DBRS Comments on BEP’s Participation in Brookfield’s Acquisition of TerraForm Power and TerraForm Global

DBRS Limited (DBRS) today comments on Brookfield Renewable Partners L.P.’s (BEP or the Company; rated BBB (high) with a Stable trend by DBRS) announcement that Brookfield Asset Management (Brookfield), the Company’s indirect parent, has entered into two separate acquisition agreements that are detailed below.

(1) Acquisition of a 51% interest in TerraForm Power Inc. (TerraForm Power):

Brookfield has entered a definitive agreement under which Brookfield will assume the role of TerraForm Power’s sponsor and will become the controlling shareholder. The key terms of the agreement are as follows:
-- Brookfield will own a 51% interest in TerraForm Power;
-- Brookfield will pay $11.46 per Class A share with an option for shareholders to elect to receive shares to participate in future upside potential. Brookfield will provide approximately 3,500 megawatt (MW) Right of First Offer portfolio to TerraForm Power, representing approximately 1,200 MW of operating wind plants and approximately 2,300 MW of development-stage wind and solar projects in North America and Western Europe;
-- Brookfield will provide a $500 million sponsor equity line to support acquisitions and accretive growth;
-- TerraForm Power’s implied equity value is approximately $1.7 billion; and
-- TerraForm Power’s implied total enterprise value is approximately $6.6 billion.

(2) Acquisition of a 100% interest in TerraForm Global Inc. (TerraForm Global):

Brookfield has entered into a definitive agreement under which it will acquire TerraForm Global for approximately $787 million in cash and will assume approximately $455 million in net debt, representing an enterprise value of approximately $1.3 billion. TerraForm Global owns and operates, or has contracts to acquire, a fleet of 31 wind and solar power plants totalling 952 MW of capacity spread across Brazil, India, China, South Africa, Thailand, Malaysia and Uruguay. Under the terms of the merger agreement, Brookfield will purchase all outstanding Class A shares of TerraForm Global for $5.10 per share in cash. For Class A shareholders, this represents a premium of approximately 50% to TerraForm Global’s closing share price on September 16, 2016, the last trading day prior to TerraForm Global’s announcement that its Board of Directors had initiated an exploration of strategic alternatives to maximize shareholder value.

(3) Approvals and Timing to Close
The acquisitions of TerraForm Global and TerraForm Power (together, the Acquisitions) are expected to close in H2 2017, subject to certain closing conditions, including shareholder approval by the majority of Class A shareholders (excluding SunEdison, Inc. (SunEdison) and Brookfield), regulatory approvals and approval of the U.S. bankruptcy court overseeing the SunEdison Chapter 11 case. The completion of the Acquisitions are independent of each other.

(4) BEP’s Role in the Acquisitions:

BEP is expected to participate in the Acquisitions and will be taking approximately a 15% interest in TerraForm Power and approximately a 30% interest in TerraForm Global. BEP’s total investment in the Acquisitions is estimated to be approximately $500 million. BEP intends to finance the Acquisitions with the proceeds from its preferred share issuance in February 2017 and cash on hand. BEP does not intend to issue debt for the Acquisitions.

Based on DBRS’s review of BEP’s participation in the Acquisitions, it is DBRS’s opinion that the Acquisitions will not materially change the Company’s current credit profile. The Acquisitions will slightly improve the profile of BEP’s current asset portfolio, reflecting the fact that most operating capacity of TerraForm Power and all of operating capacity of TerraForm Global are under long-term contracts with counterparties that have good credit profiles. Post Acquisitions, BEP’s size and diversification will also improve modestly.

With respect to the potential impact on BEP’s credit metrics, DBRS is of an opinion that the impact is slightly positive to BEP’s corporate debtholders. The fact that the debt currently issued by TerraForm Power and TerraForm Global and their projects is non-recourse to the Company and the fact that BEP is not expected to finance its part in the Acquisitions with debt is a positive credit factor. In addition, the Company’s current debtholders could potentially benefit from incremental cash distributions from the Acquisitions.

DBRS notes that BEP’s operational and financial performance in 2016 was solid, resulting in good consolidated and non-consolidated metrics that are consistent with its current BBB (high) ratings.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Independent Power Producer Industry, Rating Holding Companies and Their Subsidiaries, Preferred Share and Hybrid Criteria for Corporate Issuers and DBRS Criteria: Guarantees and Other Forms of Explicit Support, which can be found on dbrs.com under Methodologies.

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