The final chapter of the SunEdison (SUNE) saga is currently being written.
When SunEdison took on a $725 million second-lien credit facility in January, a key provision requires it to release audited financials for 2015 by March 30. The provision states:
as soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Borrower (commencing with the fiscal year ending December 31, 2015), a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year, and the related consolidated statements of income or operations, changes in shareholders' equity, and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing reasonably acceptable to the Required Lenders...
Based on the above, SunEdison is technically in default because of its failure to file its 10-K yesterday. However, if SunEdison privately negotiated with its lenders for a waiver on this, then it still has a 15-days cure period to address this breach.
Given the rapid developments of the last few days with the filing of Terraform Global's (NASDAQ:GLBL) 8-K - which makes it appear that SunEdison is on the brink of bankruptcy - and the resignation of former CFO Brian Wuebbels from all of his positions at Terraform Power (NASDAQ:TERP) and Terraform Global, it appears that there are only a handful of options for what happens next.
The most likely case is the bear scenario that SunEdison will file for Chapter 11 bankruptcy protection. In this case, SunEdison will be reorganized and will continue to operate. It will continue to pay its creditors while current equity holders will likely be completely wiped out.
Another possibility is that SunEdison will file for Chapter 7 bankruptcy protection. In this case, all assets will be liquidated and the proceeds will go to its creditors to settle debts. As this step would likely hurt creditors more than a Chapter 11 filing, this will probably not happen.
For bulls, the best scenario would be if SunEdison is renegotiating with its creditors without filing for bankruptcy through some type of restructuring. In this restructuring, SunEdison could potentially sell its holdings in its other assets - like its holdings in TERP and GLBL - to satisfy creditors while it restructures without declaring bankruptcy. This would protect current equity holders and likely lead to a rally. Although this remains a possibility, this appears increasingly unlikely because of the perpetual delays from SunEdison with its filings and no updates from management.
The final wildcard option could be an outside entity buying up enough of the bonds and equity of SunEdison to essentially take majority control of the company. This entity could then restructure SunEdison and potentially take the company private. But given the legal ramifications of this type of move and the many problems SunEdison faces, this is the least likely scenario.
The SunEdison saga will play out in one of these four ways. In special situations like this, a lot can happen in a very short period of time. Ultimately, investors should stay away from SunEdison until we find out which of these scenarios actually plays out.
Disclosure: I am/we are long SUNE, GLBL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am long SUNE through call options. Positions may change at any time and investors are reminded to complete their own DD before investing.
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