TERRAFORM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, unless otherwise noted)
1. NATURE OF OPERATIONS
Nature of Operations
TerraForm Global, Inc. (“Global”) was formed under the name SunEdison Emerging Markets Growth and Yield, Inc. on September 12, 2014, as a wholly owned indirect subsidiary of SunEdison, Inc. (“SunEdison”). The name of the Company was changed from SunEdison Emerging Markets Growth and Yield, Inc. to SunEdison Emerging Markets Yield, Inc. on September 26, 2014. The name change from SunEdison Emerging Markets Yield, Inc. to TerraForm Global, Inc. became effective on April 1, 2015. Following the Company’s initial public offering (“IPO”) on August 5, 2015, and as part of a series of formation transactions, the Company became a holding company and its sole asset is an equity interest in TerraForm Global, LLC (“Global LLC”), a globally diversified renewable energy company that owns, through its subsidiaries, wind and solar power plants and long-term contractual arrangements to sell the electricity generated by such power plants to third parties. The Company is the managing member of Global LLC and operates, controls and consolidates the business affairs of Global LLC.
On April 21, 2016, SunEdison and certain of its domestic and international subsidiaries voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code (the “SunEdison Bankruptcy”). The SunEdison Bankruptcy may have a material adverse effect on the Company given our reliance on SunEdison. The Company is not a part of the SunEdison Bankruptcy and does not rely substantially on SunEdison for funding or liquidity. The equity interests of the Company in the wind and solar power plants that are legally owned by its subsidiaries are not expected to be available to satisfy the claims of creditors in the SunEdison Bankruptcy. The Company continues to participate actively in the SunEdison Bankruptcy proceedings, and the SunEdison Bankruptcy will continue to have a negative impact on the Company given our complex relationship with SunEdison.
During the SunEdison Bankruptcy, SunEdison has not performed substantially as obligated under its agreements with us, including under sponsorship arrangements consisting of the various corporate level agreements put in place at the time of the Company’s IPO (collectively, the “Sponsorship Arrangement”) and certain operation and management (“O&M”) and asset management arrangements. SunEdison’s failure to perform substantially as obligated under its agreements with us, including under the Sponsorship Arrangement, project level O&M and asset management agreements and other support agreements may have a material adverse effect on the Company. Despite these adverse effects, the Company expects that it will be able to operate its business without the support of SunEdison pursuant to the plans for transitioning away from reliance on SunEdison that we are in the process of implementing. These plans include, among other things, establishing stand-alone information technology, accounting and other critical systems and infrastructure, directly hiring our employees, and seeking proposals for alternative O&M and asset management services for our power plants. In addition to the one-time costs of implementing a stand-alone organization, our business will be adversely affected to the extent we are unsuccessful in implementing the relevant plans or the resulting ongoing long-term costs are higher than the costs we are expected to incur with SunEdison as a sponsor.
On September 25, 2016, the Company filed its initial proof of claim in the SunEdison Bankruptcy case, and filed an amended proof of claim on October 7, 2016. As set forth in the proofs of claim, the Company believes it has unsecured claims against SunEdison that it estimates are in excess of $2.0 billion. These claims include, without limitation, claims for damages relating to breach of SunEdison's obligations under the Sponsorship Arrangement between the Company and SunEdison and other agreements; contribution and indemnification claims arising from litigation; claims relating to SunEdison’s breach of fiduciary, agency and other duties; and claims for interference with and the disruption of the business of the Company and its subsidiaries, including the loss of business opportunities, loss of business records, failure to provide timely audited financials, and the increased cost of financing and commercial arrangements. Many of these claims are contingent, unliquidated and/or disputed by SunEdison and other parties in interest in the SunEdison Bankruptcy case, and the estimated amounts of these claims may change substantially as circumstances develop and damages are determined. In addition, recoveries on unsecured claims in the SunEdison Bankruptcy case are expected to be significantly impaired. On December 1, 2016, the official committee of unsecured creditors of the SunEdison Bankruptcy filed an omnibus objection to the proofs of claim filed by the Company.
In addition, the Company believes that it may have claims entitled to administrative priority against SunEdison, including, without limitation, claims with respect to certain expenses that the Company has incurred after the commencement of the SunEdison Bankruptcy case; however, the Company expects SunEdison and other parties in interest in the SunEdison Bankruptcy case to dispute both the amount of these claims and whether or not these claims are entitled to administrative priority over other claims against SunEdison.