Financial) bankruptcy for quite some time, and on April 21 SunEdison filed for Chapter 11 bankruptcy protection. This was not surprising as the company was going down constantly due to self-created problems.
The stock is still trading over 30 cents; however I expect it to head to $0 soon. Hence, investors should get out while they can and not expect much upside from SunEdison.
Instead of creating and selling its projects, the company aggressively focused on acquisitions, and the multiple acquisitions resulted in a massive amount of debt on SunEdison’s books. The company detailed $20.7 billion in assets and $16.1 billion in liabilities. Stockholders have become gradually bearish on the stock, which has dropped to 33 cents per share from around $30 in July 2015.
This all started in 2014, when the company made nine acquisition deals followed by 18 other deals in 2015, capped by the acquisition of First Wind LLC in May 2015 for around $2.4 billion. This deal was carried off in tandem with previous SunEdison subsidiary and existing yieldco TerraForm Power (TERP, Financial). Moreover, other acquisition deals were not successful, either, mainly due to transactions-related issues.
It does not matter whether the deals were successful as this acquisition trend has demolished the company. SunEdison could not function by itself due to the towering debt and has filed for bankruptcy. Bearing in mind the enormous mix of numerous legal issues and unmanageable debt, bankruptcy was the only viable option for the company.
A problem for TerraForm Global
After SunEdison’s decision to file for bankruptcy, it is appropriate to see that the market thinks TerraForm Global (GLBL, Financial) is in trouble. The problem for the yieldco is that SunEdison’s bankruptcy could take it down at a rapid pace.
TerraForm Global notified investors that some of its debt repayments could be hastened if SunEdison files for bankruptcy and some power purchase contracts on projects could be decreased. The main problem was the $231 million it paid to SunEdison for 425 MW of unfinished projects in India. However, those projects will not be completed on time or at all.
The main reason TerraForm Global looks so dangerous for investors is the fact that a SunEdison default could cause a flow of financial influences that could lead to a default for the yieldco.
Conclusion
With SunEdison filing for bankruptcy, I am certain the stock will head to $0 soon. Hence, investors should save whatever they can and sell the stock as it doesn't have anything to offer anymore.
