DBRS Comments on Brookfield Renewable Partners Increasing Its Ownership of TerraForm to 30% from 16%

DBRS Limited (DBRS) commented on Brookfield Renewable Partners L.P. (BEP; rated BBB (high) with a Stable trend by DBRS) purchasing a $320 million 14% direct ownership interest in TerraForm Power, Inc. (TerraForm). In addition, BEP, along with its institutional partner, Brookfield Infrastructure Fund III (BIF III), will contribute $330 million (including $100 million from BEP) to proportionately maintain BIF III’s existing 51% ownership of TerraForm. Through BIF III, BEP will continue to indirectly maintain its 16% ownership of TerraForm.

FINANCING BY BEP
BEP will fund its increased ownership in TerraForm through an immediate draw on its operating credit facilities; BEP currently has $1.5 billion of available liquidity. The draw on the operating facilities is expected to be repaid by the end of 2018 through the sale of non-core assets and capital recycling initiatives.

SAETA ACQUISITION BY TERRAFORM
TerraForm required the financing from BEP and BIF III in order to close the acquisition of Saeta Yield, S.A. (Saeta) for a total purchase price of $1.225 billion (including transaction costs). TerraForm will finance the acquisition with $650 million in equity advances from BEP and BIF III, and the remaining portion will be financed with available liquidity that TerraForm intends to refinance with a combination of project financing of its unencumbered assets and cash to be released from Saeta’s assets. The closing of 95% of the shares was completed on June 12, 2018, with the purchase of the remaining 5% untendered shares expected within 30 days. The acquisition of Saeta will provide TerraForm with 778 megawatts (MW) of onshore wind and 250 MW of concentrated solar capacity, which are either regulated or contracted with investment-grade counterparties and have an average remaining term of 14 years. Approximately 77% of Saeta’s capacity is in Spain, with the remaining 14% in Portugal and 9% in Uruguay.

IMPACT ON BEP
DBRS expects the business risk profile of BEP’s investment in TerraForm to improve following the acquisition of Saeta. TerraForm’s business profile will strengthen modestly through improved geographic, resource and counterparty diversification. Currently, TerraForm’s portfolio of wind and solar projects (approximately 2,600 MW) are 95% contracted with an average remaining power purchase agreement term of 15 years. Based on DBRS’s forecasts, TerraForm is expected to generate over 10% of BEP’s cash flow post-acquisition. From a financial risk perspective, DBRS views BEP’s financing of its increased investment in TerraForm as modestly and temporarily weakening BEP’s deconsolidated credit metrics. However, these metrics are expected to be restored once the acquisition debt is paid off as planned.

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

The principal methodology is Rating Companies in the Independent Power Producer Industry, which can be found on dbrs.com under Methodologies.

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