TerraForm Power Inc (NASDAQ:TERP) shares were up 18.17% to $10.34 on Wednesday even as the company faces potential default. The company has already missed debt covenants and is pleading with investors for more time to fix its finances.
TerraForm Power is a diversified owner of clean power generation assets in developed markets. These assets include solar and wind assets located in the United States, Canada, the United Kingdom and Chile, amounting to nearly a 3MW renewable energy portfolio that enables power production around the clock.
Bondholders with a reported $1.25 billion of the company’s notes have made a filing that set a deadline on August 29 this year before a default is declared. This default notice was made because TerraForm Power has failed to file quarterly or annual filings since the third quarter of 2015.
Because of that, TerraForm Power requested a deadline extension to September 30, 2016 and a series of one-month extensions until the end of the year if it still can’t provide its financial statements by then. For the extension, the company has offered a consent fee of $2.50 per $1,000 in notes for those who consent, and $2.50 more for each extension that’s triggered.
However, the challenge for bondholders and investors is how to evaluate the company’s financial standing and determine whether these compensations would be enough to allow extensions. For now, the company’s stock still offers an attractive dividend of 16.1% from cash flows from projects minus financing costs. Moving forward, these financing costs could rise if the possibility of a default makes it more difficult for the company to negotiate low interest rates.
The company has a market cap of $1.52 billion at 80.03 million shares outstanding. Shares of TerraForm Power have been trading in a 52-week range of $6.73 to $40.24 so the stock is nearing the bottom. Further downside is expected as the default deadline approaches and if the company seeks successive one-month extensions.
DISCLAIMER: There is a substantial risk of loss with any speculative asset, especially small cap stocks. The opinions expressed are those of the author, and do not constitute recommendations to buy or sell a stock. Do your own research before committing capital.
