Vivint's Disclosures May Open The Exit Door For SunEdison

| About: SunEdison, Inc. (SUNEQ)

Summary

Recently released flings indicate a dramatic change in business prospects for Vivint Solar.

What is more concerning is that the documents indicate that VSLR may have known this deterioration only selectively disclosed to SunEdison.

If this deal sinks, Vivint will collapse and SunEdison and TerraForm Power could fly.

In its most recent SEC filing, Vivint Solar (NYSE:VSLR) disclosed that its prospects have dwindled as it was waiting for the deal with SunEdison (NYSE:SUNE) to consummate.

What is notable is that the guidance, which was 300MW/600MW/1200MW respectively for 2015/2016/2017 prior to the execution of the merger agreement, slipped to 238MW/550MW respectively for 2015/2016 by October.

More alarmingly, the projections slipped to 229MW/350MW/500MW respectively for 2015/2016/2017 just prior to the renegotiation of the deal in December. Please see page 111 for details (pasted below).

Key operating metric made available to Vivint Solar's board of directors, Morgan Stanley and SunEdison prior to the execution of the Merger Agreement

Year Ending December 31,

2015

2016

2017

Megawatts Installed (MW) (1)

300

600

1,020

(1)

"Megawatts Installed" represents the aggregate megawatt nameplate capacity of solar energy systems projected to be installed during the applicable period. Vivint Solar tracks the nameplate capacity of its solar energy systems as measured in megawatts DC STC, or direct current standard test conditions. Because the size of solar energy systems varies greatly, Vivint Solar believes that aggregate megawatt nameplate capacity of the systems is an indicator of its growth rate. Vivint Solar tracks historical megawatts installed in a given period as an indicator of asset growth in the period.

Key operating metric made available to SunEdison in October 2015 prior to the execution of the merger agreement amendment

Year Ending December 31,

2015

2016

Megawatts Installed (1)

238

550

(1)

"Megawatts Installed" represents the aggregate megawatt nameplate capacity of solar energy systems projected to be installed during the applicable period. Vivint Solar tracks the nameplate capacity of its solar energy systems as measured in megawatts DC STC, or direct current standard test conditions. Because the size of solar energy systems varies greatly, Vivint Solar believes that aggregate megawatt nameplate capacity of the systems is an indicator of its growth rate. Vivint Solar tracks historical megawatts installed in a given period as an indicator of asset growth in the period.

On December 2, 2015, Vivint Solar advised SunEdison that it was revising its projections to between 229-232 megawatts installed for 2015.

Key operating metric made available to Vivint Solar's board of directors and Vivint Solar's financial advisor in December 2015 prior to the execution of the merger agreement amendment

Year Ending December 31,

2015

2016

2017

Megawatts Installed (1)

229

350

500

(1)

"Megawatts Installed" represents the aggregate megawatt nameplate capacity of solar energy systems projected to be installed during the applicable period. Vivint Solar tracks the nameplate capacity of its solar energy systems as measured in megawatts DC STC, or direct current standard test conditions. Because the size of solar energy systems varies greatly, Vivint Solar believes that aggregate megawatt nameplate capacity of the systems is an indicator of its growth rate. Vivint Solar tracks historical megawatts installed in a given period as an indicator of asset growth in the period.

However, what could be even more alarming to Vivint Solar shareholders and cause for optimism for SunEdison and TerraForm (NASDAQ:TERP) shareholders is that the filings indicate a potential foul play.

Readers can see this if they note the headings on each of the guidance items. The very last update prior to revised merger is very disconcerting. Note that the lowered guidance disclosure was made to VSLR's management but the language makes no reference to SunEdison and implies that it was not provided to SUNE.

The document does state that "On December 2, 2015 Vivint Solar advised SunEdison that it was revising its projections to between 229-232 Megawatts Installed for 2015." Note that this makes no mention of 2016 and 2017 and could constitute selective disclosure.

Other disclosures point to similar issues (see below the disclosure for the original agreement).

Other operating metric made available to Vivint Solar's financial advisor prior to the execution of the merger agreement

Total
Projected
Cash Flows
Over 30-Year
Period (1) (2)

(in millions)

Systems installed in 2015 and prior

$

1,307

(3)

Systems installed in 2016

1,341

(4)

Systems installed in 2017

2,415

(5)

See below the language that implies non-disclosure or selective disclosure.

Other operating metric made available to Vivint Solar's financial advisor prior to the execution of the merger agreement amendment

Total
Projected
Cash Flows
Over 30-Year
Period (1) (2)

(in millions)

Systems installed in 2015 and prior

$

1,024

(3)

Systems installed in 2016

794

(4)

Systems installed in 2017

1,184

(5 )

While the document also specifically discusses getting rid of the MAC clause, a lack of disclosure of this magnitude, to us, indicates mal-intent. While Vivint is heavily lawyered up and has built an agreement that SunEdison seemingly cannot get out of, these disclosures do not seem to pass the smell test.

It should be noted that the cash flow forecasts have dramatically declined and point to a down 2016. Also, considering that these numbers are based on cash flows over a 30-year period, it is safe to say the real cash flows, if one does not assume a contract renewal after 20 years, are likely either not meaningful or negative.

The major questions these disclosure raise are:

  1. Did Vivint not provide this revised guidance on a timely basis to SunEdison?
  2. If this disclosure was provided prior to the renegotiated agreement being signed, then why did SunEdison simply not walk?
  3. If this disclosure was not provided, would this constitute fraud?
  4. If this does constitute a fraud, does SUNE now have a basis to walk?
  5. And finally, SunEdison had to raise some very expensive financing to close the Vivint deal. Does SunEdison now have a cause to sue Vivint?

It is certainly beyond the scope of this forum to get into legality of these documents, but we would not be surprised if there is now a legitimate reason for SunEdison to walk.

If so, Vivint Solar, which is capital crunched and with a dramatically reduced guidance, is likely to plummet. Furthermore, if SUNE has a cause to sue Vivint, then VSLR is likely finished.

If this deal does collapse, it is certainly a cause for celebration for SunEdison and TerraForm Power shareholders.

Disclosure: I am/we are long SUNE, TERP.

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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