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ANALYSIS: SunEdison's saga is far from over

The wheels have finally blown off SunEdison’s tortuous $1.9bn takeover attempt of Vivint Solar, dealing yet another blow to a company already bloodied and on the ropes. Right? Not quite.

The renewables industry woke Tuesday to the news that Vivint Solar delivered a letter to SunEdison spiking their merger agreement, blaming SunEdison’s alleged “failure to meet its obligations” under the terms of the ill-starred deal.

Predictably, Vivint Solar – which trails only SolarCity in the US residential solar business – threw down the legal gauntlet, saying it “intends to seek all legal remedies available to it”.

For normal renewables companies, news that a major player like Vivint Solar – whose largest shareholder is Blackstone, no less – had effectively flipped the dinner table and ordered its lawyers to sharpen their pencils would be taken as an unambiguously bad sign.

SunEdison, though, is no ordinary renewables company.

The winners and losers from this messy situation will, of course, be determined in large part by the legal drama that plays out between the two companies. But there are a few snap conclusions to be drawn.

Perhaps the clearest winner is Appaloosa Management, US billionaire David Tepper’s hedge fund, which sought to prevent SunEdison’s yieldco TerraForm Power from buying Vivint’s residential PV assets as part of SunEdison’s planned takeover.

Appaloosa has argued that rooftop PV systems are a poor fit for a yieldco like TerraForm Power, which normally deals in utility-scale power plants, and that SunEdison exercises undue control over its yieldcos, forcing them to pay richly for the projects it “drops down”.

Less than two weeks ago a judge rejected Appaloosa’s attempt to block TerraForm from buying Vivint’s assets as part of SunEdison's takeover – which likely would have doomed the entire deal. But with Vivint itself now calling the deal off, Tepper surely woke up Tuesday with a grin on his face.

Shares of TerraForm Power were up 7% Tuesday morning on the news.

Another unlikely winner could be SunEdison, although that’s a far trickier call to make.

The Vivint deal’s announcement last summer was the straw that broke not only SunEdison’s back but also its neck and limbs.

In the three months preceding the announcement, SunEdison’s shares rocketed by 60%, giving it a market capitalisation of over $10bn – and providing it with strong ammunition in claiming it had become the world’s first renewables supermajor.

Immediately after the Vivint deal was unveiled last July, however, SunEdison shares began dropping like a stone – losing more than 90% of their value over the next six months.

SunEdison’s story is well known today in the renewables world (and beyond): It got greedy, expanded too quickly, was too clever by half with its finances. Beyond its core solar development and manufacturing business, the company diversified into wind, hydro and rooftop PV.

If SunEdison is to survive, it will happen through a slow and painstaking process of backing out of deals; putting out legal fires; untangling its fiendishly complicated financial web; executing on its still-formidable global project pipeline; and ultimately demonstrating a viable pathway to profitability.

Investors, at least, saw Vivint’s announcement as a first step on SunEdison’s road to recovery, sending shares of SunEdison up more than 20% on Tuesday morning, to $2.20.

Some cynics, however, may see things differently. Recent press reports claimed that banks had balked at providing SunEdison with finance for its Vivint takeover. Had the deal gone through, then, it would at least have proved those reports false.

Ironically, the immediate loser would appear to be Vivint Solar itself – with its shares dropping more than 15% on the news. Vivint will now need to find finance to replace what SunEdison had offered, and it must do so at a time of heightened scrutiny about the business model of residential solar leasing companies in the US, as net-metering battles flare up across the country and homeowners grow increasingly comfortable with buying their PV systems outright.

There are still many unresolved issues for SunEdison, too.

The company recently announced it would delay its annual filing – never a cheery sign. Its brand, such as things matter in the renewables world, has been dented severely, surely impacting its ability to find and woo business partners around the world.

And then, of course, there’s the potential threat of another major lawsuit from Vivint and its shareholders to look forward to.

Vivint Solar’s announcement this morning is a major turning point in SunEdison’s neck-snapping saga. But is the end? Not by a long shot.

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