(NYSE:SUNE) (NYSE:VSLR) SunEdison acquisition of Vivint Solar likely to close, CreditSights analysts say

(NYSE:SUNE) (NYSE:VSLR) SunEdison acquisition of Vivint Solar likely to close, CreditSights analysts say

Amid a slump in the solar energy sector, renewable energy development company SunEdison (NYSE:SUNE) has restructured its beleaguered acquisition of residential rooftop solar company Vivint Solar (NYSE:VSLR), a move leading CreditSights analysts to believe the deal will close.

In July, SunEdison and its affiliated company TerraForm Power (NASDAQ:TERP) announced it would buy Vivint for $16.50 a share consisting of $9.89 in cash, $3.31 in SunEdison stock and $3.30 in SunEdison convertible notes. That deal was expected to close this quarter.

But since that announcement, Vivint's shares never reached the $16.50 mark and dropped below $7 in November, indicating doubt about the deal going through and wider concern about the solar sector in general. 

Last week the companies announced that SunEdison would reduce the cash component of the deal by $2 per share and increase the stock portion by $0.75 for a total consideration of $15.25 a share. 

Private equity firm Blackstone is backing the deal with a $250 million credit facility and will become a leading SunEdison shareholder. Vivint shareholders will have the option of being paid all in cash, with Blackstone accepting stock and convertible notes instead of cash it would otherwise receive.

“We believe Blackstone set the restructuring table for this deal to go through,” CreditSights analysts wrote in a Dec. 9 note.

One reason Vivint’s shares, which closed Wednesday at $10.27, are below the revised offer amount is the likelihood that the convertible notes are worth only around 30 cents on the dollar, in line with where other SunEdison convertible bonds trade, CreditSights analyst Greg Jones told Entelligent.

“At this point we don’t know exactly what (their) market value will be when the deal closes,” he said.

The final consideration is also likely to be lower than the headline offer if Vivint equity holders tender for cash, he said.

The revised deal comes as companies in the solar sector have been under pressure. Lower oil prices have led some to believe renewable energy isn’t as as attractive an investment, even though there is little fundamental correlation between the sectors. For SunEdison, investors have also been worried about its mounting debt load amid a buying spree for Vivint and other companies.

TerraForm Power and TerraForm Global are so-called yieldcos, belonging to a group of companies created by parent entities to hold producing energy assets and pay dividends to shareholders.

That segment of the solar industry has been hit hard by expectations of a near-term Federal Reserve interest rate hike, concerns about the Chinese economy and parent companies who were not able to meet earnings expectations, according to a note by investment bankers at Marathon Capital.

“The Vivint Solar acquisition by SunEdison and Terraform Power triggered widespread investor concern about both the fundamental nature of the public yieldco investment vehicle and the valuation of the underlying renewable assets fueling their growth,” the Marathon Capital bankers wrote.

But the bankers don't think yieldcos are dead.

Rather, they still are “the optimal long-term ownership vehicle for passive, contracted, cash-flowing renewable energy assets,” the bankers wrote.

Matt Whittaker is a journalist specializing in natural resources coverage. His work has appeared in The Wall Street Journal, Barron’s and other international publications. He has reported from the Americas, Europe and Asia.
Originally published on December 17, 2015