SunEdison Inc. filed for bankruptcy protection after a two-year, $3.1 billion acquisition binge that drove its debt to unmanageable levels and sent investors running for the exits.
The clean-power giant listed $16.1 billion of debt in Chapter 11 filings Thursday in Manhattan federal court, making it the biggest U.S. bankruptcy in more than a year. While the buying spree ultimately did SunEdison (IW 500/346) in, the bankruptcy comes as energy companies of all sorts are succumbing to a slump in prices. Earlier this month, coal producer Peabody Energy Corp. sought creditor protection, reporting $10.1 billion in liabilities.
“Our decision to initiate a court-supervised restructuring was a difficult but important step to address our immediate liquidity issues,” SunEdison Chief Executive Officer Ahmad Chatila, said in a statement Thursday. The company will use the bankruptcy process to cut debt and shed “non-core assets,” he said.
SunEdison has commitments for $300 million in financing to support day-to-day operations during the reorganization. The money is being supplied by a group of first- and second-lien lenders, the company said in the statement. In court papers, the company said it may also refinance as much as $350 million worth of second-lien loans and second-lien notes.
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Starting in 2014, Maryland Heights, Mo.-based SunEdison began buying up wind and solar projects on every continent except Antarctica. The purpose was to meet growth targets needed for dividends, and at first the market responded positively, driving the shares to a peak of $32.
But after the company announced plans to purchase Vivint Solar Inc. in July at a 52% premium, investors started questioning the business model. At $2.2 billion, it would have been SunEdison’s biggest deal. Furthermore, Vivint installs rooftop solar systems, a very different market from SunEdison’s other acquisitions -- mainly big, utility-scale power plants.
The transaction was delayed, renegotiated down to $1.9 billion and finally canceled in March. When SunEdison lost the financing to back the deal because of its initial failure to file an annual earnings report, the company couldn’t close the sale, leaving analysts wondering whether a lawsuit would drive it into bankruptcy. The shares have since plunged to less than 40 cents.
SunEdison's Many Troubles
The company’s troubles have been manifold. It recently disclosed that it received a subpoena from the U.S. Justice Department and a similar inquiry from the Securities and Exchange Commission. The government is seeking information about the scrapped Vivint deal and the conduct of a former employee alleged to have committed wrongdoing “in connection with the Vivint termination negotiations,” SunEdison said in a regulatory filing.
This month, SunEdison said an independent counsel hired by its board identified “wrongdoing” by a former employee and an “overly optimistic” culture fostered by management. According to the company, an unidentified non-executive employee was fired for actions related to the Vivint deal, which weren’t described.
There are also squabbles involving SunEdison’s yieldcos, holding companies it created to buy wind and solar farms. Two creditors have sued one of them, TerraForm Power Inc., seeking $231 million related to an acquisition last year. Another, TerraForm Global Inc., sued SunEdison over renewable-energy projects in India.
The TerraForm units have hired AlixPartners as a financial adviser ahead of the potential bankruptcy, to protect their financial interests in a reorganization, two people familiar with the situation have said.
The TerraForm companies, which are publicly traded, didn’t file for bankruptcy. In the its petition, however, SunEdison said some of its liabilities include some Terraform debt.
By Brian Eckhouse, Tiffany Kary, Dawn McCarty and Steven Church