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Thursday, October 29, 2020

Sunedison Inc (OTCMKTS:SUNEQ) Shareholders Face an Uphill Battle

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Sunedison Inc (OTCMKTS:SUNEQ) has been mired in one of the more contentious and complex bankruptcy processes of any major Chapter 11 play in recent years. And the fun doesn’t appear to be at an end yet. One point we would note right now is the very clear downward grind in the common ‘Q’ shares over the past six weeks – often a very negative sign for those still clinging to the dream of common representation in the reorg plan, when it comes together.

As we always note with these stocks: it’s very important to remember that most Chapter 11 common equity issues end up worthless when the dust settles. After all, bankruptcy is filed for a reason – because the debt is impossible to service. That is the definition of a hopeless situation for common equity holders due to the principle of subordination. Q shares are at the very bottom of the totem pole. The rare exceptions to this rule generally appear in the commodities space, where a sudden turn in the value of the commodity back to the upside can rationally revalue a company’s assets and reassert viability among debt-holders. With SUNEQ, there is a ton of complexity and possible wrongdoing that could still serve to instill hope in common equity holders. But we would view this one extremely cautiously in terms of any kind of holding duration, leverage, or capital exposure.

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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As we see it, one of the most important niggling points to understand in this case is the role of the so-called “YieldCos” (Terraform Power and Terraform Global – TERP and GLBL, respectively) in valuing Sunedison Inc 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 such a result in this case would likely have to be spurred by some kind of realignment following a side suit settlement fueled by evidence of accounting wrongdoing in the assignment of asset to the yieldcos. However, even that seems like a longshot.

We’ve witnessed declines of about -10% here just in the past week. Furthermore, volume is starting to peel off even as shares cheapen, with a recent decrease in trading volume of nearly 40% over what the stock has registered in prior trading periods.

At this time, carrying a capital value in the market of $29M, SUNEQ is making real money, with trailing 12-month revenues coming in at 2.5B.

In addition, Sunedison Inc has some minor top line growth, with y/y quarterly revenues growing at 1.5%. However, this is dwarfed by the scale of liabilities on the table in court these days. We will update the story again soon as developments transpire. For continuing coverage on shares of $SUNEQ stock and other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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