Wednesday, March 30, 2016

SunEdison Situation Dire

Travis Hoium writing for The Motley Fool gives this SunEdison update and comments on its business strategy, which goes to the heart of the problem with the HECO contracts and concerns if SunEdison continues to buildout these projects under a new project owner:
What about the financials?The latest news from SunEdison, which caused shares to plunge on Tuesday, is that TerraForm Global won't be able to file its 10-K by the March 30 deadline, due to problems with SunEdison's accounting. The Wall Street Journal is reporting that the SEC is looking into liquidity disclosures SunEdison made, which may not have been accurate.
If we can't trust a company's financials, what can we trust? But all of these problems go to the biggest problem the company has with its business. 
SunEdison's biggest underlying problemHigh debt levels, a rising cost of capital, and delayed financials are bad, but the worst problem for SunEdison is that it's not executing on its own plans. As I mentioned, the company is shifting to a strategy of developing projects and selling them to third parties. But its development business doesn't appear to be firing on all cylinders. 
In February, Hawaiian Electric canceled power purchase agreements for 148 MW worth of solar projects because they were months behind schedule. The details are confusing, at best, but there's no disputing that SunEdison missed major milestones repeatedly. If the company can't even get the construction of contracted projects right, how can investors trust its business. These kind of execution misses have exacerbated debt problems and led management to overextend itself.  
It's the lack of execution that calls into question all of the debt and the acquisition/yieldco strategy. If there's not a steady developer behind all of that then there's a major problem. And that's the biggest problem plaguing SunEdison today. All of the debt and financial problem stem from a lack of operational execution in buying, bidding, building, and operating solar projects. If SunEdison can't get its core business right, why should anyone be interested in the stock?

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