Janney's Gaugler Downgrades Sunedison On HECO Termination, Warns Cash Outlook Might Not Be Met

Janney's Michael Gaugler has downgraded the rating on

from Buy to Neutral, while lowering the price target to $5.50. The downgrade is based on the recent announcement by

of the withdrawal of its power purchase agreement with Sunedison for three utility scale solar facilities. Gaugler believes that "lack of project execution could be indicative of more serious cash flow concerns than we previously anticipated, and that the likelihood of SunEdison achieving the aggregate cash walk outlined in its 1/7/16 business update has diminished." Hawaiian Electric mentioned that the agreement had been terminated due to its financial position as well as failure to meet the project deadlines. The project delays could be indicative of potential execution issues within Sunedison's project development business, the analyst said. Gaugler expressed concern that "other counterparties may become hesitant to engage in contractual commitments with SUNE, given 1) the failed Latin America Power (LAP) transaction, 2) length of time to close the

acquisition," and 3) cancellation of the Hawaiian Electric agreement. On the other hand, Sunedison has announced that it intends to sell its silicon wafer production facility in Kuching, Malaysia, to China-based China-based LONGi Silicon Materials. The sale is expected to close in March 2016. The company also intends to close its polysilicon production facility in Pasadena, Texas, and transform its Portland, Oregon facility into an R&D and technology demonstration center. According to the Janney report, "The actions are expected to generate $266MM in non-cash impairment charges and a total of $171MM in other restructuring charges in 4Q15 results. SUNE also expects to report another $10MM - $13MM in other restructuring charges during 2016."