Saying that renewable energy developer SunEdison is “hopelessly insolvent,” a judge at the U.S. Bankruptcy Court for the Southern District of New York on Aug. 12 rejected a request from certain shareholders in the formerly public company to form a committee to pursue their interests during the bankruptcy case.
Wrote Judge Stuart Bernstein: “Here, the shareholders failed to sustain their burden. Notwithstanding the admitted complexities of the Debtors’ cases and the number of outstanding common shares and holders of record, the evidence showed that SunEdison appears to be hopelessly insolvent, and it is substantially unlikely that equity will receive a distribution.”
The judge later added: “The SunEdison cases are not unique, they are typical. SunEdison appears to be hopelessly insolvent. Equity’s interests in good management are adequately represented by the Creditors’ Committee and equity does not have any economic interest that requires representation at a cost to be borne by the creditors.”
The judge also wrote: “I accept as a given that shareholders genuinely believe that they need an official committee. They have lost money on their investments, and hope that an official committee will capture value for them in the end. The appointment of an Equity Committee, however, will not create value where it does not exist. Everyone hopes that these cases will prove to be solvent and return money to the shareholders, but based on where these cases appear to be and where they appear to be headed, this is substantially unlikely. If the facts change, the shareholders can renew their motions. For now, however, and for the reasons stated, the shareholders have not shown that their interests are not ‘adequately represented.’ Accordingly, the Court denies its motion to appoint an Equity Committee without prejudice.”
Following submission of several letters requesting the appointment of a committee to represent the shareholders, the court issued an order on May 20 directing interested parties to show cause why an official committee of equity security holders should not be appointed. The court conducted an evidentiary hearing on July 14 at which two ad hoc groups of shareholders examined two witnesses.
SunEdison is a holding company that, along with approximately two thousand direct and indirect debtor and non-debtor affiliates, is in the business of developing renewable energy projects. SunEdison and twenty-five affiliates filed chapter 11 petitions on April 21, and since then several other affiliates have commenced chapter 11 cases in this court. Two of SunEdison’s principal assets are its interests in TerraForm Power Inc. and TerraForm Global Inc. (collectively with called the “Yieldcos”).
The judge’s order said that when the company and affiliates sought bankruptcy, their financial reports indicated a stronger financial position. But subsequent reports outlined a bigger financial hole than initially outlined.
SunEdison is in the process of selling a long list of power projects to various parties.