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Tuesday, October 20, 2020

New Outlook for Sunedison Inc (OTCMKTS:SUNEQ)

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Sunedison Inc (OTCMKTS:SUNEQ) is a stock that’s been running up the charts as traders digest the impact of the company’s recent announcement that they are maintaining their stake in TerraForm Power (TERP). The news suggests the Company might try to reorganize around the legitimate asset, which gives shareholders some hope that shares are not cancelled in the restructuring process.

The news came with over 40% of the float held short, leading some to say, “it was just a matter of time before this stock found an excuse to squeeze.” The move represented a quick 76% in total upside in a couple days.

Sunedison Inc (OTCMKTS:SUNEQ) frames itself as a company that develops, finances, installs, owns, and operates renewable power plants to residential, commercial, government, and utility customers.

It operates through Renewable Energy Development, TerraForm Power, and TerraForm Global segments.

The Renewable Energy Development segment provides renewable energy services that integrate the design, installation, financing, monitoring, operations, and maintenance portions of the renewable energy industry segment.

The TerraForm Power segment owns and operates clean power generation assets that sell electricity through long-term PPAs to utility, commercial, and residential customers based in Organization for Economic Co-operation and Development (OECD) member countries, such as the United States, the United Kingdom, Canada, and Chile.

The TerraForm Global segment owns and operates clean power generation assets that sell electricity through long-term PPAs to utility and commercial customers based in specified emerging market countries located in Asia, Africa, Latin America, and the Middle East.

The company was formerly known as MEMC Electronic Materials, Inc. and changed its name to SunEdison, Inc. in May 2013. SunEdison, Inc. was founded in 1984 and is headquartered in Maryland Heights, Missouri.

On April 21, 2016, SunEdison, Inc. along with its affiliates, filed a voluntary petition for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York.

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As noted above, the Company is in chapter 11. As part of that case, the Company commenced a marketing process for its assets led by Rothschild Inc.

As of June 24, 2016, the Company received approximately 100 non-binding bids and indications of interest for its various business lines and all of its assets. As of June 24, 2016, an illustrative “sum of the parts” analysis based on these non-binding bids and indications of interest was provided to certain debt holders demonstrating a range of approximately $1.25 bln to $1.7 bln for total gross proceeds for such asset sales and subject to various contingencies, including diligence conditions and contingent earn-out consideration.

However, also as noted above, the Company stated last week that they wished to maintain their stake in TERP as part of the reorganization process. From what we have come across, leadership at TERP would like to avoid unnecessary expense in litigation and some type of deal may be possible.

That said, it’s extremely important that traders understand the market’s reaction last week was likely more an expression of the standing short interest than anything else. Just because the stock ripped does not mean the market is demonstrating firm confidence. We see this sort of thing all the time in stocks where shares will eventually be entirely cancelled.

In sum, it’s critical that traders and investors really let this paragraph sink in, from the Company’s latest 8k:

“The total gross proceeds do not account for project level debt and other third party liabilities and obligations that would need to be satisfied before any net proceeds would be available to the Company. Certain bids have progressed to definitive documentation and have been made public in the Company’s bankruptcy case, while other bids are still under negotiation. Furthermore, other bids and indications of interest have not progressed and in certain instances have been withdrawn following additional diligence and negotiations. It is uncertain whether the Company can reach definitive binding documentation for bids that remain extant, and ranges in value for extant bids could be higher or lower depending on additional interest in assets, further marketing, ability to close, incompatibility of certain bids with others on portions of the same assets, and other factors. These non-binding bids and indications of interest may not be a real indication of the value of the Company’s assets.”

At this time, carrying a capital value in the market of $24.7M, SUNEQ is navigating the bumpy process of Chapter 11 restructuring. Short interest has recently been blown out on headlines that may or may not be indicative of coming actions ratified by the bankruptcy court. There is plenty of value here, but the outstanding liabilities more than cover that value at present. If that changes, we will be first to let you know. For continuing coverage on $SUNEQ and our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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