A more complex case than Brookfield Asset Management’s $5.1bn deal to take over two listed companies from bankrupt SunEdison is hard to imagine. The world’s biggest renewable company had spectacularly run aground in 2016.
Bankruptcy-inspired sales are always fraught, as lawyers juggle the requirements of management, creditors and bankruptcy judges, while trying to reassure would-be buyers there are no contingent obligations to hurt them later.
As well the enormous sums involved, which narrowed the field of bidders, the SunEdison case had a unique complication — a complex type of asset that had never before changed hands under the shadow of a bankrupt parent company. SunEdison’s slogan was “Simplifying Solar”, yet its structure was anything but straightforward.
The assets up for grabs were two “yieldcos”, special companies set up to hold and sell on power from wind and solar farms developed by SunEdison, under commercial contracts. Both companies were listed; SunEdison held a majority of their voting interests, but only a minority of the economic interests.
SunEdison had “sponsor” contracts to continue to supply projects to the yieldcos — TerraForm Power, which holds assets in developed (OECD) countries and TerraForm Global, which holds assets in emerging markets.
“The challenges that SunEdison and Skadden faced in trying to get such a large organisation through bankruptcy were mind-boggling,” says Eric Ivester, of law firm Skadden, Arps, Slate, Meagher & Flom, which advised SunEdison. “Chief among those challenges were dealing with our relationship with the yieldcos.”
Both SunEdison and the yieldcos, advised by Sullivan & Cromwell, quickly decided that a “normal” sale outside the bankruptcy process would maximise the yieldcos’ value.
Bidders agreed. Richard Hall, a lawyer with Cravath, Swaine & Moore, which advised Brookfield, says a bankruptcy sale “would not likely have generated anywhere near as much value for the SunEdison estate” since it would not have enabled buyers to take over SunEdison’s sponsor role.
“Being the sponsor was more than just owning SunEdison’s shares, it also involved contractual relationships,” he says. If the assets had been sold as part of the bankruptcy process, “it would have been extraordinarily difficult and possibly impossible for someone to have stepped in to the sponsorship contracts.”
Skadden and Sullivan & Cromwell convinced the bankruptcy court that it was in SunEdison’s creditors’ best interest for the sale to proceed outside bankruptcy, even though it was the first time such a sale had been undertaken for assets of a bankrupt parent.
Lawyers then set about resolving any areas of disagreement between SunEdison and the yieldcos so they could assure bidders they did not have to worry about SunEdison’s creditors or its bankruptcy process — although the transaction did require final approval from SunEdison’s bankruptcy judge.
The strategy was not without risks, says Andy Dietderich of Sullivan & Cromwell. “The first was a risk that the buyers would think that the structure was too complicated and wouldn’t have faith that we could deliver both the court and SunEdison’s vote . . . The second risk was the legal risk that the bankruptcy court might not approve it.”
From the buyers’ perspective, Mr Hall says it “wasn’t all plain sailing” even when the bankruptcy complication was removed.
“The thing that was most unusual about this transaction is the significant array of different people who thought they would have a say in whether TerraForm Power [and TerraForm Global] were sold and on what terms,” he adds. “Most of the time most of the people arrayed across the table from us were not aligned.”
He lists SunEdison’s creditor groups, SunEdison itself, and “different constituencies” at the yieldcos as the parties that thought they should have a say, and says there were significant tensions between some. “It was an enormous hassle for Brookfield,” he says. It stayed in the game because “given the business that Brookfield is in, it was a very rare opportunity”.
Despite those difficulties, Sullivan & Cromwell lawyers say bankers contacted around 130 potential bidders. Exclusive negotiations with Brookfield began in January 2017, less than five months after the sale process kicked off.
All sides say they were comfortably certain of achieving the judge’s approval when they walked into the bankruptcy court. In the event, Judge Stuart Bernstein told the court: “Having presided over this case for 15 months and witnessed the wars and skirmishes among the parties, I can say that a consensual plan was a remarkable feat.”
As well as preserving value for SunEdison’s creditors and keeping the TerraForm companies alive and well, the lawyers believe the case has created important precedents. “Any time another yieldco comes up for marketing — and there are actually two being marketed at the moment, that we know about — everyone looks at the deal that was struck for TerraForm Power and for TerraForm Global,” says Mr Hall.
“The fundamental structure,” he adds, “is everyone's starting point for how to structure comparable transactions.”
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