Will TerraForm Follow SunEdison to Bankruptcy?

TerraForm's high debt makes it a risky investment

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May 09, 2016
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Investors are well aware of SunEdison’s (SUNEQ, Financial) filing for bankruptcy protection.

I have been advising investors to get out of SunEdison for quite some time, and the stock still appears headed to $0. However, it is not clear what will be the impact of SunEdison’s bankruptcy on TerraForm Global (GLBL, Financial). As a matter of fact, it is not possible to predict a bankruptcy, but in the case of SunEdison, it was pretty clear that the company will face this situation, and TerraForm Global is the first yieldco supporter to face this problem.

TerraForm Global shared that the project-level financing arrangements for its enduring three levered power plants in India include provisions that offer owners the right to hasten debt maturity just because of SunEdison's bankruptcy

If debt is hastened, the company will face severe problems regarding cash, as no one know about TerraForm’s capacity to cover the debt hastening.

All in all, there could be substantial effects to TerraForm Global's income statement and balance sheet mainly due to SunEdison’s bankruptcy. And that will definitely create problems for stockholders.

Problems for TerraForm Power

The solar industry is one of the most sensitive industries and continuously increasing debt is the thing that can take down any solar firm. SunEdison is one such example.

At the end of the third quarter of 2015, SunEdison’s yieldco TerraForm Power (TERP, Financial) had $2.5 billion in debt. At present, TerraForm Power has a total debt of $3.72 billion and has also spent $733 million in cash to purchase wind properties from Invenergy. Therefore, TerraForm Power is an extremely leveraged firm.

According to the company’s recent financing file, it took on debt with an adjustable interest rate of 6.5% or more. That interest rate is much greater than the 4% as well as what the company received while refinancing projects in 2015. Some analysts still believe this interest rate could go higher.

All in all, if the amount of debt on the company’s books increases, it will consume a major portion of the cash produced by renewable energy projects, pushing TerraForm Power to either take on additional debt to complete its dividend payments, or diminish dividends.


I am not a fan of highly leveraged companies and after the SunEdison fiasco, I would suggest investors to dump Terraform as well. The growing pile of debt makes it a very bad investment for the long-term and investors should rather bet on profitable solar companies like First Solar (FSLR, Financial).