Crushing amounts of debt are pummeling SunEdison, the biggest renewable energy developer in the world. Hedge funds, who used to favor the company, are dumping the stock, accelerating SunEdison’s problems. There is an unfortunate misconception that renewable energy companies are so wonderfully squeaky green clean that they are immune from Wall Street and financial machinations. SunEdison shows this quaint notion to be false.
Their dicey business plan was based on their stock always going higher, a “strategy” that always works until it doesn’t.
SunEdison was built to be a development company that would then sell wind and solar projects to its captive yieldcos. The yieldcos would buy projects (at a premium to what the market might pay) and finance them through a combination of new debt and equity, predicated on the idea that the cost of new capital would be lower than the cost of capital of the projects they were buying from SunEdison. This would help the yieldcos grow earnings and dividends, which theoretically would keep the stock price high. In theory, this could go on for many years.
All of this is a great idea but it falls apart once stock prices fall.
Well no, it’s not a great plan at all because only a fool or a charlatan says stock prices will go up for ever. Banksters were of course happy to jump in and pump up the stock price, but when the big money exits all at once, look out below.
SunEdison may be a bankruptcy candidate
With its business model falling apart, SunEdison needs a savior to finance both projects and its future operations. But that’s not going to come from hedge funds that are abandoning the company or yieldcos that now have such high yields that they can’t buy projects.