From $10 Billion to Worthless in 8 Months: Solar Hype Financial Engineering at Its Finest

In one of the largest financial collapses in recent years, Sun Edison, valued at $10 billion in July, now prepares for bankruptcy.

by Mish

How do you do that?

Cheap money (thank the Fed) and financial engineering (thanks to company wizards who no doubt saw this coming and cashed out long ago).

The Wall Street Journal notes SunEdison Preparing to File for Bankruptcy.

Solar-energy company SunEdison Inc. plans to file for bankruptcy protection in coming weeks, a dramatic about-face for a company whose market value stood at nearly $10 billion in July.
The company is preparing a chapter 11 filing and is in talks with two creditor groups to obtain a loan to fund its operations during the process, according to people familiar with the matter. Creditors are likely to take control of the company and its portfolio of power projects, the people said.
SunEdison, whose stock has plunged in recent months, would rank among the largest financial collapses in recent years.
SunEdison’s stock fell to fresh lows this past week on bankruptcy fears and news that the company is facing Securities and Exchange Commission and Justice Department investigations.
Its market capitalization is now about $150 million, and it had long-term debt of about $7.9 billion as of Sept. 30, according to a regulatory filing.
A SunEdison bankruptcy filing would be problematic for its two yieldcos, TerraForm Power Inc. and TerraForm Global Inc. The two entities, which own power plants and sell energy to utilities under long-term contracts, are in far better financial shape than SunEdison but depend on it for many services.
The units don’t plan to file for bankruptcy protection, but their shares represent much of SunEdison’s value.
[Excuse me for asking, but what value is that?]
SunEdison’s collapse is a setback for the yieldco corporate structure, which was once seen as a breakthrough for energy financing. SunEdison and peers such as NextEra Energy Inc. floated vehicles that raised public funds to buy power projects from their sponsors. Investors initially rewarded the structure, attracted by yieldcos’ high dividend payouts during a time of ultralow interest rates, but expectations of rising rates damped their enthusiasm.
SunEdison’s troubles have mounted in recent weeks. The Wall Street Journal reported Tuesday that the SEC is investigating whether SunEdison misrepresented its cash position to investors as its stock collapsed.

Surprise or No Surprise?

Upon reading the above, my first reaction was “I am surprised Team Obama was not involved in this mess.”

Just to be safe, I did a check.

Here is a nice article I discovered right on the Sun Edison home website: Will Obama Be Remembered As The Renewable Energy President?

Nothing like using Obama to hype up your worthless company. That coupled with financial engineering is how you get a $10 billion valuation.

Sun Edison will soon be bankrupt. President Obama’s ideas have been bankrupt for a long time.

Mike “Mish” Shedlock

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