Inside the Fall of SunEdison, Once a Darling of the Clean-Energy World

Easy money from Wall Street fueled an ambitious expansion into solar and wind power, but rising interest rates cast a shadow

The Spectrum Solar Project in Las Vegas was developed by SunEdison Inc. PHOTO:STEVE PROEHLCORBIS

Updated April 14, 2016 9:28 p.m. ET

Last June, two dozen SunEdison Inc. senior managers gathered at the Park Hyatt near Paris’s Place Vendôme to hear a forecast from Chief Executive Ahmad Chatila. By 2020, he said, the renewable-energy startup would be worth more than $350 billion. Some day it would be as big as Apple or Google.

The bravado was vintage Chatila, but the fuel came straight from Wall Street. Born out of financial engineering that supercharged its growth, SunEdison had taken advantage of low interest rates and a flood of hedge-fund cash to transform itself into a darling of the clean-energy world.

Ten months later, SunEdison is working with advisers on a possible bankruptcy filing, according to people familiar with the matter. Nearly $10 billion in shareholder value has evaporated.

The story of SunEdison’s swift rise and calamitous fall, pieced together from internal documents, regulatory and court filings and interviews with more than a dozen current and former employees and advisers, shows what can happen when executive overreach meets fizzy markets. Mesmerized by the promise of high yields and fast growth, investors turned a blind eye to operational warning signs that ultimately left the company vulnerable to a rise in interest rates.

Last fall, several senior executives warned the board about a looming liquidity crisis and urged the ouster of Mr. Chatila, say people familiar with the matter. In the ensuing weeks, they quit or were fired.

The Justice Department and the Securities and Exchange Commission are now investigating whether management misled the public, as the company began to struggle, by giving investors a more positive picture of SunEdison’s finances than was circulated internally, according to people familiar with the matter.

SunEdison declined to comment for this article or to make officials available. Mr. Chatila didn’t respond to messages seeking comment.

On Thursday, SunEdison said in a regulatory filing that an internal probe found the company “lacked sufficient controls” over cash flow and faulted an “overly optimistic culture and its tone at the top.” SunEdison also said it identified no material misstatement in historical financial statements, as well as “no substantial evidence to support a finding of fraud or willful misconduct of management.”
SunEdison shares gained 58% on the news and closed at around 58 cents.

SunEdison traces its roots to MEMC Electronic Materials Inc., a maker of silicon parts that was once part of Monsanto Co. In 2009, MEMC hired Mr. Chatila as chief executive. A veteran of Cypress Semiconductor Corp., he impressed the MEMC board with his experience in polysilicon, the raw material used to make computer chips and solar panels.

Ahmad Chatila, SunEdison’s chief executive, transformed the company into a clean-energy darling. PHOTO: ERIC MYER/SUNEDISON/PRNEWSFOTO

Born in Lebanon, the 49-year-old Mr. Chatila studied electrical engineering at Arizona State University and then Cornell University. At MEMC he was known as an intensely driven executive who shunned media interviews. Colleagues teased him for his baggy suits as well as worn-out shoes that he was known to kick off in meetings.

When a senior Brazilian economic official visited the company’s California offices to discuss a potential manufacturing facility in Brazil, Mr. Chatila hosted her at his house, where he served a meal of pasta and takeout rotisserie chicken.,

At MEMC, his first big move was buying a solar-project developer called SunEdison for $340 million.

Four years later, facing falling silicon prices and competition from overseas rivals, MEMC pivoted. It changed its name to SunEdison, spun off its semiconductor business and began a two-year buying spree to acquire energy projects.

After making no major acquisitions in 2013, it struck nine deals in 2014 and 18 in 2015, according to market researcher FactSet. It bought solar-panel installers and battery startups and pursued projects including in the Philippines and Honduras. In early 2015, SunEdison expanded into wind power with its $2.4 billion takeover of First Wind LLC, its largest deal ever.

To finance its deals, SunEdison turned to an idea that was catching hold in the clean-energy industry: captive buyers. It would launch a sister company to handle the mundane business of operating power plants under long-term utility contracts. That company would raise cash from public shareholders to buy completed power plants from SunEdison, which could plow the proceeds into fresh projects.

TerraForm Power Inc. went public in July 2014, with SunEdison keeping a controlling stake. With Goldman Sachs Group Inc. acting as the lead underwriter, it was one of a handful of such companies that debuted around then, dubbed ​“yieldcos” because they distributed most of their cash to shareholders. Investors came in droves; TerraForm’s IPO was more than 20 times oversubscribed.


With a ready buyer for its power projects, SunEdison could expand freely. The company, which had completed 430 megawatts worth of projects in 2012, churned out a gigawatt’s worth in 2014 and forecast four times that for 2016. At the Paris summit, Mr. Chatila predicted SunEdison would one day manage 100 gigawatts worth of electricity, enough to power 20 million homes.

TerraForm also energized Mr. Chatila, acquaintances say. He began talking to bankers about launching a whole fleet of yieldcos. SunEdison-affiliated entities accounted for half of all funds raised by yieldcos in 2015, more than the next five combined, according to Clean Energy Pipeline, a renewables market researcher. Mr. Chatila more often appeared in public talking up the future of solar power.

As SunEdison’s acquisition fever grew, standards slipped, former and current employees, advisers and counterparties said. Deals were sometimes done with little planning or at prices observers deemed overly rich. In 2015, J.P. Morgan Chase & Co. decided not to participate in a loan to fund future SunEdison acquisitions after becoming uneasy with the company’s deal-vetting practices, people familiar with the matter said.

Some acquisitions proceeded over objections from the senior executives who would manage them, said current and former employees. Managers in SunEdison’s international division last year lobbied against buying Mark Group, a small British home-rooftop solar company. The U.K. had too little sun and depended heavily on government subsidies, they argued.

Mr. Chatila didn’t budge. The deal was completed in July 2015, just before U.K. officials announced plans to slash solar subsidies. In October, SunEdison sold the insolvent business back to Mark’s management for an “immaterial” price.

In early 2015, SunEdison set its sights on expanding into residential power. The company had built a business that erected huge rooftop solar-panel arrays for companies such as Costco Wholesale Corp. andWal-Mart Stores Inc., but its rivals were expanding by peddling solar-panel systems to homeowners.

For several months, it courted Vivint Solar Inc., which had become a residential leader by hiring former Mormon missionaries to go door-to-door selling solar installations.

The $1.9 billion deal was announced July 20. Investors revolted, worried SunEdison was venturing too far from its core customer base. Shares fell 18% over the next week. Shares of TerraForm, which had struck a side deal to buy some of Vivint’s assets, also tumbled.
As TerraForm’s stock price fell, it could no longer count on being able to afford SunEdison’s power plants, because it raised much of its cash through share offerings. SunEdison’s acquisition fever suddenly looked risky.

Other shocks followed. Falling oil prices hurt energy stocks. The Federal Reserve hinted it would soon raise interest rates, which would make high-yielding stocks like TerraForm less attractive. The debut of SunEdison’s second yieldco, TerraForm Global Inc., formed to focus on emerging markets, raised about 60% of what it had hoped in a July IPO.

By September, SunEdison shares had fallen by two-thirds. Cash had dwindled, and the company was delaying payments to suppliers and contractors, according to people familiar with the matter. SunEdison failed to complete the acquisition of a Latin American renewable-energy company because it lacked the funds, according to former executives familiar with the matter.

At the time a SunEdison spokesman said the Latin American company had breached the agreement. They have since settled in arbitration, with SunEdison agreeing to pay $28.5 million to the company. ​

To cover shortfalls, SunEdison borrowed $169 million from Goldman Sachs in September at a 9.25% interest rate.

Mr. Chatila sought to reassure investors that the company, which hadn’t posted a quarterly profit in three years, would soon start ​”generating cash for a living.”

“I have said it’s at the end of 2016 or early 2017,” he was quoted as saying in a Sept. 2 Bloomberg News article. “But we’ve been signaling it’s going to be a lot sooner than that, probably early 2016 or late 2015.” Shares rose 11%.

Days earlier, an internal presentation to SunEdison’s board showed the company wouldn’t have positive cash flow until at least the second quarter of 2016. Senior executives read the Bloomberg story agape.

Mr. Chatila maintained a bullish outlook over the next few weeks, even as SunEdison announced it would lay off 15% of its workforce and dial back overseas expansion. On a Nov. 10 earnings call, he said SunEdison would “continue to grow faster than the market.” Chief Financial Officer Brian Wuebbels said the company had “sufficient liquidity.” An accompanying presentation told investors SunEdison had $1.4 billion in cash.

The same day, a report circulated to top executives showed $90 million in available cash.

The discrepancies troubled some senior officials, who raised concerns to SunEdison board members, according to people familiar with the matter. They said SunEdison was running out of money and wasn’t being honest with investors about its financial problems.
The $1.4 billion figure, the executives argued, included cash dedicated to individual projects for construction or interest payments. It also included a special financing facility that could only be tapped by pledging power projects as collateral. Few of SunEdison’s projects were good fits for the terms of the facility.

In short, the executives said, SunEdison was misrepresenting its liquidity, counting cash it knew it couldn’t realistically touch. They urged the board to fire Mr. Chatila and try to raise capital. Several SunEdison directors said they would investigate, the people said.
The company’s financial woes came to a head the week before Thanksgiving.

SunEdison had borrowed a year earlier against its shares in TerraForm Power, whose value had fallen steeply. Hedge-fund firm Highbridge Capital Management LLC, which owned the loan, was seeking about $100 million by the afternoon of Nov. 20 to cover the shortfall.

One idea SunEdison proposed was for TerraForm Global to advance $231 million for a portfolio of Indian power plants SunEdison was developing. The deal needed approval from a committee of TerraForm’s independent directors, a common safeguard at controlled companies to ensure that transactions are fair to minority investors.

The committee rejected the idea by mid-November, saying that the plants weren’t good fits for TerraForm Global’s portfolio.
On Nov. 20, TerraForm Global’s board met in an emergency session. It replaced the committee members with SunEdison appointees and fired TerraForm’s CEO and CFO. Mr. Wuebbels was named CEO, and his deputy at SunEdison, Manavendra Sial, became interim CFO.Peter Blackmore, a longtime SunEdison director, was named TerraForm’s chairman and one of the three new members of the conflicts committee.

The reconstituted board quickly approved the India deal. That afternoon, TerraForm Global transferred $150 million to SunEdison. Another $81 million followed about a week later. The margin loan was paid, as was a $760,000 American Express bill and a $7 million tab to the company’s lawyers at Skadden, Arps, Slate, Meagher & Flom LLP, according to a document reviewed by The Wall Street Journal.

SunEdison was soon short on cash again, and in December sought to borrow more money. A presentation to potential lenders touted financial projections that differed sharply from figures prepared by senior managers just a few weeks earlier, people familiar with the matter say.

A 2016 budget prepared in mid-November for SunEdison’s services business, which provides upkeep for power plants, projected a $21 million profit on $133 million in revenue, a margin of about 16%, a person familiar with the matter said. A document shown to debt investors and later posted on SunEdison’s website, called for a profit for those businesses of $99 million on $238 million in revenue, a 42% margin.

Lenders, including hedge funds that invest in troubled companies, advanced $725 million.

TerraForm now says its independent directors were misled about the India deal, and that SunEdison officials never mentioned the margin loan or the reluctance of the previous committee. Those concerns prompted TerraForm’s board to oust Mr. Wuebbels, people familiar with the matter said. He resigned as CEO of the TerraForms in March.

SunEdison faces a number of lawsuits from hedge-fund investors including David Tepper’s Appaloosa Management LP, which argued in Delaware state court that SunEdison abused its control over TerraForm. SunEdison denied the allegations in heavily redacted court filings.

SunEdison, which had $9.8 billion in debt as of Sept. 30, is lining up loans to see it through a potential bankruptcy, the Journal has reported. The two TerraForms, whose shares account for much of SunEdison’s value to creditors, are trying to avoid being drawn into a bankruptcy proceeding. The Vivint deal collapsed last month after banks refused to fund it.

Its chief executive’s ambition is undiminished. Meeting earlier this month with some senior managers at SunEdison’s offices in California, Mr. Chatila, who has never sold SunEdison shares, said he had a plan to see the company through a swift restructuring. It would emerge, he told them, stronger than ever.