Despite Disappointing Q1’18, TerraForm Power Proceeding With Saeta Yield Acquisition
TerraForm Power, formerly the yield-co jewel in the crown of renewable energy darling SunEdison, reported disappointing first-quarter earnings late last month, with lower-than-expected earnings and cash due in part to underperforming renewable energy assets.
The once-prominent yield-co of the once-prominent renewable energy giant SunEdison, TerraForm Power nevertheless remains one of the leading yield-cos, with a portfolio totaling 2,606 megawatts (MW) under operation. The company was originally caught up in SunEdison’s 2016 bankruptcy and its future was immediately called into question. However, Canadian asset management firm Brookfield Asset Management came to the rescue in early 2017 and acquired a controlling stake and sponsorship of TerraForm Power, and outright-acquired sister-yield-co TerraForm Global.
The move helped both companies find solid ground, and since then — while things have not been stellar — they have at least been relatively smooth.
So much so, in fact, that earlier this year TerraForm Power announced that it would seek to acquire leading European renewable energy asset manager Saeta Yield with an offer approximately worth $1.2 billion, in a move backed by Brookfield. Saeta Yield comes with a portfolio of its own worth 1,028 MW of wind and solar assets located primarily in Spain — 778 MW of onshore wind and another 250 MW of concentrated solar.
“With the Saeta acquisition, we are excited to significantly grow our portfolio of high-quality wind and solar assets and expand our geographic footprint with a scale position in Western Europe,” said John Stinebaugh, Chief Executive Officer of TerraForm Power, at the time. “With Brookfield as our sponsor, we believe this transaction demonstrates our ability to originate acquisitions of high-quality assets on a value basis that are highly accretive to our shareholders.”
The acquisition is hoped to yield significant revenue and help TerraForm Power accelerate the deleveraging of its own balance sheet, furthering its long-term plan to establish an investment grade balance sheet.
Unfortunately, the company has hit other bumps in the road that will make its near future a little perilous.
Published on May 1, TerraForm Power released its first-quarter earnings report, in which it reported lower-than-expected generation from its portfolio — 1,834 gigawatt-hours (GWh) compared to 1,982 in the same quarter a year earlier. As such, the company reported Adjusted EBITDA of $96 million, down from $103 million a year earlier, and Cash Available For Distribution (CAFD) of $23 million, up on the $19 million in play a year earlier, but still down on market expectations. TerraForm Power reported a net loss of $76 million, up on a net loss of $56 million a year earlier.
The company did manage to report earnings per share of $0.56 compared to a loss per share of $0.37 per share a year earlier.
“We have made significant progress in executing our business plan, which is resilient to macroeconomic factors and capital market volatility,” said John Stinebaugh, CEO of TerraForm Power. “After closing the Saeta acquisition this summer, our growth over the next five years will be driven primarily by executing our cost savings plan, accretion from the acquisition and organic growth initiatives, with limited need to issue equity.”
The lower-than-expected generation was due to outages at its Raleigh wind facility caused by a single faulty blade that caused the collapse of a tower. TerraForm power predicts that the outage at Raleigh set the company back by reducing their CAFD by about $6 million, due in part to the obvious delays at Raleigh, but also because the company removed from service all 70 turbines which utilize the same blades at both Raleigh and Bishop Hill. All turbines were returned to service between mid-March and the end of April after a thorough investigation.
However, importantly, TerraForm Power not only received regulatory approval to proceed with its acquisition of Saeta Yield, but it intends to proceed with the acquisition. The acquisition is expected to result in significant growth to the company’s CAFD per share levels, and is hoped to support continued growth in dividends in the near-future.
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