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What Do I Have In Common With Dr. Evil? (Hint: Sunedison Inc.)

Do you know that feeling when you are right but everybody else is wrong and mocking you? And then everybody else learns their mistake, and it turns out you were right all the way long? This feeling of being right contrary to the mass opinion really warms up your heart when the moment of truth occurs. And this is exactly what happened to me today with Sunedison Inc. The company's shares plunged as much as 31% today and closed almost 21% below the opening price:

(Source: Google Finance)

What a free fall! Must have been painful for the recent bulls. I wrote about Sunedison a week ago, voicing my concerns about its financial situation. A few traders thought I was crazy and stated that they were "looking at $30 per share in the future". We may disagree on the company's valuation but there is no point arguing about its finances when all numbers are freely available. 

Opinions cannot change the fact that the company is literally bankrupt: Sunedison has an Altman Z-score of 0.15. Keep in mind that: "A score below 1.8 means the company is probably headed for bankruptcy, while companies with scores above 3.0 are not likely to go bankrupt. The lower/higher the score, the lower/higher the likelihood of bankruptcy" (Source: Investopedia).

Sunedison has to raise money continually in order to fund its growth. In fact, the company does not only have to fund growth but also its operations: historical cash flow statements show that it uses cash in operating activities. This is very serious!

Moreover, Sunedison relies on tax breaks from the government to build its projects. Thankfully, the tax credits have recently been extended for a five-year period. The entire industry is not financially independent from the government, and I do not like dependent entities.

So why did the stock plunge today? I found two reasons for that. 

The first one, best described in a Motley Fool article, relates to a recent inquiry by one of TerraForm Power's owners, David Tepper of the hedge fund Tepper's Appaloosa Management, into the deal between Sunedison and TerraForm Power on the Vivint Solar's assets. Long story short, Sunedison is trying to push its interests through TerraForm, where it has its insiders in key management positions: "SunEdison could dump projects on TerraForm at its whim, helping its own position while hurting the yieldcos".

David Tepper, who owns over 9% of TerraForm Power, did not like it and questioned the "obvious conflicts". Today, his fund requested the documents regarding the recent dealings, and the market reacted extremely negatively to this. The request of records implies there are certainly more problems coming down the road.

Secondly, what I also learned today is that "shareholder rights law firm Robbins Arroyo LLP announced that a class action complaint was filed in the U.S. District Court for the Eastern District of Missouri" (Source: Businesswire). Looks like Sunedison has a lot of paperwork-related problems going into 2016! To summarize, the law firm is accusing Sunedison of intentionally misleading investors in the period between June and October 2015, when the company's management announced that two acquisitions, namely, Globeleq Mesoamerica Energy and Vivint Solar, would greatly benefit Sunedison. In particular, this is what the management said about the Globeleq Mesoamerica Energy's buyout:

The management also stated that the Vivint Solar deal would triple the company's value. Apparently, this did not happen, and in October the company announced the lay-off of 15% of its workforce and reported a net loss of $284M on revenues of $476M in Q3 2015, according to Google Finance.

Now, I am not predicting a quick demise of Sunedison Inc. On the other hand, it clearly has some serious management-related issues on top of its $11B+ debt balance, which it cannot repay or service. Seriously, guys, why would you want to buy shares in company where you have absolutely no voice and that has so many vital problems?

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