Not surprisingly TerraForm Global (NASDAQ:GLBL) this morning filed an 8-K with the SEC disclosing that "the filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2015 will be delayed beyond March 30, 2016".
Moreover the company anticipates that there is
substantial risk that SunEdison will soon seek bankruptcy protection. Such an action would have a material adverse effect on TerraForm Global given our reliance on SunEdison as discussed in the Form 10-Q and the Form S-1 and SunEdison's obligations with respect to pending transactions (discussed below). TerraForm Global does not rely substantially on SunEdison for funding or liquidity and believes that, in the event SunEdison seeks bankruptcy protection, TerraForm Global will have sufficient liquidity to support its ongoing operations. Our revolving credit facility, which we do not believe is critical to the continued business and operation of TerraForm Global, requires that the 2015 Form 10-K and audit be delivered by March 30, 2016 with a 10 business day cure period. We are in active discussions with our revolving credit lenders to obtain an extension with respect to the required delivery of our Form 10-K for the year ended December 31, 2015 and the related audit report.
As a reminder, on August 5, 2015, the company entered into a $485 mln revolving credit facility which has been undrawn as of the end of Q3/2015.
Furthermore the company specifies the potential impact of a SunEdison (SUNE) bankruptcy on its project portfolio:
- Two projects with a combined 75 MW currently under construction in Uruguay that should have long been contributed to the company's project portfolio without further payment are still requiring substantial funding by SunEdison that is unlikely to occur in case of bankruptcy.
- The 24.1 MW Bora Bora wind power project in India has experienced construction delays and is now targeted to reach commercial operation within short notice but the transfer of the project from SunEdison to the company still requires project lender consent.
- The project-level financing agreements for the company's remaining three levered power plants in India contain provisions that provide lenders with the right to accelerate debt maturity due to SunEdison's bankruptcy as an original sponsor of the project and/or party to certain material project agreements, such as O&M and EPC related contracts, or due to a change of control of TerraForm Global.
- With regard to the company's South African power plants, the power purchase agreements contain events of default provisions triggered by a change of control of TerraForm Global and the project-level financing agreements contain events of default provisions triggered by the bankruptcy of SunEdison as a party to certain material project contracts, such as O&M and EPC related contracts, and by a change of control of TerraForm Global.
- In the fourth quarter of 2015, the company prepaid $231 million for the purchase of 425 MW of solar energy projects located in India ("the India Projects"). There are currently material amounts of project costs and equity contributions that remain to be contributed by SunEdison to the India Projects. If SunEdison is unable to fund these amounts, some or all of the India Projects may not be completed or transferred to the company on time or at all. 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.
Lastly the company's outstanding $810 mln senior secured notes due 2022 contain a change of control provision under which the company must offer to repurchase the notes at 101% of the applicable principal amount, plus accrued and unpaid interest and additional interest.
So now what ?
TerraForm Global investors should actually not be surprised about today's disclosures as it has been already widely anticipated that SunEdison would not fulfill its obligations under the respective agreements with the company. As a consequence the company's project portfolio for now will end up more than 500 MW smaller than originally projected with an corresponding effect on cash available for distribution (CAFD) going forward.
The potential termination of the company's revolving credit line looks pretty unsettling at first glance but investors should remember that it has been previously undrawn and the company furthermore does not anticipate it to be critical to the continued business. After all the company might be able to obtain a waiver from its lenders.
And while some existing projects in India and South Africa obviously could be negatively affected by provisions with regard to a potential SunEdison bankruptcy, investors should find some comfort in the company's statement, that "the majority of our existing power purchase agreements ("PPAs") and project-level financing agreements do not include provisions that permit the offtake counterparty to terminate the contract or for a lender to accelerate debt maturity in the event that SunEdison files for bankruptcy or in the event that SunEdison, Inc. ceases to control or own, directly or indirectly, a majority of TerraForm Global."
With regard to the change of control provision governing the company's senior secured bonds, I expect this to be addressed over the course of SunEdison's upcoming bankruptcy proceedings.
TerraForm Global had roughly $1.1 bln in cash as of the end of Q3/2015, even when deducting the $231 mln prepayment for the India Projects, $32 mln in dividend payments and some other cash outlays the company's remaining liquidity should still be well north of $700 mln as of today which would leave ample room for the company to conduct its ordinary course of business. Unfortunately the company failed to provide an update on its cash position in today's 10-K which is somewhat discomforting as I would not rule out that SunEdison might have further broken into the company's till.
Without any reliable or current numbers the uncertainty about TerraForm Global's future will remain high and the potential implications from a seemingly imminent SunEdison bankruptcy look entirely incalculable as of this point. The shares will continue to remain under pressure until there will be more clarity about the company's ability to progress as a standalone entity. The worst case scenario remains bankruptcy here, but at least in my view it is more likely than not that the company will be able to avoid this fate.
That said I would urge the company to replace senior management as soon as possible in order to become more independent of SunEdison and to halt its distributions for now in order to increase the company's financial flexibility with regard to the upcoming negotiations with its lenders.
Should TerraForm Global manage to overcome its current, serious challenges the shares might be a promising bet, but investors should not expect any short term miracles for the time being.
Personally I would consider taking a speculative long position closer to the $1 level as I expect the short-term newsflow to remain highly negative and actually SunEdison still hasn't filed for bankruptcy yet.
Clearly TerraForm Global is not for the faint of heart, but actually almost a conservative investment compared to taking a bet on the parent company at this point.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in GLBL over the next 72 hours.
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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