SUNE - Sunedison Inc.

[KJP]

What do you think about Axiom Capital's view on SUNE?

• Credit Risk Appears Worse-than-Forebode. After some pressure from a number of SUNE pundits following our downgrade of the shares last week (given SUNE’s shrs had already moderated -75% vs. +1% for the S&P 500 over the same timeframe), we decided to do another “scrub” of the company’s 10-Q published 11/9. Following this exercise, we are even more resolute in our subdued outlook, SELL rating, and yr-end C16 PT of $2/shr (34% downside). Why? Five reasons, namely:

o (1) when excl. cash committed for construction projects, SUNE has just ~$600mn in cash for general corporate purposes (which we now blv may not be enough to sustain SUNE through 2Q16) – Ex. 2,

o (2) SUNE’s decision to borrow $169mn in 1yr paper from Goldman Sachs (GS; NR) in 3Q15 at a 15.4% interest rate (incl. $9mn prepayment) to put up collateral, we blv, for the 8/11/15 $152mn margin call on its $410mn Deutsche Bank (DB; NC) loan (an addtl. $91mn of collateral was required from SUNE 10/15 [Ex. 3], and we surmise more since then with the fall in Terraform Power’s shrs [TERP; NC]), pointing to emergency cash needs as recently as 3Q15 – who borrows 1yr paper at 15.4%?, (Ex. 4), other than a distressed company,

o (3) Renova’s right to put 7mn of GLBL shares to SUNE at a price of $15/shr 3/31/16 (a $105mn liability) – Ex. 5,

o (4) SUNE’s potential obligation to buy ~16% of Renova for $250mn using its own shares (i.e., 83mn shrs), suggesting sig. dilution to equity holders in the offing – Ex. 6, &

o (5) TERP’s recent revelation that it put up ~27% (i.e., $388mn) of the capital necessary to fund the Invenergy Warehouse, implying SUNE’s aspirations for ~$6bn in Warehouse funds to “house” its ~3GW in projects being developed may require a ~$1.65bn cash infusion (Ex. 7). Barring unforeseen incremental cheap funding in the offing, we see a credit event as likely before 3Q16.

• Valuation. Our yr-end C16 PT remains $2/shr (34% downside). While more valuation detail is below, with acute stress on its core biz at present, & shortcomings selling huge amounts of projects into the secondary mrkt over a short period of time thus far, we blv SUNE will miss ~3.5GW developed in C16. Using ([1.42GW × $0.18 (op. prof.) - $150mn interest × 70% (tax)] ÷ 316mn shrs) = $0.23/shr in dev. co. EPS, & applying a 9x P/E multiple (assumes 15% DevCo GM into perpetuity; likely high given 9.6% 2Q DevCo GM), SUNE is worth $2.

 

Clearly calls into question the notion that capital needs are met through 2016.  Where does the 1.42GW come from?  Is that the projected third-party sales?

[KJP]

 

I'm not sure if it is disclosed anywhere but sell side confirmed it with management.

 

 

Have you seen that in a sell-side note?

 

Here's an excerpt from page 45 of Exhibit 13 (the financial statements) to SUNE's 10-K for 2014:

 

"Solar energy systems held for development include solar energy system project related assets for projects that are intended to be sold as direct sales. Development costs include capitalizable costs for items such as permits, acquired land, deposits and work-in-process, among others. Work-in-process includes materials, labor and other capitalizable costs incurred to construct solar energy systems." 

 

It's ambiguous whether interest on construction financing is an "other capitalizable cost." 

[KJP]

Quote from: dbuch on Today at 12:01:54 PM

 

Just my rought estimate...If we can assume they make $0.35/watt gross and pay $0.17/watt OpEx they would make $630M operating income. Less the $150M interest costs and taxes equals call it $1/share So say DevCo is worth $10

 

TERP I think should be worth at least an 8% yield. Lets say $1.6 DPS/.08 = $20/share x 60M shares =$1.2B/350M shares =$3.5 a share to SUNE

 

Recourse Debt of $3B - $1.4B cash =$1.6B of net debt which equals a negative $4.6/share

 

$0 value for GLBL and IDRs

 

Total value of $8.90 a share. This assumes GLBL is worth nothing and IDRs are a donut. But it also assume they actually can sell their projects to third parties and they earn $.35/watt

 

 

 

 

I appreciate you sharing your estimates.

 

I think you have another embedded assumption:  by putting a 10x multiple on DevCo "earnings," you're also assuming those margins are sustainable beyond 2016. 

 

Also, a significant portion of the current $1.4 billion in cash is going to be used to fund the construction of MWs upon which you rely, so aren't you double-counting?

 

Finally, where does $250MM in interest for the next 1.5 years come from?  Isn't the interest on construction financing alone going to exceed that number?

 

1) 10x multiple - Yes that assumes the devco is sustainable. If this isn't the case then SUNE is probably worth zero.

 

2) I'm assuming they construct 3500MW a year and sell all of it to third parties every year so they are essentially paid back for whatever construction costs they incur. What is left is the amount of debt they have and the cash already on the balance sheet.

 

3) Interest costs is tough to figure out but here's what I calculated based on just the recourse debt.

 

Convertible Senior Notes $1.8B x 2.05% = $40M

Margin Loan $404M x 6.25% = $25M

Exchangeable notes $336M x 3.75% = $13M

Construction Term Debt $54M (recourse portion) x 4.67% = $3M

Leasback $32m (recourse portion) x 4.59% = $2M

Credit Facilities $388M (recourse portion) x 4.47% = $18M

Preferred Stock $650M x 6.75% = $44M

 

Total of $145M/year in interest. I rounded up to $250M from $220M over 6 quarters.

 

What about interest on the non-recourse construction financing?  I don't think it's included in the $.35/watt gross margin or the $.17/watt OpEx forecast.

 

Also, won't ramping up to 3500MW per year require a permanent increase in working capital that will permanently eat part of the $1.4 billion in cash?  The 10x multiple on DevCo earnings assumes the step up in working capital is permanent.  That's the double-counting I was referring to.

 

cmlbr:

 

Do you agree with dbuch's back-of-the-envelope numbers?  Have different ones?

 

I don't quite agree with them. 

 

Here's my back of the napkin valuation (as of late last night, before the blood bath today):

 

Total DevCo Debt = $4,667 million (excludes non-recourse debt with the exception of project level non-recourse debt)

(+) Vehicle Interest Support = $276 million (undiscounted sum)

(+) First Wind Earn Out = $500 million

(+) Vivint Value Destruction = $907 million (non stock consideration)

(-) Total SUNE Cash = $1,380 million

(-) Value of TERP/GLBL = $1,270 million (10x 2016 Dividends + IDRs)

"Net Debt" = $3,700 million

(+) Market Cap = $1,558 million

"Enterprise Value" = $5,258 million

 

DevCo EBIT = $695 million (Einhorn calculation that I agree with)

 

So, when it's all said and done, you're effectively buying the DevCo for 7.5x EV/EBIT and getting the call options on warehoused projects for free and the technology that they claim is worth $1 billion for free.  Plus you're getting many years of ridiculously low interest debt from the convertibles, so the debt arguably has a much lower FMV then I'm adding to EV.  And I think I excluded about $500 million in equity value of projects on the balance sheet.

 

How long will the DevCo be sustainable, and what are those options worth, are the key questions. 

 

Disclaimer:  I sold out most of my position this morning, thankfully in the 4s.  Just had enough with the constant creep of non-recourse debt into recourse debt, terrible disclosures, misleading statement from management, etc.  Also, I have no idea what's going on with TERP, the dividend yield is now like 13-14%.  I should have hedged that out when I got in but was lazy.  I'll probably get back in at some point and am going to dig deeper on TERP.

 

KJP, what do you think it's worth?

 

I agree with most of your numbers, but would adjust DevCo EBIT down to account for interest payments on non-recourse construction financing, then compare that number to your enterprise value to get a EV/EBIT number.  It's not cheap if you look at it that way.  But that also gives it no credit for the upside optionality. 

 

If you play around with margins and assumptions a bit on 2016 and then model some margin compression going forward, I think you can see a situation in which the equity is a zero.  So, you're potential downside here is 100%, or close to it.  On the other hand, your potential upside is multiples of that, particularly in the blue-sky scenario in which TERP can start issuing equity again.  So, I can understand people who say it's uninvestable (Rule No. 1: Never lose money), and I can understand people who think the optionality and very high upside are worth the risk (5x/1x upside-downside bet). 

 

Moreover, significant share price volatility should be expected at this point it's becoming an equity stub, so even relatively small changes in enterprise value estimates translate into big swings in equity value.

 

Another question to ask:  Is TERP a better investment at current prices?  At current yields, you'll be getting nearly 3.5% of your purchase price back every quarter (pre-tax) as a dividend, and dividends should be increasing given the upcoming purchases.

 

I'm wondering the same thing regarding TERP.  No idea why it's so cheap.  Runoff value must be close to or in excess of this price, and you get the optionality free...  Haven't done enough work on the TERP side, but plan to spend some time on it.

 

I went long TERP this afternoon below $10/share.  Rationale is that I believe the implied discount rate in run-off is over 10%.  If SUNE can meet its 2016 guidance and show that it's a viable business, TERP investors will get to share in the upside (though not to the same degree as someone who buys SUNE at $3/share), but I don't think you share anything like the same downside risk. 

 

I believe there may be long-term structural risks to the cash flows, such as the slow degradation in counter-party credit quality that Packer mentioned earlier in the thread, but I believe those risks are years away from potentially materializing. 

[dbuch]

Have you seen that in a sell-side note?

 

Yes, I saw it in a note. I couldn't find it in the Q.

 

I think TERP looks pretty interesting at this point as well. Much less risk but not as much upside. If they can do $1.6 in 2016 they ought to trade at least $19 a share even if they never grow the dividend or drop down another project. In the meantime your getting a 16% dividend yield. They had projected a $2.05 dividend in 2017 but that might be impossible at this point. 

 

71% of assets are in the U.S. with average project life of 16 years and A- counterparty credit quality.

 

 

[KJP]

Have you seen that in a sell-side note?

 

Yes, I saw it in a note. I couldn't find it in the Q.

 

I think TERP looks pretty interesting at this point as well. Much less risk but not as much upside. If they can do $1.6 in 2016 they ought to trade at least $19 a share even if they never grow the dividend or drop down another project. In the meantime your getting a 16% dividend yield. They had projected a $2.05 dividend in 2017 but that might be impossible at this point. 

 

71% of assets are in the U.S. with average project life of 16 years and A- counterparty credit quality.

 

Agreed.  My thinking is that it's a safer way to see if SUNE gets itself straightened out, and, in the meantime, you get paid a very substantial amount to wait. 

[awindenberger]

Have you seen that in a sell-side note?

 

Yes, I saw it in a note. I couldn't find it in the Q.

 

I think TERP looks pretty interesting at this point as well. Much less risk but not as much upside. If they can do $1.6 in 2016 they ought to trade at least $19 a share even if they never grow the dividend or drop down another project. In the meantime your getting a 16% dividend yield. They had projected a $2.05 dividend in 2017 but that might be impossible at this point. 

 

71% of assets are in the U.S. with average project life of 16 years and A- counterparty credit quality.

 

Agreed.  My thinking is that it's a safer way to see if SUNE gets itself straightened out, and, in the meantime, you get paid a very substantial amount to wait.

 

I think Terraform Global is actually the best option. Highest current yield (20%+), and extremely well covered. I've got an updated piece on them that SeekingAlpha should publish tomorrow.

[KJP]

Is the new warehouse model sustainable given TERP's current price?  In other words, what kind of returns are equity investors in new warehouses going to demand in light of the returns they could obtain from simply going into the market and buying existing TERP shares? 

[Artha158]

Do you trust this management? They claimed to have solid cash balance (1.38 Billion) on 3rd quarter presentation(page 13) on Nov 10 and they borrowed 169 Million for GS @ 15.4% in the same quarter. If it was for 8/11/15 margin call then question is do they have cash balance as they claim? Today's press release "18 Schools Across California Turn to SunEdison to Save Millions with Solar" really?

[awindenberger]

Do you trust this management? They claimed to have solid cash balance (1.38 Billion) on 3rd quarter presentation(page 13) on Nov 10 and they borrowed 169 Million for GS @ 15.4% in the same quarter. If it was for 8/11/15 margin call then question is do they have cash balance as they claim? Today's press release "18 Schools Across California Turn to SunEdison to Save Millions with Solar" really?

Management confirmed with Duetsche Bank analyst Vishal Shah that the $169mil loan from Goldman Sachs was taken out to fund construction of some international projects which will be dropped down into Terraform Global (GLBL). These projects obviously have a higher risk/return profile, explaining the high interest rate.

[johnny]

Do you trust this management? They claimed to have solid cash balance (1.38 Billion) on 3rd quarter presentation(page 13) on Nov 10 and they borrowed 169 Million for GS @ 15.4% in the same quarter. If it was for 8/11/15 margin call then question is do they have cash balance as they claim? Today's press release "18 Schools Across California Turn to SunEdison to Save Millions with Solar" really?

 

I certainly don't trust management. Even if they have a decent enough explanation for that specific transaction, the problem is this management has 100 other transactions that really rob them of the benefit of the doubt.

 

As far as that second thing, though, this is just par for the course for solar development/installation marketing. It is kind of sleazy and yucky, but that's just the nature of the beast.

[KJP]

Do you trust this management? They claimed to have solid cash balance (1.38 Billion) on 3rd quarter presentation(page 13) on Nov 10 and they borrowed 169 Million for GS @ 15.4% in the same quarter. If it was for 8/11/15 margin call then question is do they have cash balance as they claim? Today's press release "18 Schools Across California Turn to SunEdison to Save Millions with Solar" really?

 

I certainly don't trust management. Even if they have a decent enough explanation for that specific transaction, the problem is this management has 100 other transactions that really rob them of the benefit of the doubt.

 

As far as that second thing, though, this is just par for the course for solar development/installation marketing. It is kind of sleazy and yucky, but that's just the nature of the beast.

 

If by "trust management" you mean trust them to make wise business decisions, particularly when it comes to acquisitions, then my answer is "no."

 

If by "trust management" you mean trust them to tell the truth, I'm leaning towards "no" on that as well.

[roughlyright]

Any one has opinion on SunEdison's preferred stock. It is trading at $257 and providing a dividend of $67.5. That is giving a yield of 31% today. Is this not a better deal, compared to the common?

 

http://quantumonline.com/search.cfm?tickersymbol=SDSNP&sopt=symbol

[jawn619]

Any one has opinion on SunEdison's preferred stock. It is trading at $257 and providing a dividend of $67.5. That is giving a yield of 31% today. Is this not a better deal, compared to the common?

 

http://quantumonline.com/search.cfm?tickersymbol=SDSNP&sopt=symbol

 

From latest 10-Q

 

Stockholders’ equity:

 

Preferred stock, $.01 par value, 50.0 shares authorized, 0.7 and no shares issued in 2015 and 2014, respectively

[awindenberger]

Here's a link to my latest article on GLBL. I can understand the liquidity concerns around SUNE, and maybe a bit on TERP as well, considering that they are supposed to purchase $2bil in additional assets, but GLBL is trading at 24% yield now even though they don't have the same liquidity concerns.

 

http://seekingalpha.com/article/3699656-terraform-globals-best-current-investment-option-could-be-to-buy-back-its-own-shares

[BG2008]

Here's a link to my latest article on GLBL. I can understand the liquidity concerns around SUNE, and maybe a bit on TERP as well, considering that they are supposed to purchase $2bil in additional assets, but GLBL is trading at 24% yield now even though they don't have the same liquidity concerns.

 

http://seekingalpha.com/article/3699656-terraform-globals-best-current-investment-option-could-be-to-buy-back-its-own-shares

 

The TerraForm Global bonds are trading at 79 cents on the dollar.  Seems to be quite high yield if it were safe. 

 

http://finra-markets.morningstar.com/BondCenter/BondTradeActivitySearchResult.jsp?ticker=FGLBL4275247&startdata-ipsquote-timestamp=11%2F19%2F2014&enddata-ipsquote-timestamp=11%2F19%2F2015

[roughlyright]

interesting...SunEdison bonds trading at $39

 

http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C625731&symbol=SUNE4214189

[Novak]

Any one has opinion on SunEdison's preferred stock. It is trading at $257 and providing a dividend of $67.5. That is giving a yield of 31% today. Is this not a better deal, compared to the common?

 

http://quantumonline.com/search.cfm?tickersymbol=SDSNP&sopt=symbol

 

I've been watching them for a few weeks but haven't pulled the trigger. Very thinly traded. If you're not buying by round lots you're going to probably end up paying a premium.

 

The current yield is great, as is the better-than-common ranking in the cap table, but make sure you understand the call provision: they can trade you 56.7666 shares of common stock anytime on or after 9/6/2020 and take your preferred share.

If they don't get restructured or enter bankruptcy, you'll still get your capital returned (enough to make you whole after tax), but depending on what their stock does, you may not see much capital appreciation (so don't necessarily model them going back to $1,000 per share.

 

Weigh that against the risk of restructuring / bankruptcy (whatever that is - somewhere between 1% and 99%, as far as I can tell) and what your recovery might be (complicated by the fact that your preferred stock can potentially be exchanged for worthless common stock) - and you still end up with a somewhat confusing balance of risk and return. The bonds, potentially, have a similar risk in connection with conversion into common stock.

 

On the whole, it's too messy for me until I can really buckle down and model the whole thing out (not just the preferred stock, I mean model out everything about the entire SUNE complex)  -- but there are easier investments out there at the moment that seem to have good return potential.

[AzCactus]

Crazy that in the past month this stock is down 70%. 

[kab60]

It's a perfect reminder that you don't have to be a genius to do well in the stock market. You don't need to figure out a company like Sunedison but can put it in the too hard pile (mine is big) and look somewhere else. That said, Terraform Global looks somewhat interesting... Can anyone confirm that their PPAs are inflation-linked?...

[dbuch]

So SUNE is obviously pricing in a liquidity event at this point. It seems they definitely over committed here and should try to back out of the Vivint and Renova deals if at all possible.

 

Management said on quarterly call they are still comfortable with $494M positive cash flow in 2016 pre working capital and pre earnout. So cash looks like this

 

Cash $1.38B

2016 Cash flow $494M

Working Capital  ($700M)

FirstWind Earnout ($510M)

Vivint Cash obligation ($57M)

Renova Cash obligation ($105M)

Margin Loan ($410M) (could be refinanced?)

 

Net cash balance of just $92M. Also the Renova acquisition of $250M would be paid for with stock which would be substantially dilutive at $2.75 a share. I think they really should drop the Renova acquisition if possible. It seems there are no outs on the Vivint deal so they're stuck with that.

 

Anybody have any more color on liquidity situation. Am I missing something?

 

[BG2008]

Here's a link to my latest article on GLBL. I can understand the liquidity concerns around SUNE, and maybe a bit on TERP as well, considering that they are supposed to purchase $2bil in additional assets, but GLBL is trading at 24% yield now even though they don't have the same liquidity concerns.

 

http://seekingalpha.com/article/3699656-terraform-globals-best-current-investment-option-could-be-to-buy-back-its-own-shares

 

Looking at the most recent Q3 results of GLBL, the assets generated $24mm of EBITDA and the company claimed that CAFD is $24mm. 

 

GLBL is subscale and needs to get bigger.  Interest expenses during the quarter is $40mm due to its high cost Notes paying interest at 9.75%

 

Debt schedule looks like this

 

Senior Notes Due 2022 - $800mm, 9.75% interest

Project Debt - $439mm

South Africa - $200mm  8-13%

India - $21.8mm

Others

 

Interest payment for the quarter totaled $40mm.  The interest payment alone is more than EBITDA

 

The company can replace project debt with cash on hand of $1.1bn and revolver of $485.  On Pg 10 of the presentation

 

They intend to use $485 of the revolver which has an interest rate that is likely 5-7% and additional cash to pay for $759mm of acquisition leaving the company with $701mm of liquidity in cash form after the deal. 

 

Run Rate interest for Sr Note and Revolver will likely be

$19.5mm per quarter for the Sr Note

$6-8.5mm per quarter for the revolver

Total 25.5-28mm in interest expense per quarter

 

In the investor presentation, the company has projected $139mm in run rate CAFD which would include additional acquisitions. 

 

These financials are a mess

 

At $139mm per year, less $102-$112mm in interest rate, the cash available to Yieldco unitholders is $27-37mm. 

 

GLBL is not as safe as the 20% dividend and cash implies.  I still don't know what's the cash-on-cash return on acquiring the assets.  If they are financing with 9.75% sr notes, then the debt is likely higher yielding than the asset. 

 

I'm kind of lost for thought here...

 

 

 

 

 

[awindenberger]

Here's a link to my latest article on GLBL. I can understand the liquidity concerns around SUNE, and maybe a bit on TERP as well, considering that they are supposed to purchase $2bil in additional assets, but GLBL is trading at 24% yield now even though they don't have the same liquidity concerns.

 

http://seekingalpha.com/article/3699656-terraform-globals-best-current-investment-option-could-be-to-buy-back-its-own-shares

 

Looking at the most recent Q3 results of GLBL, the assets generated $24mm of EBITDA and the company claimed that CAFD is $24mm. 

 

GLBL is subscale and needs to get bigger.  Interest expenses during the quarter is $40mm due to its high cost Notes paying interest at 9.75%

 

Debt schedule looks like this

 

Senior Notes Due 2022 - $800mm, 9.75% interest

Project Debt - $439mm

South Africa - $200mm  8-13%

India - $21.8mm

Others

 

Interest payment for the quarter totaled $40mm.  The interest payment alone is more than EBITDA

 

The company can replace project debt with cash on hand of $1.1bn and revolver of $485.  On Pg 10 of the presentation

 

They intend to use $485 of the revolver which has an interest rate that is likely 5-7% and additional cash to pay for $759mm of acquisition leaving the company with $701mm of liquidity in cash form after the deal. 

 

Run Rate interest for Sr Note and Revolver will likely be

$19.5mm per quarter for the Sr Note

$6-8.5mm per quarter for the revolver

Total 25.5-28mm in interest expense per quarter

 

In the investor presentation, the company has projected $139mm in run rate CAFD which would include additional acquisitions. 

 

These financials are a mess

 

At $139mm per year, less $102-$112mm in interest rate, the cash available to Yieldco unitholders is $27-37mm. 

 

GLBL is not as safe as the 20% dividend and cash implies.  I still don't know what's the cash-on-cash return on acquiring the assets.  If they are financing with 9.75% sr notes, then the debt is likely higher yielding than the asset. 

 

I'm kind of lost for thought here...

 

BG,

 

You are missing a couple important things.

 

1. The $139mil CAFD run rate for 2106 only includes currently owned projects; the 779MW.

 

2. The new projects will increase CAFD to over $200mil for 2016, depending on their final close dates.

 

3. SUNE is on the hook for covering GLBL's entire 2016 interest bill, along with $40mil in 2017, decreasing by $10mil per year after that.

 

4. SUNEs $61mil B shares don't get paid at all in 2016, and are subordinated for a minimum of 3 years, which provides ample protection for the A shares minimum dividend of $1.10/share.

 

Depending on the environment at the time, covering the entire dividend may get a bit more challenging after the help goes away, but they do have additional liquidity with which to add more projects.

[Palantir]

^Hey, awindenberger how are you estimating CAFD? Are you sticking a $/MW multiple on the total retained MW, or is it through income statements?

[BG2008]

Here's a link to my latest article on GLBL. I can understand the liquidity concerns around SUNE, and maybe a bit on TERP as well, considering that they are supposed to purchase $2bil in additional assets, but GLBL is trading at 24% yield now even though they don't have the same liquidity concerns.

 

http://seekingalpha.com/article/3699656-terraform-globals-best-current-investment-option-could-be-to-buy-back-its-own-shares

 

Looking at the most recent Q3 results of GLBL, the assets generated $24mm of EBITDA and the company claimed that CAFD is $24mm. 

 

GLBL is subscale and needs to get bigger.  Interest expenses during the quarter is $40mm due to its high cost Notes paying interest at 9.75%

 

Debt schedule looks like this

 

Senior Notes Due 2022 - $800mm, 9.75% interest

Project Debt - $439mm

South Africa - $200mm  8-13%

India - $21.8mm

Others

 

Interest payment for the quarter totaled $40mm.  The interest payment alone is more than EBITDA

 

The company can replace project debt with cash on hand of $1.1bn and revolver of $485.  On Pg 10 of the presentation

 

They intend to use $485 of the revolver which has an interest rate that is likely 5-7% and additional cash to pay for $759mm of acquisition leaving the company with $701mm of liquidity in cash form after the deal. 

 

Run Rate interest for Sr Note and Revolver will likely be

$19.5mm per quarter for the Sr Note

$6-8.5mm per quarter for the revolver

Total 25.5-28mm in interest expense per quarter

 

In the investor presentation, the company has projected $139mm in run rate CAFD which would include additional acquisitions. 

 

These financials are a mess

 

At $139mm per year, less $102-$112mm in interest rate, the cash available to Yieldco unitholders is $27-37mm. 

 

GLBL is not as safe as the 20% dividend and cash implies.  I still don't know what's the cash-on-cash return on acquiring the assets.  If they are financing with 9.75% sr notes, then the debt is likely higher yielding than the asset. 

 

I'm kind of lost for thought here...

 

BG,

 

You are missing a couple important things.

 

1. The $139mil CAFD run rate for 2106 only includes currently owned projects; the 779MW.

 

2. The new projects will increase CAFD to over $200mil for 2016, depending on their final close dates.

 

3. SUNE is on the hook for covering GLBL's entire 2016 interest bill, along with $40mil in 2017, decreasing by $10mil per year after that.

 

4. SUNEs $61mil B shares don't get paid at all in 2016, and are subordinated for a minimum of 3 years, which provides ample protection for the A shares minimum dividend of $1.10/share.

 

Depending on the environment at the time, covering the entire dividend may get a bit more challenging after the help goes away, but they do have additional liquidity with which to add more projects.

 

I'm somewhat well versed with GP/MLP, Yieldco structures.  It was not lost on me about point 3 and 4. Sune's subsidies is a negative in my opinion. 

 

I'm curious how you get to $139mm CAFD run for 779MW.  You do know that the winds don't always blow and the sun don't always shine.  Then you have to take into consideration that they hedge currency risk on a 3 year rolling basis.  Right now the USD is much stronger than the rest of the world. 

 

But mainly, I hope you can point out the $139mm CAFD.  I've read the footnote in the presentation, but it is unclear.  Is there a way to think about $/MW of annual revenue/CAFD. 

 

The G&A of the affiliate is very confusing. 

 

What do you have for total interest cost when they get to $200mm in CAFD?  How do the capital structure look like when they get there?  Help me bridge the current balance sheet to when they get to $20mm in CAFD. 

[ratiman]

This is my new checklist, tell me what you think:

 

a) does the company rely on cheap financing?

b) does it generate big fees for Wall St?

c) does it have a semi-plausible story that is appealingly counterintuitive or complex?

d) is the stock promoted by a famous investor?

e) does it benefit from gov't subsidies, without which the product would be uneconomic or far less profitable?