TerraForm Power Inc Downgraded For Known, Unknown Risks: JPM

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The drama involving SunEdison and its yieldcos, including TerraForm Power. Despite the downgrade on Wednesday, however, shares of TerraForm climbed and are still climbing this morning. As of this writing, the stock is up 1.67% at $8.52 per share, although SunEdison is still moving lower and is down 5.53% at 55 cents per share as of this writing. TerraForm greatly benefits from the end of SunEdison’s Vivint Solar deal, but concerns about liquidity at SunEdison remain.

TerraForm Power to Neutral

In a report dated March 30, JPMorgan analyst Paul Coster and team said they have downgraded TerraForm Power from Overweight to Neutral. Interestingly, they still think the yieldco appears cheap “based on run-off value or discounted dividend,” and they maintained their price target of $13 per share despite the downgrade.

Rather, they’ve moved to the sidelines as a result of what’s happening with parent company SunEdison, which they rate as Underweight. They’re concerned about the delay in TerraForm’s 10K filing and the bankruptcy risk SunEdison faces.

SunEdison may file for bankruptcy

The Vivint Solar deal would have helped SunEdison by giving it an influx of cash, but those against the deal argued that it shifted all the liability over to TerraForm Power, which is why the fact that it fell through is such a good thing for TerraForm. Appaloosa actually sued to block the deal in January. The JPMorgan team noted that TerraForm’s sister company, fellow SunEdison yieldco TerraForm Global, said in an 8K filing earlier this week that there’s a “substantial risk” SunEdison will file for bankruptcy protection.

Coster and team explained the risks to TerraForm if SunEdison files for bankruptcy, which they said could result in “‘change of control'” clauses in early-vintage solar PPAs that were dropped down to TERP and cross-collateralized agreements embedded in project-level debt.” They believe TerraForm will be able to beat these risks, possibly with the worst-case scenario being that both problems weigh on its cash flow.

However, they don’t think it would be wise to add to positions in TerraForm Power until the risks become clearer and it catches up with its SEC filings.


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