TerraForm Power, Inc. (TERP)

[disdaniel 39]

16 minutes ago, Scsnospam said:

SUNE CEO et al are getting more control over TERP/GLBL. Why would the market take this as a positive for any of these companies?

Given the corner the company has painted itself into, any change in management is good.  I don't think COO will be the last C to go.

If CEO is pushing out COO, then you know he is feeling the heat himself...not too many chairs in between CEO and COO.

If SUNE board is pushing out COO, then that means they have awoken (maybe) and are clearly not happy with what their slumbering eyes perceive. 

[saush11 28]

7 minutes ago, disdaniel said:

Valid point Disdaniel. But  couldn't the counter be true as well ? He must have been the one not  appreciative of CEO's decisions, and a powerful CEO asks him to leave?

 

[disdaniel 39]

Obviously I am speculating. 

I do not view SUNE CEO's position as powerful at the moment--tenuous perhaps.  I'm betting even the CEO is not appreciative of the CEOs decisions at the moment.

[odyd 1,197]

He has resigned his position from board of directors of TERP in November. He held a position of COO in both. I am not sure if leaving bod was a strategy or his protest.

[zendoc1love 33]

New article on SA:

Recent Vivint Solar Filing Indicates Terraform Power's Former CEO Responsible For Deal

http://seekingalpha.com/article/3826016-recent-vivint-solar-filing-indicates-terraform-powers-former-ceo-responsible-deal

It's fairly interesting but it doesn't speak to the heart of Tepper's concerns which is self dealing.

My response on SA:

The problem is with the completely incestuous relationship that SUNE and TERP have. Domenech was the CEO of TERP as well as the Executive VP of SUNE. Which hat did he have on at the time of the initial conversation?
This is why the issue at hand is not necessarily the purchasing of the toxic assets that are being offered to TERP from the Vivint deal but the corporate governance issue of self dealing. Nothing from your article retorts this particular aspect of Tepper's concerns.
Board members leaving TerraForm because they could not protect the interests of the shareholders...Where this is smoke there is fire.
What is this about?
You attempt to neatly tie together your view of the situation without explaining some very peculiar dealings.
Further, TERP and SUNE would be better off without this deal.

 

[odyd 1,197]

Hi Zen,

I also replied to this article

I am quoting my reply

"I do not understand the premise of your article Aurelien. Carlos Domenech was a CEO of TerraForm Power, CEO of TerraForm Global and Executive VP of SunEdison, which you note.
First, how does the fact of initiating the conversation about the merger by him relate to the hearing of the case brought by Tepper, and further, becomes a cause for it to be thrown out of court?

If I understand your article, I would assume that Domenech had arm-twisted everyone in the corporate boardroom to push the deal on the SUNE. How come, Chatilla the hero, who fired Domenech, did not terminate the deal shortly after?

What makes you think that Domenech was not told to call? His call could have been a fishing expedition started by and possibly conceived by Chatilla or any number of people. No surprise next conversation had more executives in the room. As far as we know the deal is still on, but Domenech is out, which makes that version of events a lot more plausible.

Are you concluding that TERP should embodied Domenech actions and execute obligation of its ex-CEO out of moral duty? CEO wanted to merge, after all he came up with the idea, so be the man TERP and take on a junk since your leader started it. Clearly there is no ethical duty to destroy a company out of the bad decision of one, two or all members of the board. Tepper's lawsuit is about bad decision and the extent to which one need to go to stop it when undisclosed circumstances continue to push both companies to the edge. He simply wants to save one from falling if the parent company refuses to see the cliff.

Finally SUNE can grab an opportunity of potential injunction and cause dissatisfaction of conditions and terminate the deal. Tepper would save not only TERP but of course SUNE as well. Vivint is simply toxic today. Why not go there?

What is truly so compulsory that SUNE must consummate this deal? Why if TERP was relieved from obligation, SUNE would have to still buy Vivint, which everyone here recognizes as being disastrous and ending SUNE? Nobody ever described punitive measures to SUNE for walking away from the deal, so whom SunEdison HQ is trying to save here? Looks to me like Vivint Shareholders, but why and certainly over own and TERP's?"

[odyd 1,197]

This is part about pension fund now part of Tepper's lawsuit.

On December 28, 2015, a verified stockholder derivative complaint (Central Laborers’ Pension Fund et al. v. Peter Blackmore et al., Case No. 11847) on behalf of TerraForm Power, Inc. (“TerraForm Power”), a controlled affiliate of SunEdison, Inc., was filed in the Court of Chancery in the State of Delaware against SunEdison, Inc. and SunEdison Holdings Corporation, a subsidiary of SunEdison, Inc. (together with SunEdison, Inc., “SunEdison”), and certain individual directors of TerraForm Power. The lawsuit alleges that certain members of TerraForm Power’s board of directors breached their fiduciary duties of loyalty and care by agreeing to enter into an agreement (the “July Vivint Transaction”) with SunEdison on July 20, 2015 to acquire certain residential rooftop solar assets (the “Vivint Assets”) that SunEdison was acquiring as part of SunEdison’s acquisition of Vivint Solar, Inc. (“Vivint Solar”), by agreeing to terms that were grossly unfair to TerraForm Power and designed for the benefit of SunEdison, thereby failing to act in the best interests of TerraForm Power. The lawsuit further alleges that the approval of the modifications to TerraForm Power’s agreements under the July Vivint Transaction (the “December Vivint Transaction”) by the board of directors of TerraForm Power was on terms that are unfair to TerraForm Power and improperly favor SunEdison to the detriment of TerraForm Power and its stockholders. The complaint further alleges that SunEdison, as TerraForm Power’s controlling stockholder, breached its fiduciary duty not to advance SunEdison’s interest at the expense of TerraForm Power’s interests by causing TerraForm Power to (i) overpay to acquire assets in both the July Vivint Transaction and in the December Vivint Transaction in order to finance SunEdison’s purchase of Vivint Solar, and (ii) commit to purchase future residential solar systems from SunEdison over the next five years so that SunEdison could use TerraForm Power’s commitment to acquire a loan to partially cover its financial obligations in its transaction to acquire Vivint Solar. The plaintiffs in the lawsuit seek damages for TerraForm Power for the damages TerraForm Power has and will suffer as a result of the defendants’ breaches of fiduciary duty. The lawsuit also seeks an award of the plaintiffs’ costs and disbursements, including attorneys’ fees and expenses.

[zendoc1love 33]

I am getting a headache attempting to look through all the information surrounding these issues with TERP and SUNE.

The language in the B of A downgrade definitely talked about more downside if TERP were to be forced into getting the Vivint assets.

If the ruling goes against Tepper then TERP would have large volume sell off in my thoughts, however, it could already be priced in. 

The way that TERP has been moving around fairly violently with less than average volume is concerning.

I have to come back to the thought that Tepper and his team have had access to much more information than we have...and they have decided to push for injunction.  That does not necessarily mean that they will succeed, but ....it makes me feel a little bit better.

Best of luck to all TERP holders.  It is quite a ride.  Hold on to your seats.

 

[odyd 1,197]

I was thinking about it. While I made my position clear, TERP is not going buckle with Vivint assets this year. It may have issues when equity cannot be sold to buy subsequent years. So Vivint will not end TERP in any particular fashion. What I want is Tepper to win so quality of assets is not an issue and we are not on a leash for SUNE as much if at all.

[zendoc1love 33]

Odyd,

You had previously questioned whether the modifications to the acquisition of Vivint including the take or pay arrangements of 500MW of assets per year over the next few years.  Did you ever find clarification to this?  If these assets continue to be part of the deal then the Vivint acquisition could weigh fairly heavily on TERP's neck for some time to come.  In the meantime the dividend certainly seems like it is reasonable for some time to come.

There are multiple lawsuits to try to sift through. 

I continue to feel that since TERP board members resigned stating that they didn't feel that they could represent the best interests of stockholders points to some egregious wrongdoing or concerns that should be uncovered in this injunction hearing or force some sort of agreement/compromise prior to Feb 16th.  The more I think about it the more it seems reasonable that TERP board seat(s) will be offered to Appaloosa et al.

Explo,

What are your thoughts on this complex matter?

 

[odyd 1,197]

I feel good about TERP. The lawsuit while I feel legit, can be defeated. The situation for TERP does not change that much if you accept that TERP is equity selling vehicle.  If the MWs are residential and weak, this is the problem. Yet, some companies like City or Sunrun built business around that, oh yeah, Vivint too. A lot of people quite recently could not stop argue for rooftop solar. This is it.

What makes TERP better than most we have an activist investor. He has a power to influence the direction of TERP, even if it is a mindful rather than a fact. TERP has over 2.8GW of renewable energy for some 16 years. This is the Nirvana of solar investing, getting paid for owning equity. This is why this fight is important.

I think that Tepper can get the injunction, but if he losses the world actually does not end. If we get the understanding of CAFD from those assets, if this is ever published, we could benefit even more. So I rather be in this than in unknown around CSIQ for Q1. I wrote a post about my strategy somewhere so you can see those details there. I want two dividends and perhaps get one for one trade for CSIQ share, hopefully in the $25 range.

[explo 595]

10 hours ago, zendoc1love said:

What are your thoughts on this complex matter?

Although the terms were revised and improved for TERP (http://finance.yahoo.com/news/terraform-power-announces-improved-terms-144024657.html) Tepper did not relent. There must be some obvious cost with this deal going through, not just for TERP, but for SUNE too since many think they should cancel it. This gives rise to many questions. Why did SUNE strike the deal in the first place? Why don't they cancel it now if cost has become obvious? Are they just stubborn or trying to be honorable? Or is the cost to cancel the deal worse than going through with it? I don't have the answer to all these questions, but I find it unlikely that entering a deal should remove 75% of the value, so there is likely more bad things than good things priced in in the stock here at single digits.

 

[dk1 2]

3 hours ago, explo said:

Although the terms were revised and improved for TERP (http://finance.yahoo.com/news/terraform-power-announces-improved-terms-144024657.html) Tepper did not relent. There must be some obvious cost with this deal going through, not just for TERP, but for SUNE too since many think they should cancel it. This gives rise to many questions. Why did SUNE strike the deal in the first place? Why don't they cancel it now if cost has become obvious? Are they just stubborn or trying to be honorable? Or is the cost to cancel the deal worse than going through with it? I don't have the answer to all these questions, but I find it unlikely that entering a deal should remove 75% of the value, so there is likely more bad things than good things priced in in the stock here at single digits.

 

I think Vivint deal worked as catalyst in this case and stopped the music for SunEdison. 75% loss (for TERP) and almost 90% for SUNE is partly because these companies were trading at inflated values before. So some of this decline for TERP and IMO all of this for SUNE is justified as market realised the true risk with these assets. Of course it has gone into other direction now, at least for TERP. ROE on yieldco projects is typically 7-8%. It is beyond my understanding how all these sophisticated institutional investor can pay double or more of book value for assets generating 7-8% ROE. why didn't they just buy WellsFargo  I expect TERP to trade close to BV once this is all resolved. Of course no clue how long it will take. For SUNE fundamental assumptions behind the business case is flawed IMO. Project development is quite a simple business. Just need to look at the number of players around the world. You can't expect this business to generate high returns. Assumption of any moat by a project developer is an illusion. SUNE claims it can generate 0.35 USD/W in gross margins. From my experience of working with small developers in UK and Germany, they were happy making 0.2 USD/W and they were profitable due to low overheads. But SUNE needs 0.35/W as its overhead and interest costs are around 0.2 USD/W and this is also when they develop over 3GW of projects in a year.

[pg6solar 74]

@dk1, what is TERP's BV? TIA

[dk1 2]

17.8

[explo 595]

Dk1, I used to think the same way, i.e. that PV plant owners would be valued based on their net asset value, where market value of asset might be 20% above book value. But I reconsidered this, since a scheme where this asset base grows quickly and accretively has a lot of its value in that growth prospect.

 

[odyd 1,197]

Zen,I spent some time now investigating take/pay agreement which is described to be between Terra LLC and the Term Borrower, which is a fancy for TERP and SUNE. The take/pay agreement has never been disclosed in detail. This agreement was embedded in the amendment as it was never part of original merger agreement.

So it becomes clearer now that TERP was to be forced into a transaction, even in the event of refusing to take on assets of Vivint, to ensure that SUNE will receive money for merger.

To me this sounds as act of prevention of any legal attempts to remove TERP obligation from the merger. Any aversion to taking assets would cause a payment  to SUNE. This sounds predatory toward TERP, and could further complicate Tepper's objective to enjoin the transaction or get injunction to stop the purchase of those assets.

What I found interesting is the wording on consummation of the transaction on part of SunEdison, the language summarized following in July, I highlighted the context addressing role or rather no role of TERP and still responsibility of SunEdison to proceed with merger:

“SunEdison intends to fund the cash portion of the merger consideration primarily from the proceeds of a new $500 million secured debt facility and the completion of the $922 million sale of assets to TerraForm Power.  However, completion of the merger with Vivint Solar is not conditioned on consummation of the new debt facility or of any other third-party financing or the completion of the asset purchase by TerraForm Power”

Above statement made very clear that in case TERP did not buy those assets SunEdison would be still on hook to do so. The same statement remains in the Dec 9th amendment. The take/pay agreement seems to neutralize the clause on non participation of TERP, making it indifferent and improving SUNE position. Now how much money is involved in "pay" condition or how that agreement works is a secret.

[zendoc1love 33]

Thanks Odyd!

This seems underhanded and definitely predatory on the part of SUNE.  Since the agreement was embedded in the amendment it also occurred at a time that Tepper was an owner of TERP.  I would think that this would add more credence to Tepper's argument of "self dealing" and don't really understand how this would complicate Tepper's objective to enjoin the transaction.  Is this because the process in and of itself is just more complicated and difficult to prove?

The take/pay arrangement by itself to give no benefit at all to TERP.

Interesting stuff.

 

[odyd 1,197]

Tepper's objective is to get injunction. The easiest thing SUNE could do would be to say, TERP does not have to buy any assets at all Mr. Tepper, however they owe money to SUNE, if it does not.  His lawsuit is about getting the assets, not about not paying penalty for not getting them. In my opinion swift lawyer can argue that when SUNE gets pressed to the wall. Now the new argument would have to be made, ok we did not have to get the assets but we do not want pay penalties either. Not sure if this is in the body of the suit. 

In my opinion the pay/take agreement was made for a reason of strong, probably already existing chatter about self-dealing and potential of someone on behalf of TERP to argue injunction, It created a door, which would suck undisclosed amount of money from TERP, perhaps forcing the company to get the assets as lesser evil.

I cannot see a purpose for in any other way, but to do as much.

[odyd 1,197]

Of course Tepper has a team of lawyers who could probably argue that amendment and any insert associated with it was part of self-dealing, hence itself is an illustration of abuse to force another entity to pay. In real sense of it anyone who thinks SUNE was somehow helping TERP, by getting Vivint to fulfill wet dreams of Demenech must be smoking naive tobacco all day long.  Domenech did what he was told and made first contact. The vicious legal collar put on TERP just in case someone got ideas to stop the transaction is a single evidence that not some silly call, but Blackstone and Chatilla are the masterminds leading to this mess. SUNE insists to squeeze any dime left from one existing source of internal strength to deliver own suicide scenario called a merger of Vivint.

I am pretty sure Blackstone has absolute power over SUNE but I am not sure what that is. Certainly the unconditional commitment even if there is no financing, even if TERP will not buy assets, for SUNE to buy the Vivint forces SUNE now to butcher own child just to make it happen so parent lives another day, . Bad business.

[odyd 1,197]

I have read more into a July agreement, There is wording of the "take/pay agreement offset". This relates to notes being issued. I think the take /pay agreement was present in original merger agreement. However this is the only entry I found in the entire prospectus in July. My claim this been part of amended version therefore is not accurate.

However I have no idea how this agreement looks like. To me this still remain predatory as description of SUNE actions, however being there along, must have been acknowledged and argued against ability to succeed by Tepper's team.

This is not a show stopper or a surprise ace. That makes me feel better.

[odyd 1,197]

Mind you the letter agreement, dated Dec 9th, reads following

"In connection with the Term Facility, the Borrower and TERP will enter into a take/pay agreement (the “Take/Pay Agreement”) obligating TERP to purchase from the Borrower and its subsidiaries, the “cash” or “sponsor” equity positions in equity partnerships or funds arranged by the Borrower for residential solar systems (the “Solar Residential Systems”).

I guess I need second opinion, to understand this being a future and therefore an addition or just described condition when merger happens present at both dates.

 

[odyd 1,197]

Ok, I think I am getting this now. Term facility is a secured loan given to SunEdison in amount of $300M.  The loan is secured by the term borrower' assets, which is is a sub of the SunEdison.  In connection with this term facility TERP has been put in front of take or pay agreement, essentially taking on responsibility of taking those assets. 

Tepper's lawsuit calls on this transaction here "SunEdison agree to an unfair arrangement so that SunEdison could use such commitment by the Company to acquire a loan to partially cover its financial obligations in connection with its own contemplated merger with Vivint Solar, for which SunEdison never compensated the Company."

So at this point the pay part would be $300M, not that it changes a lot, but I think this is more accurate.

[pg6solar 74]

Odyd, I'm glad that you're fully in TERP, otherwise there would never be a drive to get to the bottom of the situation. On behalf of all TERP holders here, I thank you for digging the info and then presenting it here in a fasion that can be understood much easier than just by reading the fillings. Thanks again.

[odyd 1,197]

Thank you Pg,

I enjoy doing it and yes most of the time I do this for what I own. I always hope to have a discussion as frequently I take number of takes before clarity sets in, another view or views would help with the process.