David Tepper (Trades, Portfolio) and Appaloosa Management have said through an amended lawsuit that several TerraForm Power (TERP, Financial) directors and SunEdison (SUNE, Financial) have dismantled TerraForm’s corporate governance and conflicts committee and replaced it with a “sham committee” so SunEdison could take advantage of TerraForm and its stockholders.
Appaloosa wants Peter Blackmore, Jack Jenkins-Stark and Christopher Compton to be removed from TerraForm's Conflicts Committee. Appaloosa also wants CEO Brian Wuebbels out. Wuebbels is also SunEdison's CFO, but SunEdison earlier announced he would be replaced as CFO in April.
The lawsuit was initiated by the hedge fund to make sure TerraForm, a spin-off and so called “drop-down vehicle” of SunEdison, a David Einhorn (Trades, Portfolio) holding, would not be used as a dumping ground for some particularly bad assets from Vivint Solar (VSLR, Financial). In an earlier article, I quoted from Tepper’s letter as follows:
Thus, it is obvious that the deterioration in TERP's security prices and credit profile this month results from (among other things): (1) the transmission of financial stress related to its sponsor's ambitious growth objectives and overextended financial commitments; and (2) TERP's incomplete and selective disclosures. TERP's "reliance on third party acquisitions" has little bearing on either of those factors. We note the advertised increase in the number of independent directors on TERP's board and trust that the Corporate Governance and Conflicts Committee (the "Conflicts Committee") will appropriately investigate these and any other related-party transactions to ensure that they are conducted for the benefit of TERP stakeholders.
Meanwhile Einhorn is invested in SunEdison and believes the market doesn’t understand SunEdison’s balance sheet and how much of its debt it is really liable for. We quoted him in an earlier article about this soap opera as well:
SunEdison consolidates both TerraForm Power and TerraForm Global on its GAAP statements. The complicating result is two-fold: First, when SunEdison sells a project to TerraForm Power or TerraForm Global it bears the operating costs but doesn’t get to book the revenue from the sale. The result is the appearance of an operating loss. Second, TerraForm Power and TerraForm Global use nonrecourse project finance debt to fund the purchases and the debt appears on SunEdison’s balance sheet. The result is that SunEdison appears to be heavily levered and losing money. From a GAAP perspective that’s true, but from an economic perspective it is not. Nonetheless, this hasn’t stopped some wise guys from dubbing it “SunEnron…
At that time Einhorn was of the opinion SunEdison’s real or economic earnings for 2016 would be $1.34. Its stock now trades at an unbelievable 43 cents.
Meanwhile, Terraform Power is also down but not as dramatically. It now trades at $9.83 against the $12 it traded at before. It trades at a 10% forward dividend yield and consensus estimates for 2016 earnings are down to 40 cents (from 50 cents). I’d think the dividend is not sustainable given the earnings projections, but obviously Tepper sees a lot of value here once he cleans up on governance, and he is the brilliant billionaire trader.
