As solar industry observers will already know, on April 21st, 2016, (the “Filing Date”) SunEdison, Inc. (“SunEdison”) and several of its U.S. and international subsidiaries (the "SunEdison Group") filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the “Chapter 11 Proceedings”)in the United States Bankruptcy Court for the Southern District of New York (the “ US Bankruptcy Court”).1
The Chapter 11 Proceedings are likely to trigger asset sales of world-wide interest to SunEdison competitors and renewable energy investors. As of this writing, it is not clear how the Chapter 11 Proceedings will affect the Canadian SunEdison assets and operations.
At the date of filing, SunEdison was one of the largest global renewable energy companies in the world. It has been active in polysilicon, solar wafer and solar module manufacturing, solar and wind project development, and project financing, engineering, procurement and construction globally. Additionally, for key jurisdictions, SunEdison has provided plant management, operation and maintenance services.
Although SunEdison Canada LLC was one of the entities included in the Chapter 11 Proceedings, as of this writing, no formal recognition proceedings have been commenced in Canada under theCompanies’ Creditors Arrangement Act. Similarly, there are several other affiliated entities worldwide, including most notably the asset-holding yieldco’s, TerraForm Power and TerraForm Global, which were not included in the Chapter 11 Proceedings.
What is a Chapter 11 Proceeding?
A Chapter 11 Proceedings is a court supervised process that provides a company (a “debtor”) the opportunity to preserve its business as a going concern while implementing an operational and or financial restructuring of its debt. Upon the filing of a Chapter 11 petition, a debtor automatically receives a stay of proceedings lasting for the duration of the chapter 11 proceeding (the “Stay”). The Stay, prohibits creditors from taking any enforcement actions against the debtor without seeking prior leave from the court. In this way, it provides the debtor ‘breathing room’ while it attempts to complete a restructuring under supervision of the US Bankruptcy Court. Court approval is necessary, among other things, for all transactions conducted outside the ordinary course of business, including any sale of the debtor’s assets. Such asset sales, will be of keen interest to many SunEdison competitors and would-be industry investors around the world, and are governed by §363 of the United States Bankruptcy Code, which can be used to sell both individual assets and assets en bloc (a “363 Sale”). A normal course 363 Sale, will involve: (i) an open auction process governed by a bidding procedure blessed by the US Bankruptcy Court; (ii) the use of a ‘stalking horse’ bid that will set a minimum price and terms for the purchase of the assets; and (iii) ultimate approval by the US Bankruptcy Court of the winning bid.
The SunEdison Chapter 11 Proceedings to Date
To date, the SunEdison Group have publicly stated that they intend to use the Chapter 11 Proceedings to “right-size” their balance sheet, shed non-core assets, reduce their debt and maximize their technological and intellectual property while facilitating efforts to become more streamlined and efficient operators.
On April 22nd, 2016, the SunEdison Group obtained certain first day orders from the US Bankruptcy Court in connection with their Chapter 11 Proceedings, including orders allowing the Group to continue to: (i) pay employees wages and benefit; (ii) proceed with work on ongoing projects; and (iii) pay vendors and suppliers in the ordinary course for goods and services provided after the Filing Date..
The SunEdison Group also at this time obtained approval from the US Bankruptcy Court to draw down on $90 million of a proposed $300 million post-petition credit facility from a consortium of first and second lien lenders (the “DIP Facility”) that will be made available to allow the SunEdison to maintain day-to-day operations during the course of their Chapter 11 Proceedings.
How to Participate?
The SunEdison Group’s expected sale of non-core assets during the course of the Chapter 11 proceedings may present an attractive opportunity for strategic buyers in the renewable energy industry including with respect to assets located in Canada, Africa, Latin America, Asia and elsewhere, and for strategic debt investors.
We expect that the SunEdison Group will seek to retain key portions of its very large global development pipeline and that management will have plans in place for continuing the business around those assets. However, non-core assets such as SunEdison’s substantial holdings in TerraForm Power and TerraForm Global, certain manufacturing plants and certain very early stage development assets may be made available to the market to help right-size company debt.