The last couple of weeks were seemingly not good for already struggling SunEdison (NYSE:SUNE). In a couple of instances, corporate entities have used language pointing to potential insolvency of the company. In both cases, this perception had an immediate consequence. One led to the cancellation of PPA agreements opening SunEdison to a review of $336M bond elimination made with Madison and Shaw. Plants used as fixed assets to pay in part the obligation have no longer contract for electricity, creating a need for replacement or other means to fill the gap for both lenders.
In a second, as reported by Bloomberg, New York State Supreme Court Justice Charles Ramos on Feb. 11 granted the request from Latin America Power (LAP) investors to block any asset transfer pending a Feb. 25 hearing on whether the hold should continue throughout arbitration of the dispute. Quoting Law360: “The investors told Justice Ramos that SunEdison and its affiliated companies are widely acknowledged to be in such deep financial trouble that attachment is warranted before the arbitration concludes, which they say will take a year or more: SunEdison Inc.’s CEO announced to its investors that it would no longer transfer or ‘drop down’ assets to its yieldcos and that instead SunEdison would dispose of assets by transferring them to unidentified third-party ‘affiliates’ and ‘warehouses,’” the suit said. “Such assets, once transferred, will be ‘ring fenced’ from respondents’ creditors and will likely be unavailable to satisfy an arbitration award against respondents.”
The order reads below:
"Respondents are hereby restrained and enjoined from concealing, transferring or removing their assets, accounts or other property that may be subject to attachment, without fair consideration or in the ordinary course of business,"
What adds peculiarity to this is the fact LAP is owned by Partia, a private company owned by Blackstone Group (NYSE:BX). Yes, no mistake the same company, which owns the majority of Vivint Solar (NYSE:VSLR), a company in the process of merging with SunEdison.
TerraForm Power (NASDAQ:TERP) is also under the same order. SunEdison committed TerraForm to the purchase of Vivint’s assets, to complete the merger transaction along SunEdison commitments. Since merger, in my opinion, is not considered as an ordinary course of business, and since the transaction itself has been part of the lawsuit brought by Appaloosa Fund, managed by David Tepper questioning its fairness, there is an apparent collision course of the temporary restraining order against the merger.
Appaloosa lawsuit if successful would enjoin TerraForm Power from merger agreement, yet SunEdison would be still obligated to buy Vivint. If Judge Ramos decided not to extend the order, under TerraForm enjoining, SunEdison would certainly become responsible for the $799M obligation of that transaction, adding to potential insolvency.
It appears that Blackstone owned brands are in conflict, and it is naive to assume the conclusion that this outcome would be a surprise to lawyers seeking arbitration. So what is the game plan here? In my view, restraining order is in place to protect SunEdison from merging with Vivint if TerraForm got enjoined. I suspect that order would be extended under those circumstances and relinquished by some mutual resolution if Appaloosa lost.
Since the order is to be argued on February 25th, and, at least, one analyst believes that that deliberation of Appaloosa case will be accelerated to come within the week of Feb. 16 when it was originally heard, this gives enough time for the temporary restraining order to come off or to be held. The situation would be complicated if Appaloosa case did not come before Feb. 25. Order if lifted would return conditions to a prior state, having no point. This is why I suspect order will not be lifted without Appaloosa ruling.
Would such order be modified or already allow the merger? I think it would be judicially difficult to argue the same transaction as fair in one court while being deliberated in another court as potentially unfair. This could have an undesired outcome if TERP injunction were granted. It is clear, by the definition of the order to protect assets of SunEdison from disappearing. The merger does the opposite.
All above seems to show Blackstone’s concern about SUNE facing merger without TERP transaction, but bringing risk to Vivint’s future, which does not appear to be in good shape as well?
I think Blackstone wants to control the game, and this is the move to ensure the game is still played. If TerraForm is enjoined, a case can go to trail. While this happens, Vivint assets could be sold to third parties. Restraining order buys time to do so and makes the injunction harmless. When all is sorted out SunEdison is still able to merge with Vivint, probably handing more game pieces to Blackstone and perhaps take steps to extract money from yieldcos. It can pull out its commitments to Interest Payment Agreements with both, GLBL and TERP, saving about $180M and $38M in this order. It can ask for loans considered as an investment and costs carried to be paid back, producing cash injection of $87M from GLBL and $15M from TERP. Finally, it can sell equity in TerraForm Power as control over it would become gun-shy under the injunction. The value of those shares could dramatically increase if injunction is granted, also helping elimination of the gap in $336M agreement.
Edited by odyd