TerraForm Power, an owner and operator of clean energy power plants, and SunEdison, currently the world’s largest renewable energy development company, recently announced that TerraForm Power has signed a definitive agreement to acquire net ownership of 930 megawatts (MW) of wind power plants from Invenergy Wind LLC, the largest independent wind owner in the United States.
This acquisition is expected to add a sizeable, high-quality contracted power plant portfolio to the TerraForm Power and SunEdison family of companies, strengthening one of the largest and highest growth renewable power platforms in North America.
Transforming how energy is generated, distributed and owned
“TerraForm Power continues to transform the energy landscape with our acquisition of Invenergy’s wind power portfolio,” said Carlos Domenech, TerraForm Power’s CEO.
“This transaction is expected to be immediately accretive to our shareholders, extend the visibility of our growth trajectory and unlock significant value as we aggregate a highly fragmented industry. Our ongoing partnership with Invenergy, the country’s leading independent wind owner and developer, provides further opportunities for collaboration, asset drop downs and dividend growth.”
“TerraForm Power’s acquisition of the Invenergy wind plants leverages the power of SunEdison’s platform which was enhanced with our acquisition of First Wind in January of 2015,” said Ahmad Chatila, SunEdison CEO and TerraForm Power chairman.
“The Invenergy transaction creates significant value for our shareholders through the accretion in our TerraForm Power ownership and the acceleration of our Incentive Distribution Rights (IDRs). Together with TerraForm Power, SunEdison’s development platform will change how energy is generated, distributed, and owned around the world.”
Raising 2016 guidance and establishing long-term growth
Concurrent with today’s announcement, TerraForm Power is raising its prior 2016 dividend target of $1.53 to 2016 dividend per share (DPS) guidance of $1.70, a 26% year-over-year increase compared to 2015 annual guidance. TerraForm Power is also updating its long-term DPS growth target to a 20% CAGR from its current first quarter dividend, driven by the increased visibility and growth provided by this transaction.
Acquisition terms and asset overview
“This agreement speaks to Invenergy’s proven track record as an independent power producer and to our excellence in facility operations,” said Michael Polsky, Invenergy founder, president and chief executive officer. “Clean power is driving our energy future, and this transaction will enable us to further invest in our industry-leading development pipeline and bring significantly more clean energy to market in the years ahead.”
TerraForm Power intends to acquire net ownership of 460 MW of the wind power plants from Invenergy with the remaining 470 MW to be acquired by a new warehouse facility, for a combined $2.0 billion in aggregate consideration. Average unlevered CAFD of the acquired portfolio is anticipated to be $141 million annually over the next 10 years, generating a levered cash-on-cash return of approximately 8.4%.
The acquired portfolio is comprised of seven contracted wind farms located in the United States and Canada. The assets have a weighted average remaining contract life of 19 years and an average counterparty credit rating of AA.
Invenergy will retain a 9.9% stake in the U.S. assets and will provide certain operation and maintenance services for these power plants.
The continuing partnership with Invenergy is expected to provide significant opportunities for future collaboration and growth. Invenergy is North America’s largest independent wind power generation company, and its portfolio of clean power projects includes operating facilities totaling approximately 6.6 GW, with another 2.5 GW under construction or contract. This transaction represents the transfer of approximately one-tenth of Invenergy’s total contracted portfolio.
“As an independent, privately-held company, this transaction is consistent with how we finance growth in our capital-intensive industry and reflects the strength of Invenergy’s business model,” said Jim Murphy, Invenergy chief financial officer and operating business group president. “Market interest in these wind projects was strong, reflecting the quality of these renewable energy assets, all of which have long-term power sale contracts.”
TerraForm expects to finance the direct acquisition of the 460 MW through a combination of cash on hand and new bond financing. TerraForm Power will also assume approximately $450 million in non-recourse project debt. These initial drop downs are expected to provide average CAFD of $71 million annually over the next 10 years.
Building on the success of TerraForm Private (the first operating asset warehouse facility that TerraForm Power and SunEdison created for the Atlantic Power assets), the companies anticipate that the remaining 470 MW will be acquired by a new warehouse facility to be sponsored by SunEdison and third-party equity investors, with assets dropping down to TerraForm Power in the future. The wind farms intended for the warehouse are expected to generate average unlevered CAFD of $70 million annually over the next 10 years.
Approvals and timing
The companies anticipate closing by the fourth quarter of 2015.
Completion of the transaction is conditioned upon approval by the Federal Energy Regulatory Commission and the Public Utility Commission of Texas. The transaction is subject to the notification and reporting requirements under the Hart-Scott-Rodino Act and other customary closing conditions.
Morgan Stanley acted as lead financial advisor to TerraForm Power. Citi served as joint financial advisor and also acted as lead financing structuring agent. Goldman Sachs acted as exclusive financial advisor to Invenergy. Orrick acted as lead legal counsel to TerraForm Power.
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