SunEdison (NYSE:SUNE) is preparing to file for Chapter 11 bankruptcy protection. As I discussed in an article yesterday, this appeared to be the most likely outcome and is a devastating blow for current SunEdison equity holders. Current equity holders will likely be entirely wiped out while SunEdison continues to operate under bankruptcy protection.
The most immediate impact will be felt with its yieldcos. Both TerraForm Power (NASDAQ:TERP) and TerraForm Global (NASDAQ:GLBL) will face a variety of new challenges. These challenges include financing, corporate governance, and beginning to operate as independent entities.
The full ramifications for both companies will be contingent on what happens with SunEdison's stake in TERP and GLBL. It is possible that SunEdison will be forced to liquidate its holdings in both and thus effectively separate the two yieldcos from itself. Just as Abengoa SA's yieldco Abengoa Yield (NASDAQ:ABY) is continuing to operate in spite of its parent filing for chapter 15 bankruptcy protection, both TERP and GLBL will continue to operate. Both will likely survive, but will face significant challenges in the coming weeks and months ahead.
But the fall of SunEdison will have a profound impact on the entire renewable energy sector. The amazing collapse of what was at one point the world's largest renewable energy company is a warning sign of potential trouble to come. Renewable energy sector investors need to evaluate their holdings as the entire sector will likely face serious near-term headwinds.
Above all, renewable energy sector investors need to be wary of companies that use complex financial agreements to push development and have high debt. This should be a warning sign for investors in SolarCity (NASDAQ:SCTY), another renewable company with high debt and complex financial agreements. In addition, investors in Vivint Solar (NYSE:VSLR) should not expect to see it receive any potential compensation from the termination of its merger agreement with SunEdison. With Vivint Solar's own broad array of problems, it too could end up in bankruptcy proceedings if it continues to flounder.
The much hated but profitable Chinese solar companies like JinkoSolar (NYSE:JKS), Canadian Solar (NASDAQ:CSIQ), Trina Solar (NYSE:TSL), and JA Solar (NASDAQ:JASO) will now likely face additional scrutiny in navigating new financing agreements and projects. In particular, it is now even more unlikely that Canadian Solar will actually move forward on its plan to establish a yieldco.
Renewable energy sector investors will likely do the best sticking with the strongest US based companies in the market. This means investors should begin to look more closely at both SunPower (NASDAQ:SPWR) and First Solar (NASDAQ:FSLR). Yield-focused investors should consider their joint yieldco, 8point3 Energy Partners (NASDAQ:CAFD), formed by SPWR and FSLR for a safe yield at a well run company. All three companies have good management and solid balance sheets. First Solar in particular is the best in the sector and is the only solar company on the S&P 500. Once more clarity comes to the sector in the aftermath of SunEdison's bankruptcy, investors should take a closer look at these three.
There are a lot of lessons to be learned from the SunEdison saga and I intend to provide a more thorough reflection on this in future. As investors, it is important to learn from both successes and failures. This is the only way to move forward and make the best investment choices possible.
There will be many ramifications from the collapse and fall of SunEdison. Ultimately investors should be aware that no company is too big to fail. SunEdison collapsed because of its many problems and poor leadership. As the SunEdison saga comes to a close, renewable energy sector investors should be aware that broader sector problems will end up receiving additional scrutiny. Turbulent investing waters are ahead and investors need to carefully prepare their portfolios for what might come next.
Disclosure: I am/we are long SUNE, GLBL, FSLR, CAFD.
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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