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Wednesday, January 20, 2021

Sunedison Inc (OTCMKTS:SUNEQ) Comes to a Head

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Sunedison Inc (OTCMKTS:SUNEQ) is a stock that’s been muddling through a contentious Chapter 11 process. The chart is working its way through a complicated symmetrical triangle over the past several weeks as things start to come to a head a bit more in bankruptcy court.

One of the big issues to understand in this case is the role the so-called “YieldCos” (Terraform Power and Terraform Global – TERP and GLBL, respectively) will play in valuing SunEdison assets and accounting for what value, if any, remains once all other issues are resolved. There are now theories about how it might be possible for shareholders of SUNEQ equity to end up with something down the line. But as usual, we suggest the reader remember that there are always “theories”, but the harsh reality of total cancellation is typically the end result.

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 the 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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At present, everything seems like it will come down to whether or not the creditors of SUNEQ can manage to enforce a claw back against TERP and GLBL as a referendum on the legitimacy of their being spun off less than two years ago (ie, within the current statute of limitations relevant for this issue).

Apparently, if that unlikely outcome becomes a possibility, then the formation of an equity committee in this case suddenly gets back on the table because there are greater assets with which to satisfy reasonable valuation of creditors’ damages.

That said, in a recent back and forth, both TERP and SUNEQ are talking settlement rather than claw back.

As noted in a recent release, “Since September 2016, TERP and SunEdison have been engaged in a collaborative process to explore strategic alternatives for TERP (as well as Terraform Global, Inc.) including a merger, sale, sponsorship or other transaction and that process continues. Sunedison Inc is committed to continue to work in good faith with TERP as both entities explore strategic alternatives and will continue to do so during the pendency of any settlement negotiations.”

“The market is clearly suggesting that there could be more value than what’s reflected in the offer,” Michael Morosi, an analyst at Avondale Partners LLC in Nashville, said in an interview. “There are certainly parties that could and are likely to pay more.”

Recent action has seen 16% added to share values of the name over the past week of action, a rally that has pushed up against longer standing distributive pressure in the stock. However, Sunedison Inc has a track record that includes a number of dramatic bounces. Moreover, the name has seen an influx in interest of late, with the stock’s recent average trading volume running 86% beyond its prior sustained average level.

Earning a current market cap value of $47.8M, SUNEQ has a long road ahead of it in this process, and where this will lead is anyone’s guess.

We don’t see clear sign posts for determining a risk-adjusted positioning edge here. But there are a number of factors in play that could change that balance over the near term, and we will be all over this story (as we have) as events dictate. For continuing coverage on shares of $SUNEQ stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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