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Bad News Piles On For Hedge Fund Hotel SunEdison: First $315MM Margin Call, Now Mass Layoffs

It has been a long way up and quick ride down for SunEdison but bad news keeps piling up for the hedge fund hotel even as it dead-cat-bounces again. As the stock bounces, just as it bounced in September after Steve Cohen's Point72 exposed their stake and JPM jumped to the rescue, uncertainty remains extreme. Amid a surge in debt and increasingly negative operating cash-flow, the plunge in stock (asset) price may have triggered a cross-collateral margin call of around $315 million. Furthermore, mass layoffs are on the cards as the CEO attempts to "optimize" the business.

 

Another squeeze...

Charts: Bloomberg

Some investors have dumped the stock due to low oil prices and turmoil in commodity markets -- a problem for other public solar companies as well. However, short sellers have targeted SunEdison more than its competitors.

Recent acquisitions have nearly doubled SunEdison's debt load and increased negative operating cash flow. The Vivint acquisition, which wasn't an obvious fit with SunEdison's culture and traditional business of building large solar-power plants, added to investor skepticism.

 

The stock has become a playground for hedge funds.

But uncertainty remains extreme...

SunEdison may have triggered a collateral call on its $410 million margin loan, a report from CreditSights says, citing a decline in the financially-linked TerraForm Power Inc (known as a "yieldco," the spin-off of a related business venture), which fell 36% in September and continued to slide, down 49% year ­to ­date.

 

 

After sifting through four different SEC documents – a 10Q at SunEdison, an equity prospectus at TerraForm, a convertible bond 8K from SunEdison and a margin loan agreement at SunEdison... the report concludes it is possible SunEdison to be dragged down by TerraForm and the added burden of posting cash collateral for the margin loan that was backed by stock.

 

CreditSights says the margin loan is yet another example of lack of disclosure but they reiterate their our conclusion on the collateral call.

As Creditsights concludes...

there are a lot of moving parts to SunEdison and the more we find the more negative we get on the sponsor company of TerraForm Power.

And now, as GreenTechMedia.com's Stephen Lacey reports, SunEdison is now culling its workforce.

According to a company-wide memo from CEO Ahmad Chatila released on September 30, SunEdison will be laying off around 10 percent of its 7,300 employees. Many employees received notices on Friday.

 

"Overall, the proposed changes result in an overall reduction of about 30%, 20% being from non-labor expenses and about 10% from headcount reduction. And this process will take some time to complete. Most of the changes will be announced during the fourth quarter with some final steps expected in the first quarter of 2016," reads the memo.

 

The staff reduction will come through integrating acquired companies and "eliminating redundancy." It will also come from simplifying management structures in different areas of the business, and focusing on a smaller range of geographic regions.

 

The cuts have reached all the way to the VP level, but not the executive level. Sources within the company expressed worry and surprise that the cuts didn't impact the architects of the Vivint acquisition.

 

When asked for comment, SunEdison would not address the cuts specifically.

 

"We are proposing to take several actions around the world to optimize our business, align with current and expected market opportunities and position ourselves for long-term growth. In October we plan to provide investors with a more comprehensive view of our business structure and go-forward strategic growth plan in a conference call," wrote spokesperson Gordon Handelsman in an email.

More details on SunEdison's plans to "align with current and expected market opportunities" will be forthcoming this week.