David Tepper: SunEdison Is Holding Back TerraForm's Value

• Shares of Sunedison Inc SUNE have plunged nearly 85 percent over the past year.
• Hedge fund manager David Tepper delivered a scathing letter to the company's Board of Directors on Tuesday.
• Tepper highlighted the company's "strategic focus around acquiring projects' as offering "little apparent benefit" for stakeholders.

Sunedison operates three segments: Solar Energy, a Yieldco named TerraForm Power Inc TERP, and Semiconductor Materials.

Shares of TerraForm Power surged on Tuesday after notable hedge fund manager David Tepper delivered a letter to the company's Board of Directors. Tepper's hedge fund, Appaloosa Management, is a common equity and senior notes holder.

Tepper's letter expressed concern with the company's recent changes to TerraForm's management team and Board of Directors. The company on November 23 announced a "series of changes to its senior management team and board of directors at aligning the company's strategic focus around acquiring projects from its Sponsor, SunEdison, with less reliance on third party acquisitions."

According to Tepper, the changes offer "little apparent benefit" for TerraForm stakeholders and "raises the concern" for the "obvious conflicts" between the interests of TerraForm and SunEdison.

"Until recently, TerraForm's business purpose was to act as a vehicle to hold and finance a high quality portfolio of fully-developed wind and solar power assets that were supported by long-term power purchase agreements with large, investment-grade corporate counterparties. Isolating these projects within a ring-fenced vehicle made sense for both TerraForm and SunEdison, as the most efficient cost of capital could be obtained by segregating them from the operational, developmental and construction risks of SunEdison's main operating businesses," Tepper wrote.

Vivint Solar Acquisition Marks 'Departure' From Business Model

Tepper continued that SunEdison's acquisition of Vivint Solar in July marked the "unfortunate departure" from the company's business model and "appears to serve the sole purpose" of promoting SunEdison's desire to acquire Vivant Solar's development and operating assets, rather than "enhancing the quality and value" of TerraForm's holdings. In addition, the transaction "appears to disproportionally benefit the ‘Sponsor's' incentive distribution right (IOR) at the expense of significant downside financial risk to TerraForm."

"Disclosure of the precise details of this acquisition plan is long overdue, as well," Tepper continued in his letter. "So too, are the details surrounding the distinct possibility that TerraForm will be forced to accept a note from SunEdison (which is of dubious credit quality and market value) due to a shortfall in the market value of the assets to be delivered in the first leg of the Vivant Solar portfolio transaction relative to the $922 million purchase price."

Bottom line, Tepper's letter raised the point that SunEdison needs to release "substantial further disclosures" regarding its assets and properties to that investors can better understand the relationship between TerraForm and the company.

"In the meantime, we expect the Board and the Conflicts Committee to respect and defend the integrity of TerraForm's corporate identity and the interests of its stakeholders," the letter concluded.