A SunEdison yieldco has reached a $57 million settlement of multidistrict investor litigation claiming the renewable energy giant tried to stave off its bankruptcy with its yieldcos’ money. A yieldco is a public company that generates cash from a group of assets, which is then paid to investors as dividends. A yieldco is created by a parent company, in this case SunEdison, and uses its operating assets to develop predictable cash flow for investors.
In addition to the multidistrict litigation (MDL), SunEdison and TerraForm, Global Inc. have also been involved in cases filed by a pair of whistleblowers and SunEdison’s unsecured creditors alleging improper asset transfers between the two companies. All three actions alleged that, faced with an imminent liquidity crunch, SunEdison improperly transferred assets between itself and its yieldcos, while telling shareholders there was nothing to worry about.
The MDL focused on allegations that SunEdison’s board and executives violated the federal Securities Exchange Act by issuing misleading statements to shareholders throughout that period.
Carlos Domeneck Zornoza and former TerraForm COO Francisco J. Perez Gundin, as whistleblowers, alleged that SunEdison tried to stave off the liquidity crisis by dipping into the yieldcos’ assets and wrongfully terminated them when they refused to go along with the alleged scheme.
The unsecured creditors alleged that, “once the writing was on the wall,” the company transferred assets to the yieldcos at below-market rates to protect them from the unsecured creditors. In June, the unsecured creditors, who had brought their claim as an adversary action in SunEdison’s bankruptcy case, settled for $32 million.
The Plaintiffs also alleged that TerraForm’s underwriters were in on the scheme. TerraForm settled with the consolidated group of individual and institutional investors, releasing the yieldco’s underwriters, which included J.P. Morgan, Goldman Sachs and Morgan Stanley. The settlement ended one of the multiple suits involving the relationship between now-bankrupt SunEdison Inc. and TerraForm. The Plaintiffs, in support of the plan, told the court in a brief:
Plaintiffs estimate that the proposed settlement returns between approximately 21.4 percent to 30.3 percent of estimated damages — well above the median settlement for similar securities class actions.
The case is In Re: SunEdison Inc. Securities Litigation, (case number 1:16-md-2742) in the United States District Court for the Southern District of New York.