Shares of TerraForm Power Inc. got a boost yesterday after Bloomberg reported that Golden Concord Holdings Ltd., the Chinese clean energy group, is planning to bid for SunEdison’s controlling stake in the company, according to anonymous sources.

Note that TerraForm Power has been in troubled waters ever since its parent company, SunEdison, filed for bankruptcy due to heightened debt burden, and deteriorating revenues and net income. As a result, TerraForm Global has been facing these challenges as well.

It should be noted that although SunEdison holds 35% of the total shares outstanding in TerraForm Power, the Class B shares that it possesses gives it an 84% voting right in the company.

Therefore, the news boosted investor confidence in the stock on expectations that a new owner would help TerraForm Power bolster its balance sheet and may be able to return the company to a stable position.

Shares of TerraForm Power were up as much as 9.4% in yesterday, before closing the trading session at an approximate 6% gain. Similarly, another yieldco owned by SunEdison, TerraForm Global witnessed an almost 5% gain in its share prices yesterday.

TERRAFORM POWER Price

 

TERRAFORM POWER Price | TERRAFORM POWER Quote

Increasing Interest in TerraForm Power

For the past few months, we have been noticing that various companies are showing interest in acquiring SunEdison’s stake in TerraForm Power. Notably, with a market valuation of over $1.5 billion, TerraForm Power is the most valuable standalone asset for SunEdison.

Later into June, investment firm Brookfield Asset Management revealed that it has acquired 11.1 million Class A shares of TerraForm Power for $98.5 million, in turn acquiring a stake of 12.1% in the company. With this transaction, Brookfield became the largest stakeholder in TerraForm Power, followed by BlueMountain Capital and Appaloosa Management LP.

Brookfield had also expressed its interest in purchasing Class B shares of the company from SunEdison. In July, the investment firm joined hands with Appaloosa to jointly bid for TerraForm Power’s shares.

According to sources, D.E. Shaw & Co LP may also come forward to bid for TerraForm Power’s shares. As per a recent SEC filing, this hedge fund company is the fourth-largest shareholder in the company with an approximately 6.7% stake.

Bottom Line

Given the increasing interest in TerraForm Power among investment firms, we believe that the asset definitely has significant value, because investors are unlikely to risk money in a business when its parent company has filed for Chapter 11 bankruptcy protection. Citing sources, Bloomberg revealed that the auction for TerraForm Power may take place next month.

We consider that within a few months of auction for TerraForm Power, TerraForm Global will attract investors similarly.

We also remind investors that SunEdison had previously mentioned its intention of selling its stake in both the yieldcos.

Currently, TerraForm Power carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the Utility-Electric Power industry are ITC Holdings Corp. and Korea Electric Power Corp. (KEP Quick QuoteKEP - Free Report) , both carrying Zacks Rank #2 (Buy).

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