Yieldcos enabled SunEdison's debt-fueled acquisition spree

Mon Apr 25, 2016 4:30pm EDT
 
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By Nichola Groom and Michael Erman

(Reuters) - At an early 2015 investor conference, SunEdison’s then-chief financial officer, Brian Wuebbels, trumpeted the profit potential in the solar developer’s relationship with a venture it had recently spun off.

SunEdison had established TerraForm Power Inc as a “yieldco,” a complex financing vehicle to purchase energy projects from SunEdison and other developers. TerraForm lured investors with the promise of reliable dividends based on long-term power contracts.

As Wuebbels’ presentation made clear, the yieldcos also created incentives for SunEdison to rapidly acquire more power projects.

"It's all about growth, creating a pipeline, feeding that pipeline into TerraForm," he told investors.

The resulting acquisition spree would drive SunEdison deeply into debt - and ultimately into bankruptcy. SunEdison's Chapter 11 filing last week has brought new scrutiny to the company’s relationship with TerraForm Power and a second yieldco it formed in 2015, TerraForm Global.

A spokesperson representing both yieldcos declined to comment. SunEdison officials did not respond to a request for comment.

Wuebbels - who became CEO of both yieldcos late last year - resigned last month and could not be reached for comment.

Yieldcos have become relatively common in the alternative energy sector since their launch in 2013. But unlike the earliest such entities, TerraForm Power and TerraForm Global were structured to include “incentive distribution rights,” or IDRs, designed to direct additional cash to SunEdison as the yieldcos reached certain levels of dividends to investors.   Continued...

 
The headquarters of SunEdison is shown in Belmont, California  April 6, 2016.   REUTERS/Noah Berger/Files