TerraForm Power Inc. (Nasdaq: TERP) and TerraForm Power LLC, which together are owners and operators of clean energy power plants, announced Sept. 25 that they made available to certain representatives and creditors of SunEdison and its debtor subsidiaries information about the TerraForm Power collective company’s claims and defenses against SunEdison.
TerraForm Power has also filed its initial proof of claim in SunEdison’s Chapter 11 bankruptcy case. TerraForm Power is making the following information available to all its stakeholders in order to encourage stakeholder input as to the terms of a potential settlement.
TerraForm Power previously announced that it would have to file its proofs of claim in the SunEdison bankruptcy and that it intended to begin settlement discussions to resolve claims consensually, in part to facilitate the exploration of strategic alternatives for TerraForm Power. Such settlement discussions have now commenced. As part of these discussions, TerraForm Power has notified SunEdison and certain of SunEdison’s creditors of its positions that:
- SunEdison’s failure to perform under the integrated sponsorship arrangement put in place at the time of TerraForm Power’s initial public offering constitutes a material breach and, if not remedied, excuses TerraForm Power from payment or performance of its contractual obligations under the sponsorship arrangement.
- Absent remedy of all material sponsorship defaults, TerraForm Power is not obligated to exchange SunEdison’s sponsor promote (in the form of ‘B Units’ of TerraForm Power LLC and ‘B Shares’ of TerraForm Power Inc.) for class A common stock of TerraForm Power. SunEdison or any subsequent holder of B Units and B Shares is subject to the terms and conditions of the B Units and B Shares, as well as TerraForm Power’s rights and defenses arising from any failure to remedy SunEdison’s defaulted sponsorship.
- As a result of its defaults, SunEdison has not met the conditions necessary to receive distributions on the B Units due to the limitation on sponsor distributions in the TerraForm Power LLC Agreement, which subordinates sponsor distributions to distributions for the benefit of public stockholders. The current arrearage due to the A Units is expected to be approximately $103.3 million following the end of 2016, and is expected to increase by approximately $21 million for each succeeding quarter until distributions for the benefit of public stockholders are resumed.
- Transfer of the B Shares of TerraForm Power Inc. is prohibited by its corporate charter during or after SunEdison’s bankruptcy.
- Transfers of certain B Units and IDRs of TerraForm Power LLC are subject to limitations under the TerraForm Power LLC Agreement, and the company is assessing the application of these limitations during and after SunEdison’s bankruptcy.
As set forth in its proof of claim filed in the SunEdison bankruptcy, TerraForm Power has claims against SunEdison that are estimated to be in excess of $1 billion. The claims include, without limitation, claims for damages relating to breach of SunEdison’s obligations under the sponsorship arrangement and other agreements; contribution and indemnification claims arising from litigation; claims relating to SunEdison’s breach of fiduciary, agency and other duties; and claims for interference with and the disruption of the business of TerraForm Power and its subsidiaries, including the loss of business opportunities, loss of business records, failure to provide timely audited financials, and the increased cost of financing and commercial arrangements.
TerraForm Power will supplement its initial proof of claim on or before Oct. 7 with project-level claims, pursuant to a court-ordered stipulation between TerraForm Power and SunEdison. Project level claims are in addition to the corporate-level claims described above.
In the event of a rejection of SunEdison’s sponsorship arrangement, TerraForm Power will have additional claims for rejection damages. Certain of these claims may overlap with other corporate-level and project-level claims.
“TerraForm Power has lost a large part of its enterprise value as a result of SunEdison’s catastrophic breach of its sponsorship and legal duties,” said Jack Stark, Chairman of the company’s Corporate Governance and Conflicts Committee. “We are prepared to enforce our rights and defenses in litigation if necessary, whether in bankruptcy court or elsewhere. However, we also recognize that resolving our relationship with SunEdison in the courts would be complicated and expensive. A settlement is overwhelmingly in the interests of both sides. We have met with SunEdison to start settlement discussions in the hope that we can resolve these matters on a schedule that allows the collaborative exploration of strategic alternatives for TerraForm Power in the best interests of all stockholders.”
TerraForm Power noted that its sister company, TerraForm Global Inc. (Nasdaq: GLBL), also has announced that it has filed its proof of claim in SunEdison’s Chapter 11 bankruptcy case and has commenced discussions with SunEdison and/or its stakeholders to settle similar intercompany claims and defenses.