A global renewable-energy developer that is the only publicly known supplier for the proposed $2 billion SunZia power line is on the edge of filing for reorganization under federal bankruptcy law, news reports and a subsidiary say.
Missouri-based SunEdison Inc., saddled with debt, disclosed in a public document filed with the Securities and Exchange Commission Friday that it has entered into confidential negotiations with lenders over proposed financing transactions. These transactions, known as debtor-in-possession loans, are typically done to prepare for Chapter 11 bankruptcy filings.
The company has proposed building a large New Mexico wind farm that would supply renewable power to the controversial SunZia project, whose power lines would slice through Southeast and Central Arizona.
Three outside analysts say that proposed SunEdison projects such as the wind farm are likely to be delayed while the company prepares for and goes through much of the Chapter 11 bankruptcy. The process typically allows an insolvent company to reorganize and develop a schedule to pay off its debts.
SunZia spokesman Ian Calkins said last week that company officials are extremely confident of finding other renewable energy clients and that SunEdison’s problems won’t affect the power line schedule.
But opponent Peter Else of Mammoth, who has researched the project for seven years, reasserted his opinion that delivery of wind energy from New Mexico won’t be economically competitive “no matter who the supplier is.” Partly, that is because costs for the New Mexico section of the line have increased by hundreds of millions of dollars because SunZia has agreed to bury three miles of it near White Sands Missile Range to ease U.S. Defense Department concerns.
A year ago, SunEdison was considered the leading global renewable-energy development company. But toward the end of 2015, its losses mounted. Its debt topped $11 billion. Its stock price crashed from $31 last July to 35 cents a share on Friday, down 23 cents from Thursday following the release of its document disclosing negotiations for financing during a bankruptcy filling.
It has failed to meet legal deadlines, most recently March 30, to release a 2015 annual report even though that could result in a technical default with big bank lenders. It’s been reported by numerous newspapers and media websites that the company faces an SEC investigation into its financial situation.
A company subsidiary, TerraForm Global, warned in a March 29 SEC filing that “there is a substantial risk that SunEdison will soon seek bankruptcy protection.” SunEdison officials have not been available to respond to reporters’ questions.
The Wall Street Journal, citing unnamed sources, reported April 1 that SunEdison planned to file for bankruptcy protection in the coming weeks. The St. Louis Post-Dispatch, also citing an anonymous source, reported Friday that SunEdison could file for bankruptcy as early as Sunday, April 17.
The company has cut its work force by 40 percent since October and expects a total 50 percent reduction, SunEdison’s Friday filing said. The filing contained a March SunEdison presentation to creditors that said it needs $310 million in financing to stay afloat through midyear.
In the Southwest, SunEdison’s proposed Lincoln County, N.M., wind farm would lie near the start of two, 515-mile, high-voltage SunZia power lines planned to extend through southern New Mexico and into Arizona. The project would install 450 to 600 wind turbines and was cited as a planned “anchor tenant” by SunZia Transmission LLC during contentious public hearings last fall. At the time, a SunEdison official testified it expects to start construction in 2019 or 2020 and generate power by 2021.
In February, the Arizona Corporation Commission voted 3-2 to grant a certificate allowing construction of the Arizona section. The decision came in the face of critics’ concerns that the project was economically unfeasible and environmentally destructive. Company officials and the commission majority said the project is vital for achieving a renewable-energy future.
But since the wind farm is likely to “burn cash” in its early years, it’s likely to be on hold for some time, said John Sirico, an analyst for Covenant Review, a New York City-based publishing service that analyzes bank debts, credit agreements and other transactions for subscribers.
“They need cash to get themselves through bankruptcy and to exit from bankruptcy,” Sirico said. “A project like this is very challenging for a company headed into bankruptcy. Who’s going to want to provide financing for this project?”
Another factor is that SunZia needs an approval from the New Mexico Public Regulation Commission to start construction in that state, he said.
“Are regulatory authorities going to push forward at full speed? They’re probably going to put their foot on the brake,” with the power line's leading tenant facing bankruptcy reorganization proceedings, Sirico said.
Before SunEdison can tackle new projects, it must clear up debt issues, said David Carter, an analyst for Terril & Co., an investment-management company in the St. Louis area.
He said he has no idea how long it will take the company to untangle its financial problems so it can start new projects.
One complicating factor is that it had formed two subsidiaries, TerraForm Global Inc. and TerraForm Power Inc., to raise cash to invest in the parent company’s projects, Carter said. While the subsidiaries are generally considered in better financial condition than their parent, several media reports have speculated they could be dragged into a SunEdison bankruptcy proceeding. Their presence will make the overall situation “more complex and more confusing,” Carter said.
But SunEdison’s problems have “no effect on SunZia’s schedule for permitting and other milestones toward completion of the project,” said SunZia spokesman Calkins. “While Sun Edison’s current circumstances are unfortunate and still unfolding, industry interest in SunZia’s anchor tenant process remains robust.”
In fact, SunZia is “extremely confident” of finding other renewable-energy developers, having received numerous inquiries from such firms since it secured approvals from the Bureau of Land Management in 2015 and now Arizona, Calkins said last week.
SunZia will make a public announcement once it has an agreement with a developer, said Calkins. “It could happen any day now.”