How TerraForm Global May Salvage Its $231 Million Indian Disaster

| About: TerraForm Global (GLBL)

Summary

SunEdison may not complete some or all of the 425MW in Indian projects they sold to TerraForm Global.

Sunedison may replace some or all of the projects with already-completed projects in India.

TerraForm Global's board may demand monetary compensation, but the legal situation is unclear.

Other options remain, and there is still the possibility that TerraForm Global salvages the vast majority or all of the 425 MW owed by SunEdison.

SunEdison (SUNE) and TerraForm Global (NASDAQ:GLBL) last year signed a contract for the sale of 425 MW in Indian clean energy projects.

SunEdison received 231 million dollars up front for 17 projects that were in various stages of development.

Now that SunEdison may be going bankrupt, it may not complete the Indian projects it owes TerraForm Global.

Looking through TerraForm Global's March 29th 8K in reference to this debacle, however, demonstrates that the company seems to be hinting that it may yet salvage much from the 425 MW in projects.

TerraForm Global reminded investors that one way in which SUNE may choose to make up for the 425 MW in unfinished projects is by substituting equally-valued completed projects for the unfinished projects.

According to Indian media sources and re-reported by Cleantechnica, SunEdison possesses 490 MW of completed solar and wind projects in India.

The same story reports that SunEdison may be selling all of its 1490 MW in complete and incomplete projects in India, not including the 425 MW it owes to GLBL. The Indian media sources say that these projects may be valued at over $1.1 billion.

So, there are two possible positive outcomes here for GLBL. First, SunEdison could substitute the 425 MW owed to GLBL with 425 MW of SunEdison projects already constructed in India.

Second, if SunEdison sells its Indian projects, complete or incomplete, even at a huge discount, SunEdison could use some of the proceeds to complete the 425 MW in projects owed GLBL. Or it could simply give GLBL enough money to complete the projects themselves or simply give them $231 million.

While the March 29 8K mentions several times the options that Global has in recovering the projects at risk of incompletion, this is the most succinct paragraph describing what Global may do, specifically regarding the 425 MW in Indian projects:

If the actual closing date for any of the India Projects is delayed beyond 30 days after its target transfer date, SunEdison Holdings Corporation is required to pay liquidated damages to Global LLC on or prior to the outside date under the India PSA. SunEdison Holdings Corporation is also required to pay liquidated damages if all projects have not been transferred by the outside date and either party has terminated the agreement or Global LLC has terminated the agreement and there is an uncured material breach by SunEdison Holdings Corporation. Global LLC and SunEdison Holdings Corporation may agree to substitute projects initially anticipated to be transferred with a different project or additional projects with reasonably equivalent value. SunEdison Holdings Corporation has not yet proposed any substitute projects.

Global mentioned specifically one project amongst the projects that comprise the 425 MW Indian projects. This one project has stopped construction completely. In total, several projects are delayed and at risk of incompletion or having their PPAs adjusted negatively:

Several of the India Projects have experienced delays, and are at risk of missing the long-stop dates under their respective PPAs or not being completed at all. For two of the projects, if the long-stop dated of March 31, 2016 is missed by SunEdison, the offtaker is entitled to reprice the relevant Power Purchase Agreement at a lower price based on a new tariff order. Construction of one of the projects has ceased and SunEdison is not advancing the project and has not yet identified a project to replace it.

I assume that the two projects in question were the two of the seventeen projects that were targeted for transfer first. Those two projects total 72.6 MW in capacity. It is unclear what the "several" delayed projects are.

Additionally, SunEdison has not completed and may not complete 75 MW in Uruguayan projects and a 24 MW Indian wind project. Each of these were part of the initial portfolio which SunEdison planned on transferring to Global. In Q1, SunEdison did transfer over 35 MW in Thai projects to Global, as part of the initial portfolio.

However, there are currently material amounts of project costs and equity contributions for the Uruguay Projects that remain to be contributed by SunEdison, Inc. in order to continue construction of the projects and disbursement of the project finance debt facilities. If SunEdison, Inc. does not fund these amounts, the Uruguay Projects may not be completed on time or at all and may not be transferred to TerraForm Global.

In addition, SunEdison, Inc. has experienced delays in completing construction of the Bora Bora wind power project, and the project is targeted to reach commercial operation by the end of March 2016. The transfer of the project requires project lender consent. If the project does not reach commercial operation or project lender consent is not obtained, SunEdison, Inc. has the right to substitute the project with another project with equivalent or greater CAFD.

TerraForm Global and SunEdison, Inc. executed an amendment to the Project Investment Agreement in March 2016 to extend the deadline by which these projects shall be transferred to TerraForm Global to July 31, 2016.

Most interesting is the extension of the deadline to July 31, 2016. This makes it sound like SunEdison is still planning to build these projects; but then again, SunEdison planned to complete their 10K in time as well, and now they may be at risk of bankruptcy, according to various news reports, from such sources as Debtwire to the Wall Street Journal.

Assuming that SunEdison is indeed at risk of bankruptcy but they wish to emerge again out of bankruptcy as a renewed renewable energy company, SunEdison may wish to lower its debts in such a way that they owe as little as possible upon entering Chapter 11.

In this case, they have great incentive to complete the 425 MW in Indian projects or substitute those projects with equivalent projects. Why? Not because of any loyalty to Global, but rather because SunEdison will receive something amounting to market value for those completed, prepaid projects. Remember that Global paid SunEdison for those projects last year, when these projects could still fetch market value. Now that SunEdison is apparently on the brink of bankruptcy, they are almost certainly being offered below-market prices for their projects.

Why not lower their debt by 231 million dollars by finishing these 17 projects or substituting them with equivalent projects? Those "equivalent" projects will not fetch the same 231 million projects in a market looking for SunEdison to offer fire-sale prices.

Aurelien Windenberger wrote on the value of TerraForm Global in case SunEdison files for bankruptcy. Read his work. However, his estimates assume that Global salvages nothing from the projects owed by SunEdison. The situation looks grim for Global, but their 8K mentions possible remunerative measures.

If Global succeeds in redeeming just a quarter of what SunEdison owes them in projects, it would be quite a bonus.

Disclosure: I am/we are long 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.

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