Baird's Kallo: Sunedison Uncertainty Is Hurting Terraform

• TerraForm Power Inc TERP shares are down 29 percent year-to-date, and have been on a steady decline since early July.
• Baird's Ben Kallo downgraded the rating on the company to Neutral, while reducing the price target from $32 to $25.
• Kallo said that the recent sell-off in shares make it tougher for the company to finance its long-term growth targets with equity.

Analyst Ben Kallo mentioned that it has become more difficult for TerraForm to its growth targets using equity, following the sell-off in its shares. The company now has three main options:

1. Delay future project drop downs until shares appreciate
2. Source funds from a strategic investor or do a stock deal to purchase assets from a private equity firm
3. Finance drops with debt

Checks indicate that near-term debt issuances by TerraForm would likely have higher costs than previous issuances, while this approach could cause previous issuances to “further decline in value and potentially impact management’s credibility with investors,” Kallo wrote.

The analyst added that uncertainty around the long-term plans of Sunedison Inc SUNE has reduced visibility into TerraForm’s growth. The price target has been reduced to reflect a “higher expected distribution yield given the numerous business uncertainties,” the Baird report added.