Covering The Anxiety In Shares Of SunEdison

• The share price of Sunedison, Inc. SUNE has declined almost 27 percent, year to date.
• Macquarie’s Angie Storozynski has initiated coverage of SunEdison with an Outperform rating and price target of $20.
• According to Storozynski, the company’s investment story has changed meaningfully over the last two years, and is now dependent on its public yeildcos.

“The health of the yieldcos, as measured by their ability to tap equity and debt markets at attractive terms, is critical for SUNE because they are the main monetization channels for its development project pipeline, an essential exit strategy given SUNE’s levered balance sheet and its high reliance on construction financing,” the Macquarie report said.

Storozynski expects the stock to be compelling for investors who believe that the demand for renewable power projects would continue to grow globally, and that “annuity-like” investment vehicles would be more desirable in a “sustainably low interest rate environment.”

The company is expected to see robust free cash flow growth, driven by drop down of projects to its yeildcos, as well as increasing collection from yieldco distributions. “While SUNE’s yieldcos seem like pretty simple financing structures to us, SUNE is not, especially looking at its financial statements and disclosures,” the report stated.

Given the company’s high leverage and concerns regarding liquidity that plagues renewable power developers, as well as limited visibility into SunEdison’s disclosures, fuels speculation about the company’s financial standing, especially when there is dislocation in the financial markets.

However, the recent preferred share issuance, “together with a new warehouse facility for development projects and a recent third-party asset sale should have addressed near-term liquidity concerns, we believe,” Storozynski added.

In addition, SunEdison, along with its yieldcos, has set up “special purpose financing vehicles” or warehouses, which will offer temporary financing for operating and development of assets by third party investors.