Ok! The pieces are beginning to come together in the SunEdison (NYSE: SUNE) debacle. Recently we found out that SEC and DOJ are looking into SUNE and everyone panicked. Later we were informed that the reason for these 2 investigations are likely tied to the actions detailed in the TerraForm Global (NASDAQ: GLBL) lawsuit.
For those unfamiliar I'll give a quick summary of what the lawsuit said: GLBL was supposed to pay SUNE $231 million for a down payment on assets in India. These projects were to be completed and then passed down to GLBL (the Yieldco). Suddenly there was an absence of leadership in GLBL and in the interim Wuebbels stepped up and pushed GLBL's board to approve and send the $231 million quickly. $150 million was transferred to SUNE immediately and it has come out that SUNE used that money to pay a $150 million bill that was due very soon.
In response, bears say that this move shows SUNE's reported liquidity (as shown in its cash walk in January) is actually one big lie. Bulls are mostly silent or long gone at this point.
Perhaps we are making it a bigger deal than it is? If you follow the cash walk you can see that SUNE's transactions are pretty close to one another (one check comes in, one goes right back out). I'm guilty of this myself. I have had to rob Peter to pay Paul just because a bill came due on a Friday and I didn't have a paycheck coming in until Monday. Obviously it's not cool to do that on a corporate level, and that's why Wuebbels stepped down.
I could be very, very wrong. All I'm saying is that perhaps this is not a glimpse into a massive fraudulent hole in SUNE's books and instead just a negative result of SUNE living paycheck to paycheck. We already know that SUNE's accounting is extremely complicated and only the insiders could possibly know what is going on. The CFO was the fall guy and the company already removed him amidst the investigations and lawsuits.
The counter to my theory is: "But Sam! If that was the case then why wasn't the $150 million that was taken out, quickly replaced with money from the 'next paycheck' and put into the India projects? Why is GLBL saying in its 8K that it may not receive the India projects at all?" That is a good point, and would poke a hole in my theory. However, you have to wonder why SUNE employees who are on GLBL's board are agreeing to sue SUNE in the first place? They must have known about this all along, so why are they just now taking action? Here are two possible reasons they are now filing a lawsuit:
1)The Board of Directors for GLBL knew that the DOJ and SEC investigations would reveal the wrongdoings and it wanted to get ahead of the curve by posting its own side of the story in order to gain back some investor confidence with a lawsuit. Once the stock price recovers somewhat and trust is slowly restored in GLBL leadership, it would most likely settle with its parent or receive the completed India projects as planned (but later than scheduled… construction projects slip to the right of schedule all the time).
2) The SUNE members on GLBL's Board of Directors knew SUNE needed to sell the India assets to a third party in order to fetch a higher price and get more liquidity out of the projects than it would if it passed it down to its Yieldco. They could not justify to shareholders a purchase from SUNE only to turn around and sell it outside of the family a little while later. They also knew that SUNE would not be able to refund the pre-paid money right away since it was using it to finish the project. So they thought that shareholders would be upset that they gave SUNE a 0% interest loan to finish a project that GLBL wouldn't even get to keep, much less receive a deal termination fee.
In both of these cases, entering into legal action against SUNE is the appropriate CYA.
If my theory is correct, then what SUNE did was indeed wrong, but maybe not unforgivable. Perhaps some big money holders are beginning to piece the bigger picture together as well… this would explain the recent increase in share price. They could either be closing their short positions or outright buying. The volume that we are seeing the last few days, combined with the sustained price increase, does not appear to be " just a short squeeze."
What we do know is that 6 months ago (the last time we received a financial report from SUNE) the company had a solid project pipeline and great assets. Unfortunately, it is under an extremely long black out period which started before its scheduled annual earnings and has lasted all the way to now. During this period, the company has been under almost constant attack from rumors and writers who are taking advantage of the fact that SUNE can't defend itself. This has led many people to forget about those assets or write them off as worthless; which, unless there is massive fraud, are not worthless and should be enough to sustain life.
Whether SUNE's silence was strategic or not, it has sent the share price to all-time lows. Hopefully when the veil is lifted, there is not a total disaster lying underneath. Perhaps after some assets sales and maybe some management changes, the company can slowly recover and move on.
Piecing all of the information together, one puzzle piece at a time, has been a tedious process through all of the noise out there. I feel like an investigative journalist rather than a stock blogger. From what I've read, and with my long SUNE bias, this is just one theory. With that said, we will probably not know the validity of any theory until we hear the whole story from the horse's mouth. I will continue to investigate and add pieces to the puzzle. But since the 10K could release any day now, I wanted to put out there what I have so far. This way you can read, and if the 10K proves me right I look like a damn psychic or if I'm wrong everyone can go ahead and tell me what an idiot I was for trying.
Disclosure: I am/we are long SUNE.
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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