UBS Expects Investors To 'Scrutinize' Terraform Filings More Closely

Sunedison Inc SUNE disclosed last week a presentation it made to lenders. According to Julien Dumoulin-Smith, an analyst at UBS, SunEdison's presentation contained "multiple data points" that are relevant to TerraForm Power Inc TERP's stock. Dumoulin-Smith noted that SunEdison's presentation suggested the company would "monetize" its shares of TerraForm Power and its other yieldco, TerraForm Global Inc GLBL, by the end of the third quarter. "We believe a monetization and clear(er) separation of TERP from SUNE could help ameliorate both our underlying governanceconcerns (given SUNE as a single large majority owned in the company) and potential reduction of exposure to any further restructuring activities," the analyst expanded. "Most importantly, we believe full deconsolidation would alleviate investor concerns around substantive consolidation as part of SUNE restructuring (noted by credit rating agencies)." Dumoulin-Smirth continued that investors are expected to "scrutinize" TerraForm's disclosures "more closely" following SunEdison's presentation. Specifically, investors should focus on cash sources and uses and to question the level of TerraForm's incentive revenues and read-through for a discounted cash flow valuation. The analyst explained that 33 percent of TerraForm's year-to-date revenue are from incentives, ahead of the company's guidance range of 15 percent to 20 percent. Potential downside to valuation models could exist as incentive revenues are "typically much shorter duration than the ~20-years on most contracts, suggesting a meaningful fall off in cash flows during contracted periods." Shares of SunEdison were trading lower by more than 6 percent at $0.345 late Monday afternoon while shares of Terraform Global were higher by nearly 1.50 percent at $2.52.