Why Oppenheimer Is Downgrading SunEdison: Unclear Liquidity

Oppenheimer's Colin Rusch downgraded the rating on Sunedison Inc (NYSE: SUNE) to Perform, following the company filing a notification after hours on February 29 regarding its late 10-K filing.

SunEdison expects to "file its 10-K within 15 calendar days after the due date," Rusch stated, while adding that "with an unclear liquidity picture and questions about financial controls, we step to the sidelines, as we note that either issue could severely limit SUNE's ability to raise capital – which is core to its business model."

Attributing the delay in filing to restructuring and other events, SunEdison also disclosed that its audit committee was investigating claims from a former and a current employee regarding the accuracy of the company's "anticipated financial position" and whether there is adequate liquidity to meet its capital needs.

Related Link: Vivint Solar Approves Merger Agreement With SunEdison

The company's recent second lien refinancing, as well as the missed HECO payments, imply a challenged financial position, according to the Oppenheimer report, while the analyst believes that "until the reporting issues are resolved, counterparties may be less willing to enter into long-term agreements" with SunEdison.

In fact, Rusch expects the stock to remain under pressure until the company completes a significant sale to a third party. While SunEdison might be at a disadvantage to negotiate given its current financial situation, the analyst believes that the market investment-grade project assets is strong.

"We continue to see a robust market for renewable energy assets with at least two dozen active buyers and believe SUNE's portfolio contains significant value," Rusch added.