Tepper is betting SunEdison woes won’t drag down TerraForm shares
April 02 2016 08:18 PM
Tepper: Confident.

Bloomberg/New York

Billionaire hedge fund manager David Tepper is betting that the growing issues at SunEdison won’t spread to its TerraForm Power Incyieldco unit.
His Appaloosa Management boosted its stake in TerraForm to 10.88%, from 9.5%, according to a regulatory filing on Friday. The added investment comes as TerraForm’s parent teeters on the edge of bankruptcy.
SunEdison spent more than $3bn since the start of 2014 buying wind and solar projects on six continents and racking up $11.7bn in debt. Tepper has spent months criticizing SunEdison’s control of TerraForm, which was formed in 2014 to own and operate power plants while the parent chased expansion and became the world’s biggest clean energy company.
TerraForm owns “quality assets under long term power- purchase agreements,” Jeffrey Osborne, an analyst at Cowen & Co, said in an interview on Friday. “The owner of these assets should be fine whatever happens to SunEdison.”
SunEdison is facing potential default on $1.4bn in loans and credit facilities. It has been unable to file its 2015 annual report. And it disclosed that the US Justice Department is investigating its failed $1.9bn bid to buy Vivint Solar.
Tepper said he increased his stake in TerraForm because the price had declined and he sees value in its assets.
“All we want is for the company to be run the right way,” Tepper said in a phone interview on Friday.
Ben Harborne, a SunEdison spokesman, and TerraForm’s Head of Investor Relations Brett Prior didn’t immediately return calls seeking comment.
TerraForm shares have slumped by about half since November as investors became more critical of SunEdison, which controls TerraForm. They gained 13% to $9.83 at the close on Friday, the most in more than three months.
“If investors can get comfortable with the risks stemming from a potential SunEdison bankruptcy, they are now in a position to buy these assets at a 50% discount,” Michael Morosi, an analyst at Avondale Partners, said in an e-mail on Friday. He has a $15 price target on TerraForm and rates the shares the equivalent of hold.
TerraForm and a sister company TerraForm Global aren’t completely shielded from the issues at their corporate parent. Morosi said some power-purchase deals and project-level debt may have to be restructured if SunEdison seeks bankruptcy protection.
Those issues mean there is some risk to TerraForm and TerraForm Global shareholders, Moody’s Investors Service researchers led by Swami Venkataraman wrote in a March report. That’s part of the reason Moody’s lowered its credit rating for both of the yieldco units to B3. “Either or both yields might eventually end up in bankruptcy in the event of a SunEdison bankruptcy, indicating sponsor contagion risks and weaker corporate governance,” according to the report.
Tepper has been a vocal critic of SunEdison. Last year he derided SunEdison’s move to overhaul TerraForm’s board and questioned the yieldco’s independence from its corporate parent. He was especially concerned about the Vivint deal, which called for TerraForm to buy Vivint’s operating rooftop solar assets.
In January, Appaloosa sued to block the $1.9bn acquisition, which eventually fell apart last month. TerraForm Chief Executive Officer Brian Wuebbels resigned March 30, shortly after Appaloosa reiterated its call for the company to make changes to its leadership. Wuebbels also stepped down as CEO of TerraForm Global.
“Appaloosa appears increasingly willing to play an active role in that process, which could allow them to become more comfortable taking on some of those risks,” Morosi said. “The fundamental concept behind holding a portfolio of renewable energy projects in a publicly traded vehicle remains as valid as ever. These are low-risk, high-quality operating assets that offer investors an attractive return profile when packaged and valued correctly.”

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