Sunedison Inc (NYSE:SUNE) is on the brink of bankruptcy as the solar energy company faces ongoing investigations regarding its accounting practices and inquiries regarding its ability to pay its huge debt of nearly $12 billion.
The stock price of Sunedison plummeted more than 52% to $0.59 per share at the time of this writing around 2:34 in the afternoon in New York. In fact, the stock dropped as low as $0.50 per share earlier today.
Sunedison identified material weakness in internal controls
In a regulatory filing with the Securities and Exchange Commission (SEC), TerraForm Global (NASDAQ:GLBL) warned that its parent company, Sunedison is at “substantial risk” of seeking a bankruptcy protection due to its liquidity problems and material weakness in internal controls over financial reporting.
Sunedison delayed the filing of its Form 10K for the year ended December 31, 2015, because the company needs to complete all tasks and steps necessary to finalize its annual financial statements and other disclosures.
The solar energy company’s Audit Committee and advisors are also conducting inquiries and investigations related to allegations concerning the accuracy of its financial position based on certain issues raised by former executives, current and former employees.
The Wall Street Journal reported that the SEC is investigating whether Sunedison overstated its liquidity position. The company had $1.3 billion in cash and cash equivalents and $11.67 billion of debt (including yieldcos) or $7.9 billion of debt (excluding yieldcos) as of September 30.
Angelo Zino, an analyst at S&P Global Intelligence told Reuters that currently, Sunedison has “run out of option.”
TerraForm Global has enough liquidity
According to TerraForm Global, Sunedison’s bankruptcy may have a “material adverse effect” on its business given its reliance on Sunedison particularly on its obligations related to pending transactions. The yielco clarified that it does not rely substantially on its parent company for funding and liquidity.
TerraForm Global believes that it will have sufficient liquidity to support its ongoing operations in case Sunedison files for bankruptcy. It is engaged in discussions with lenders to obtain an extension of its revolving credit facility, which is not critical to the continuation of its business operations. The yieldco has approximately $1 billion in cash and $500 million available under its revolving credit facility.
Pavel Molchanov, an analyst at Raymond James, commented that TerraForm Global and TerraForm Power (NASDAQ:TERP) will not follow Sunedison into bankruptcy because both are legally separate companies.
“However, there is a close historical relationship between the parent company and these yieldcos, and therefore, some dislocation in the event of parent bankruptcy should be expected,” explained Molchanov.
The stock price of Terra Form Global declined more than 18% to $2.03 per share.