Several US law firms have initiated class action suits against SunEdison-sponsored ‘yieldco’ TerraForm Global, alleging violations of the US Securities Act.
The common point of all these actions is that SunEdison failed to disclose by the time of Terraform Global’s IPO in July 2015, that SunEdison was going to report “unprecedented losses”.
An yieldco is a listed entity promoted by a parent company (in this case, SunEdison), which would buy revenue-generating assets (such as solar plants) from the parent.
Law firm Scott+Scott said SunEdison failed to disclose that it was “experiencing severe liquidity and debt issues that ended its ability to develop projects to sell to TerraForm Global, meaning that the company’s yieldco business model was effectively moribund from the outset.”
It also said that the growth plans of SunEdison and TerraForm Global were “unachievable”. Another firm, Abraham, Fruchter & Twersky, which also made the same points as Scott+Scott, said: “Once these facts were disclosed to the market, the price of the TerraForm stock dropped precipitously.”
TerraForm sold 45 million shares through the IPO at $15 apiece, raising $675 million. On August 6, SunEdison issued a press release disclosing its second quarter results, reporting a loss of 93 cents a share, upon which the TerraForm stock declined 17 per cent to $11.27. It further dropped to $7.94 after SunEdison announced on October 7 that it was significantly reducing its workforce.
Some of the other law firms that have initiated action against SunEdison are Rosen, Andrews & Springer, Pomerantz, Lieff Cabraser, Steinmeyer, Levi & Kronisky, Block & Leviton and Brager Eagel & Squire.
SunEdison has not responded to a request for a reaction. Sources sympathetic to the company said that such class action by law firms are practically the norm in the US whenever any stock falls and is really the firms’ pitch for business.
However, at a press conference on Tuesday, SunEdison’s Asia-Pacific head Pashupathy Gopalan said the company is sound, and has enough cash for operations. The company has always had three options to raise equity funds — selling assets to the listed yieldco, selling to privately-held yieldco-like companies in which SunEdison would continue to have a stake, or selling outright to third parties.
While raising funds by selling operational solar plants to TerraForm Global proved difficult, the other options were before the company.