Why This Analyst Believes SunEdison's YieldCo Could Be 'One Of The First Truly Global EM Yield Cos.'

announced on Monday it would be reviewing its corporate structure, specifically it will evaluate the use of a general partner (GP) structure, similar to that of an MLP, to more effectively align the company structure with long-term asset ownership. In addition, the company also announced it will issue $750 million in convertible notes. In a report published Tuesday, FBR & Co. analyst Aditya Satghare commented that SunEdison's new corporate structure and note offering could result in a re-rating of dividends and IDR cash flows and simplify the reporting structure.

According to Satghare, a GP structure with a separately listed entity (the GP) with two LPs –

and Terraform Global would simplify the current ownership structure. The analyst added that he values these cash flows at a 15x multiple in his sum-of-the-parts (SOTP) analysis, while GPs trade at a much higher multiple. In fact, comparable GPs of midstream MLPs trade at a cash flow multiple of about 2x that implied in his SOTP. A GP structure would be ideal for the company as it would "simplify" the complex financial statements by separating the devco from the dividend and IDR cash flow streams, and result in a "cleaner" SOTP analysis.

SunEdison will issue two sets of convertible notes, consisting of $375 million due in 2023 and another $375 million due in 2025. According to Satghare, the proceeds are expected to be used primarily to fund M&A ahead of the EM YieldCo. launch which was announced last week. The company will also use the proceeds to create an additional warehouse facility, optimize the material business by exiting a $250 million take or pay contract resulting in a $100 million annual loss and retire some of the earlier converts.

Satghare argued that the recent announcement of the EM "Yield Co." (Terraform Global), with an initial portfolio size of 1 GW should create "one of the first truly global EM Yield Cos" with assets located in Brazil, China, India, Uruguay, South Africa, Peru, Malaysia and Thailand. Shares of SunEdison remain Outperform rated with an unchanged $34 price target. Shares of TerraForm Power remain Outperform rated with an unchanged $40 price target.