SunEdison Inc. took a major step forward in its bankruptcy reorganization, agreeing to relinquish control of its two yieldco units to Canada’s biggest alternative asset manager and clearing up some of the litigation brought by the affiliates. Brookfield Asset Management Inc. agreed to increase its stake in TerraForm Power Inc. to 51%, acquiring the additional shares at $11.46 each, according to a statement on Tuesday. That would give the yieldco a market value of $1.7 billion. The asset manager also will pay $787 million in cash and assume about $455 million in net debt to acquire sister yieldco TerraForm Global Inc. That values the two companies at a total of $2.94 billion, and Brookfield expects the transactions to close in the second half of this year.
The transactions would help untangle SunEdison from two of its biggest affiliates that helped bring down the world’s biggest-renewable energy developer in April. The complexity of SunEdison’s relationships with the yieldcos had raised corporate governance concerns and drew criticism from creditors. For Brookfield, it means acquiring a portfolio of clean power plants operating around the world, with long-term contracts to sell electricity. “Brookfield is the Warren Buffett of the energy world,” Greg Jones, an analyst at CreditSights Inc., said in an interview before the decision was announced. “They gravitate toward issues of distress and can provide capital. They have an asset management side. No one else is positioned like that.” It has about $250 billion in assets under management, including stakes in Canary Wharf in London and Manhattan West in New York.
The TerraForm Power deal also comes with the promise of growth. Brookfield is pledging to give the yieldco a right-of-first-offer for about 3,500 megawatts of wind and solar farms in North America and western Europe, as well as a $500 million equity line. “They’ve very attractive assets,” Sachin Shah, chief executive officer of Brookfield Renewable Partners LP, said on a call Tuesday with analysts. “And they trade well because of the stability of the cash flows.” Yieldcos make money from the sale of power to utilities under long-term contracts. TerraForm Global surged 16% at 10:36am in New York to $4.93, and TerraForm Power gained 6.2%. Brookfield has said it already owns with its partners about 34% of TerraForm Power.
The yieldco’s shareholders will have the option of being paid in cash or $1.94 per existing share plus one share in TerraForm Power post-closing under the terms of the agreement, the companies said. As part of the deal, Brookfield would provide strategic services and long-term investment advisory services to TerraForm Power. SunEdison agreed to convert its Class B controlling shares into regular Class A shares, which would give it a 36.9% stake. “It’s looks fair to us, and with Brookfield coming in as a sponsor it opens up the potential for growth coming back to TerraForm as they do some restructuring both from the balance sheet and operationally,” said Ben Kallo, an analyst with Robert W. Baird & Co.
Brookfield agreed to buy all outstanding Class A shares of TerraForm Global for $5.10 each, a 20% premium over the $4.25 closing price Monday. SunEdison agreed to convert its Class B controlling shares in TerraForm Global into Class A shares that would give it a 25% stake, and it will get a quarter of the consideration paid to shareholders.
In January, Brookfield confirmed that it was in exclusive talks to buy shares in the two yieldcos for a combined value of as much as $2.46 billion. A deadline for those talks to finish passed on Monday. SunEdison said it supports the transactions announced Tuesday, which must be approved by the US bankruptcy court. “This agreement with Brookfield is the culmination of our efforts to separate our operations from SunEdison and to position TerraForm Power for future success,” Peter Blackmore, TerraForm Power’s chairman and interim chief executive officer, said in the statement. “With the support of Brookfield as TerraForm Power’s sponsor, we will gain additional resources to continue to expand our portfolio and increase cash flow on a per share basis.”
TerraForm Power, which owns wind and solar farms in OECD countries including the US and the UK, said in December that it had a $1 billion claim against SunEdison. TerraForm Global, which owns assets in emerging markets including Brazil and India, said that month that its unsecured claims against its parent exceed $2 billion. These deals would resolve those claims. The bankruptcy has been costly to the two yieldcos, which are based in Bethesda, Maryland, since they bought many of their wind and solar farms from SunEdison. Until recently, the TerraForms relied on SunEdison for accounting, information technology, operation and maintenance of renewable assets. The yieldcos only recently have begun filing overdue quarterly reports to the Securities and Exchange Commission.
SunEdison filed for bankruptcy in April, listing $16.1 billion in liabilities. It controls the yieldcos through its stakes in their Class A and Class B shares. The value of their common stock has fluctuated during the case, raising questions about the worth of SunEdison itself and stoking disputes among shareholders and creditors. The bankruptcy is: In re SunEdison Inc., 16-10992, US Bankruptcy Court, Southern District of New York (Manhattan).