LISTEN TO ARTICLE 4:06 SHARE THIS ARTICLE Share Tweet Post Email

The website of SunEdison, the renewable energy company, is a virtual smorgasbord of sunshine and light. "Solar perfected," reads one slogan splashed across the page. "Welcome to the dawn of a new era in solar energy," reads another banner over a pink-hued sunset.

While SunEdison's marketing materials are firmly in the clouds, its share price has sunk to earth. The company is one of a batch of energy firms that have spun off their completed projects to public equity investors through vehicles known as "yieldcos," only to see the share prices of those vehicles subsequently tank.

Now SunEdison and one of its two yieldcos, TerraForm Power, face additional questions about the health of their collective funding arrangements. Those concerns are emblematic of a wider problem for energy and commodities companies that have relied on eager capital markets to help finance their staggering growth in recent years.

Lured by the higher yields on offer from funding such projects, investors have stepped up to finance a host of energy-related products in recent years, contributing to a glut in supply that has spurred a dramatic collapse in commodities prices. That's helping to fuel additional market scrutiny of commodities' players—from giants such as Glencore to U.S. shale explorers and even solar panel operators.

Source: Bloomberg

Andy Devries and Greg Jones, two analysts at CreditSights, said in a note to clients this week that the precipitous fall in TerraForm's share price means that SunEdison now faces a collateral call on a $410 million loan secured by its yieldco's stock. Such a call would require the company to stump up an extra $315 million, they added.

Calls to SunEdison and TerraForm were not immediately returned. A spokesman for Deutsche Bank, which provided the margin loan to SunEdison, declined to comment.

"It is entirely possible the company and lending bank disagrees [sic] with us and/or has amended the loan but we have seen zero disclosure saying this is the case," the analysts wrote. "We feel this shows a clear lack of disclosure and further lessens our confidence in management."

Others have a different opinion. John Hempton, chief investment officer at Bronte Capital Management, said on his blog that he's buying SunEdison shares despite concerns over the company's financing.

"We have gone to considerable effort to convince ourselves Sun Edison is not Northern Rock with solar panels," Mr Hempton said, referring to the British bank that went bust just before the financial crisis. "We have talked to several people who have organised funding for these things and it seems okay to us."

Still, further troubles for the yieldco sector may be on the horizon. The International Energy Agency argued in its latest midterm renewable energy report, released on Friday, that the yieldco business model is "based on increasing the number of projects in its parent developer company in order to generate increasing cash flows for shareholder distributions." With a slowdown in investment looking increasingly likely, "this situation might affect cash flows of some yieldcos, and pose challenges to profit distribution to shareholders."

Meanwhile, concerns about the entanglement of commodities and capital markets spread earlier this week when Glencore's $30 billion debt load exploded into investors' collective consciousness and triggered a sharp slump in the company's bonds and shares. Some analysts have also been pondering the finances of Trafigura, with Imperial Capital's Kevin Cohen and Petr Grishenko noting that the commodity trader was "highly levered" and "heavily reliant on short-term bank line funding."

It's a reversal of fortunes for many of the companies, which enjoyed years of profit-hungry investors keen to snap up their bonds or extend loans and credit lines. They now face a bitter shakeout.

Yieldcos behave a lot like other non-bank commodity financial companies "by transforming overly enthusiastic demand for future commodities tomorrow—on account of perceived shortages—into predictable cashflows with which to attract funding for investment in largely overly supplied commodities today," said Izabella Kaminska of FT Alphaville.

The concern now is that funding structures built on that fragile dynamic are apt to collapse should investors come to believe that the financing of latent energy demand has far outpaced actual growth.

The worries currently swirling around SunEdison and its yieldco are only the latest example of the potentially troubled entwining of energy and finance.