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10-K
TERRAFORM POWER, INC. filed this Form 10-K on 07/21/2017
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _____________________________________________________________________________
FORM 10-K
 _____________________________________________________________________________
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-36542
 ______________________________________________________________
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TerraForm Power, Inc.
(Exact name of registrant as specified in its charter)
 _____________________________________________________________________________
Delaware
 
46-4780940
(State or other jurisdiction of incorporation or organization)
 
(I. R. S. Employer Identification No.)
7550 Wisconsin Avenue, 9th Floor, Bethesda, Maryland
 
20814
(Address of principal executive offices)
 
(Zip Code)
240-762-7700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Exchange on Which Registered
Common Stock, Class A, par value $0.01
 
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
 ______________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.  Yes  o    No  x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o    No  x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  o    No  x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  o    No  x



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
 
Accelerated filer
 
o
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
 
Smaller reporting company
 
o
Emerging growth company
 
o
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o    No  x
As of June 30, 2017, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common equity of the registrant, held by non-affiliates of the registrant (based upon the closing sale price of shares of Class A common stock of the registrant on the NASDAQ Global Select Market on such date), was approximately $1.1 billion.
As of June 30, 2017, there were 92,268,474 shares of Class A common stock outstanding and 48,202,310 shares of Class B common stock outstanding.
 



TerraForm Power, Inc. and Subsidiaries
Table of Contents
Form 10-K
 
 
 
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
Item 15.




CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This communication contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. These statements involve estimates, expectations, projections, goals, assumptions, known and unknown risks, and uncertainties and typically include words or variations of words such as “expect,” “anticipate,” “believe,” “intend,” “plan,” “seek,” “estimate,” “predict,” “project,” “goal,” “guidance,” “outlook,” “objective,” “forecast,” “target,” “potential,” “continue,” “would,” “will,” “should,” “could,” or “may” or other comparable terms and phrases. All statements that address operating performance, events, or developments that the Company expects or anticipates will occur in the future are forward-looking statements. They may include estimates of expected cash available for distribution, earnings, revenues, capital expenditures, liquidity, capital structure, future growth, financing arrangements and other financial performance items (including future dividends per share), descriptions of management’s plans or objectives for future operations, products, or services, or descriptions of assumptions underlying any of the above. Forward-looking statements provide the Company’s current expectations or predictions of future conditions, events, or results and speak only as of the date they are made. Although the Company believes its expectations and assumptions are reasonable, it can give no assurance that these expectations and assumptions will prove to have been correct and actual results may vary materially.

Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are listed below and further disclosed under the section entitled Item 1A. Risk Factors:

risks related to our relationship with "SunEdison" (defined as SunEdison, Inc. and its consolidated subsidiaries, excluding TerraForm Power, Inc. and its subsidiaries and TerraForm, Global, Inc. and its subsidiaries);
risks related to SunEdison's bankruptcy filing, including our continuing transition away from reliance on SunEdison for management, corporate and accounting services, employees, critical systems and information technology infrastructure, and the operation, maintenance and asset management of our renewable energy facilities;
risks related to events of default and potential events of default arising under (i) our revolving credit facility (the “Revolver”), (ii) the indentures governing our Senior Notes due 2023 and Senior Notes due 2025 (the "Indentures"), and/or (iii) project-level financings and other agreements related to the SunEdison Bankruptcy, our failure to obtain corporate and/or project level audits, SunEdison’s failure to perform its obligations under project-level agreements, and/or related adverse effects on our business and operations (including the delay in our SEC filings) and other factors;
risks related to failure to timely file SEC reports and to satisfy the requirements of the NASDAQ, which could result in delisting of our common stock;
risks related to the merger and the sponsorship transaction with Brookfield Asset Management, Inc. and certain of its affiliates, including failure to satisfy conditions to consummation of the merger and the sponsorship transaction, our failure to realize the expected benefits of the transaction and the diminished likelihood that a third party would make a competing transaction proposal;
risks related to the pendency of the merger and the sponsorship transaction, including disruptions to our business, conflicts of interest and employee departures;
risks relating to the failure to consummate the merger and the sponsorship transaction, including a potential adverse impact on the trading price of our common stock, the potential termination of our settlement agreement with SunEdison and the likelihood we would need to operate without a sponsor indefinitely or until we were able to conclude a transaction with another party, if at all;
our ability to integrate the renewable energy facilities we acquire from third parties or otherwise and realize the anticipated benefits from such acquisitions;
the willingness and ability of the counterparties to our offtake agreements to fulfill their obligations under such agreements;
price fluctuations, termination provisions and buyout provisions related to our offtake agreements;
our ability to enter into contracts to sell power on acceptable prices and terms, including as our offtake agreements expire;
our ability to successfully identify, evaluate and consummate acquisitions;
government regulation, including compliance with regulatory and permit requirements and changes in market rules or regulations, rates, tariffs, environmental, tax or other laws, policies and incentives affecting the energy markets in general or renewable energy facilities in particular, including any such changes that may be implemented following the recent elections in the U.S. and changes to federal and state tax laws related to renewable energy and renewable energy portfolio standards or renewable energy credits;



operating and financial restrictions placed on us and our subsidiaries related to agreements governing our indebtedness and other agreements of certain of our subsidiaries and project-level subsidiaries generally and in our Revolver and the Indentures;
the condition of the debt and equity capital markets and our ability to borrow additional funds and access capital markets, as well as our substantial indebtedness and the possibility that we may incur additional indebtedness going forward;
our ability to compete against traditional and renewable energy companies;
hazards customary to the power production industry and power generation operations such as unusual weather conditions, catastrophic weather-related or other damage to facilities, unscheduled generation outages, maintenance or repairs, interconnection problems or other developments, environmental incidents, or electric transmission constraints and curtailment and the possibility that we may not have adequate insurance to cover losses as a result of such hazards;
the variability of wind and solar resources and the under-performance of our solar modules, wind turbines and other associated components and equipment, which may result in lower than expected output of our renewable energy facilities;
our ability to expand into new business segments or new geographies;
departure of some or all of the employees providing services to us, particularly executive officers or key employees and operations and maintenance or asset management personnel;
pending and future litigation;
our ability to operate our business efficiently, to operate and maintain our information technology, technical, accounting and generation monitoring systems, to manage capital expenditures and costs, to manage risks related to international operations such as currency exposure and to generate earnings and cash flows from our asset-based businesses in relation to our debt and other obligations, including in light of the SunEdison Bankruptcy and the ongoing process to establish separate information technology and other systems; and
potential conflicts of interests or distraction due to the fact that several of our directors are also directors of Terraform Global, Inc. and most of our executive officers are also executive officers of TerraForm Global, Inc.

The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions, factors, or expectations, new information, data, or methods, future events, or other changes, except as required by law. The foregoing list of factors that might cause results to differ materially from those contemplated in the forward-looking statements should be considered in connection with information regarding risks and uncertainties, which are described in this annual report, as well as additional factors we may describe from time to time in other filings with the SEC. You should understand that it is not possible to predict or identify all such factors and, consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.



GLOSSARY OF TERMS

When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
CAFD
 
Cash available for distribution is defined as net cash provided by operating activities of Terra LLC as adjusted for certain other cash flow items that we associate with our operations. It is a non-GAAP measure of our ability to generate cash to service our dividends. CAFD represents net cash provided by (used in) operating activities of Terra LLC (i) plus or minus changes in assets and liabilities as reflected on our statements of cash flows, (ii) minus deposits into (or plus withdrawals from) restricted cash accounts required by project financing arrangements to the extent they decrease (or increase) cash provided by operating activities, (iii) minus cash distributions paid to non-controlling interests in our renewable energy facilities, if any, (iv) minus scheduled project-level and other debt service payments and repayments in accordance with the related borrowing arrangements, to the extent they are paid from operating cash flows during a period, (v) minus non-expansionary capital expenditures, if any, to the extent they are paid from operating cash flows during a period, (vi) plus cash contributions from SunEdison pursuant to the Interest Payment Agreement and the Amended Interest Payment Agreement, (vii) plus operating costs and expenses paid by SunEdison pursuant to the MSA to the extent such costs or expenses exceed the fee payable by us pursuant to such agreement but otherwise reduce our net cash provided by operating activities and (viii) plus or minus operating items as necessary to present the cash flows we deem representative of our core business operations, with the approval of the audit committee.
Call Right Projects
 
Qualifying projects from SunEdison's development pipeline required to be offered to us by SunEdison under the Support Agreement and the Intercompany Agreement, as applicable
GWh
 
Gigawatt hours
ITC
 
Investment tax credit
MWh
 
Megawatt hours
Minimum Quarterly Distribution

 
Class A units and Class B1 units are entitled to receive quarterly distributions in an amount equal to $0.2257 per unit, plus any arrearages in the payment of the Minimum Quarterly Distribution from prior quarters, before any distributions may be made on the Class B units
Nameplate capacity
 
Nameplate capacity for solar generation facilities represents the maximum generating capacity at standard test conditions of a facility (in direct current, "DC") multiplied by our percentage ownership of that facility (disregarding any equity interests held by any non-controlling member or lessor under any sale-leaseback financing or any non-controlling interests in a partnership). Nameplate capacity for wind power plants represents the manufacturer’s maximum nameplate generating capacity of each turbine (in alternating current, "AC") multiplied by the number of turbines at a facility multiplied by our percentage ownership of that facility (disregarding any equity interests held by any tax equity investor or lessor under any sale-leaseback financing or any non-controlling interests in a partnership).
PPA
 
As applicable, Power Purchase Agreement, energy hedge contract and/or REC or SREC contract
Projected FTM
 
Projected future twelve months
PTC
 
Production tax credit
QF
 
Qualifying small power production facility
REC
 
Renewable energy certificate or SREC
Renewable energy facilities
 
Solar generation facilities and wind power plants
SREC
 
Solar renewable energy certificate



Subordination Period
 
The period from July 23, 2014 until each of the following tests has been met, which will be a minimum three-year period ending no earlier than the beginning of the period for which a distribution is paid for the third quarter of 2017:
 
• distributions of CAFD on each of the outstanding Class A units, Class B units and Class B1 units equaled or exceeded $0.9028 per unit (the annualized Minimum Quarterly Distribution) for each of three non-overlapping, four-quarter periods immediately preceding that date;
 
• the CAFD generated during each of three non-overlapping, four-quarter periods immediately preceding that date equaled or exceeded the sum of $0.9028 per unit (the annualized Minimum Quarterly Distribution) on all of the outstanding Class A units, Class B units and Class B1 units during those periods on a fully diluted basis; and
 
• there are no arrearages in payment of the Minimum Quarterly Distribution on the Class A units or Class B1 units.




PART I

Item 1. Business.

Overview

TerraForm Power, Inc. ("TerraForm Power") and its subsidiaries (together with TerraForm Power, the "Company") is a dividend growth-oriented company formed to own and operate contracted clean power generation assets. The Company's business objective is to acquire assets with high-quality contracted cash flows, primarily from owning clean power generation assets serving utility and commercial customers. The Company's portfolio consists of renewable energy facilities located in the United States (including Puerto Rico), Canada, Chile and the United Kingdom with a combined nameplate capacity of 2,606.7 MW as of June 30, 2017.

TerraForm Power is a holding company and its sole asset is an equity interest in TerraForm Power, LLC, or "Terra LLC." TerraForm Power is the managing member of Terra LLC, and operates, controls and consolidates the business affairs of Terra LLC. Unless otherwise indicated or otherwise required by the context, references to "we," "our," "us," or the "Company" refer to TerraForm Power and its consolidated subsidiaries.

Our principal executive offices are located at 7550 Wisconsin Avenue, 9th Floor, Bethesda, Maryland 20814, and our telephone number is (240) 762-7700. Our website address is www.terraformpower.com.



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The diagram below is a summary depiction of our organizational structure as of June 30, 2017:

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—————
(1)
Both SunEdison, Inc. and SunEdison Holdings Corporation are debtors in the SunEdison Bankruptcy (as defined below). SunEdison’s economic interest is subject to certain limitations on distributions to holders of Class B units during the Subordination Period.
(2)
The economic interest of holders of Class A units, Class B units, and, in turn, holders of shares of Class A common stock, is subject to the right of holders of the incentive distribution rights, or "IDRs," to receive a portion of distributions after certain distribution thresholds are met. On January 22, 2016, 12,161,844 Class B shares held by SunEdison were converted to 12,161,844 Class A shares and were sold to unaffiliated third parties by SunEdison. After giving effect to the conversion, SunEdison, Inc. indirectly owns 48,202,310 Class B shares of the Company, holds 83.9% of the voting interest in the Company and owns 34.2% of the economic interests of Terra LLC. SunEdison Holdings Corporation ("Holdings"), which is a wholly owned and controlled subsidiary of SunEdison, Inc. owns its Class B common stock, Class B units and IDRs directly and indirectly through a wholly owned and controlled subsidiary, SunE ML 1, LLC, which is also a debtor in the SunEdison Bankruptcy.
(3)
IDRs represent a variable interest in distributions by Terra LLC and therefore cannot be expressed as a fixed percentage ownership interest in Terra LLC. All of our IDRs are currently issued to Holdings or its direct or indirect, wholly owned subsidiary, SunE ML 1, LLC.


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(4)
Represents total borrowing capacity as of June 30, 2017. As of June 30, 2017, there were $497.0 million of revolving loans and $60.9 million of letters of credit outstanding under the Revolver, with availability of $12.1 million as of such date.

Our Business Strategy

Our primary business strategy is to own and operate a portfolio of renewable energy assets and to pay cash dividends to our stockholders. We intend to grow our portfolio over time through acquisitions in order to increase the cash dividends we pay to our stockholders.

We have acquired a portfolio of long-term contracted clean power generation assets from SunEdison and unaffiliated third parties that have proven technologies, creditworthy counterparties, low operating risks and stable cash flows. We have focused on the solar and wind energy segments because we believe they are currently the fastest growing segments of the clean energy industry. Solar and wind assets are also attractive because there is no associated fuel cost risk, the technologies have become highly reliable and assets generally have an estimated expected life of 20 to 30 years.
    
On April 21, 2016, SunEdison Inc. and certain of its domestic and international subsidiaries (the "SunEdison Debtors") voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code (the "SunEdison Bankruptcy"). In anticipation of and in response to SunEdison’s financial and operating difficulties, which culminated in the SunEdison Bankruptcy, at the direction of our Board of Directors (the "Board"), we have undertaken, and continue to undertake, a number of strategic initiatives to mitigate the adverse impacts of the SunEdison Bankruptcy on the Company. These initiatives focused on governance, operations and business performance initiatives deemed especially critical because SunEdison provided all personnel and services to the Company (other than those operational services provided by third parties). These initiatives include, among other things, developing continuity plans, establishing stand-alone information technology, accounting and other systems and infrastructure, directly hiring employees and self-performing or retaining backup or replacement service providers for the operation and maintenance ("O&M") and asset management of our wind and solar facilities.

As part of this overall strategic review process, we also initiated a process for the exploration and evaluation of potential strategic alternatives for the Company, including potential transactions to secure a new sponsor or sell the Company. As more fully described below, on March 6, 2017, this process resulted in our entry into a definitive merger and sponsorship transaction agreement (the “Merger Agreement”) and agreements to enter into a suite of support and sponsorship arrangements (the "Sponsorship Transaction") with Brookfield Asset Management Inc. ("Brookfield") and certain of its affiliates and our entry into a settlement agreement (the “Settlement Agreement”) and a voting and support agreement (the “Voting and Support Agreement”) with SunEdison and the SunEdison Debtors.

We continue to focus on these strategic initiatives and other near-term plans and priorities in order to better position the Company to return to its focus on growing its solar and wind portfolio and to pay and increase the cash dividends it pays to its shareholders. These initiatives, plans and priorities include:

focusing on the performance and efficiency of our existing portfolio of renewable energy facilities;
focusing on satisfying conditions to the effectiveness of the Merger Agreement and the Settlement Agreement to effectuate the transactions contemplated by the Merger Agreement and the Sponsorship Transaction;
mitigating, to the extent possible, the adverse impacts resulting from the SunEdison Bankruptcy, including ensuring the continuity of operation, maintenance and asset management of our renewable energy facilities by self-performing those activities or engaging third party providers;
creating a separate stand-alone corporate organization, including, among other things, directly hiring employees and establishing our own accounting, information technology, human resources and other systems and infrastructure;
working with project-level lenders and financing parties to cure, or obtain waivers or forbearance of, defaults that have arisen under most of our project-level debt financings as a result of the SunEdison Bankruptcy and delays in delivering corporate and project-level audited financial statements, among other things; and
seeking to optimize our portfolio and capital structure by reducing corporate-level indebtedness, financing or refinancing certain renewable energy facilities at the project level, exiting certain markets or selling certain assets if we believe the opportunity would improve stockholder value.

While we remain focused on executing our near-term objectives, we also continue to pursue our long-term business strategy, which is to own, operate and grow our portfolio with assets that have proven technologies, creditworthy counterparties, lower operating risks and stable cash flows in markets with attractive long-term power pricing dynamics and predictable regulatory environments.


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Recent Developments

Business Update

As of June 30, 2017, our renewable energy generation fleet stands at 2,606.7 MW, over three times the size of our initial portfolio in July 2014. Our fleet is contracted for a weighted average (based on MW) remaining period of 14 years as of June 30, 2017 with creditworthy counterparties and provides significant ongoing cash flow.

Transition to Standalone Operations

We have been transitioning away from our historical reliance on SunEdison for management, corporate and accounting services, employees, systems and information technology infrastructure, and the operation, maintenance and asset management of our power plants. As part of this transition, as of January 1, 2017, certain employees of SunEdison who provided dedicated corporate-level services to the Company were hired directly by the Company. During the first half of 2017, we hired additional employees of SunEdison who are primarily dedicated to performing O&M, asset management and project-level accounting activities and entered into transition services agreements with SunEdison with respect to the transition of O&M and asset management services. However, we continue to depend on a substantial number of outside contractors and SunEdison employees, as well as accounting and other systems provided by SunEdison, for certain of our continuing operations. We continue to execute on the other aspects of our plan to implement a stand-alone organization and continue to evaluate our employee retention and incentive plans, as well.

Merger and Sponsorship Transaction    

On March 6, 2017, TerraForm Power entered into the Merger Agreement with Orion US Holdings 1 L.P., a Delaware limited partnership (“Orion Holdings”), and BRE TERP Holdings Inc., a Delaware corporation and a wholly-owned subsidiary of Orion Holdings (“Merger Sub”), which are affiliates of Brookfield. The Merger Agreement provides for the merger of Merger Sub with and into TerraForm Power (the “Merger”), with TerraForm Power as the surviving corporation in the Merger. Orion Holdings will hold approximately 51% of the Class A shares of TerraForm Power following consummation of the Merger. The Merger Agreement provides that, at or prior to the effective time of the Merger, TerraForm Power and Orion Holdings, Brookfield and certain of their affiliates will enter into the Sponsorship Transaction, a suite of agreements providing for the sponsorship arrangements of Brookfield and certain of its affiliates of the Company as described in greater detail below. 

The Merger Agreement was approved unanimously by the members of our Board voting on the matter, following the unanimous recommendation of our Corporate Governance and Conflicts Committee (“Conflicts Committee”). Completion of the Sponsorship Transaction is expected to occur, subject to satisfaction of closing conditions, in the second half of 2017.

Immediately prior to the effective time of the Merger, TerraForm Power will declare the payment of a special cash dividend (the “Special Dividend”) in the amount of $1.94 per fully diluted share, which includes the Company’s issued and outstanding Class A shares, Class A shares issued to SunEdison pursuant to the Settlement Agreement (more fully described below) and Class A shares underlying outstanding restricted stock units of the Company under the Company’s long-term incentive plan.

At the effective time of the Merger, each share of Class A common stock of TerraForm Power, issued and outstanding immediately prior to the effective time of the Merger (other than certain excluded shares) will be converted into the right to, at the holder’s election and subject to proration as described below, either (i) receive $9.52 per Class A share, in cash, without interest (the “Per Share Cash Consideration”) or (ii) retain one share of Class A common stock, par value $0.01 per share, of TerraForm Power (the “Per Share Stock Consideration,” and, together with the Per Share Cash Consideration, without duplication, the “Per Share Merger Consideration”). Issued and outstanding shares include shares issued in connection with the SunEdison Settlement Agreement as described more fully below and shares underlying outstanding restricted stock units of the Company under the Company's long-term incentive plan. The Per Share Stock Consideration will be subject to proration in the event that the aggregate number of Class A shares for which an election to receive the Per Share Stock Consideration has been made exceeds 49% of the TerraForm Power fully diluted share count (the “Maximum Stock Consideration Shares”). Additionally, the Per Share Cash Consideration will be subject to proration in the event that the aggregate number of Class A shares for which an election to receive the Per Share Cash Consideration has been made exceeds the TerraForm Power fully diluted share count minus (i) the Maximum Stock Consideration Shares, (ii) any Class A shares currently held by affiliates of Brookfield, and (iii) any shares for which the holders seek appraisal under Delaware law.



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Concurrently with the execution and delivery of the Merger Agreement, SunEdison executed and delivered the Voting and Support Agreement. Under that agreement, SunEdison agreed to vote or cause to be voted any shares of common stock of TerraForm Power held by it or any of its controlled affiliates in favor of the Merger and to take certain other actions to support the consummation of the Merger and the Sponsorship Transaction.

The Merger Agreement includes a non-waivable condition to closing that the Merger Agreement and the transactions contemplated thereby be approved by holders of a majority of the outstanding Class A shares, excluding SunEdison, Orion Holdings, any of their respective affiliates or any person with whom any of them has formed (and not terminated) a “group” (as such term is defined in the Securities Exchange Act of 1934, as amended). The closing of the Merger is also subject to certain additional conditions, including the adoption of the Merger Agreement by the holders of a majority of the total voting power of the outstanding common shares entitled to vote on the Merger and other customary closing conditions. Certain conditions to the closing of the Merger have been satisfied, including (1) the entry of an order by the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) authorizing and approving the entry by SunEdison (and, if applicable, SunEdison’s debtor affiliates) into the Settlement Agreement and the Voting and Support Agreement (each as described more fully below) and any other agreement entered into in connection with the Merger or the Sponsorship Transaction to which SunEdison or any other debtor will be a party, (2) the expiration or early termination of the waiting period applicable to consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (3) the closing of the sale of substantially all of our U.K. solar facilities as described below.

There is no financing condition to the consummation of the transactions contemplated by the Merger Agreement. Pursuant to the Merger Agreement, we have agreed to provide cooperation as reasonably requested by Orion Holdings in its efforts to obtain debt financing that is to be made available to us from and after the closing of the Merger. Certain lenders have committed, upon the terms and subject to the conditions set forth in debt commitment letters provided to Orion Holdings, to provide certain financing to repay, refinance, redeem, defease or otherwise repurchase certain Company indebtedness. Orion Holdings has also provided a guaranty, dated as of March 6, 2017, pursuant to which Brookfield Infrastructure Fund III-A (CR), L.P., a limited partnership organized under the laws of Delaware, Brookfield Infrastructure Fund III-A, L.P., a limited partnership organized under the laws of Delaware, Brookfield Infrastructure Fund III-B, L.P., a limited partnership organized under the laws of Delaware, Brookfield Infrastructure Fund III-D, L.P., a limited partnership organized under the laws of Delaware, and Brookfield Infrastructure Fund III-D (CR), L.P., a limited partnership organized under the laws of Delaware (collectively, the “Guarantors”) have guaranteed certain obligations of Orion Holdings under the Merger Agreement.

Orion Holdings and TerraForm Power have made customary representations and warranties in the Merger Agreement. We have also agreed to various agreements and covenants, including, subject to certain exceptions, to conduct our business in the ordinary course of business between execution of the Merger Agreement and closing of the Merger and not to engage in certain specified types of transactions during that period. In addition, we are subject to a “no change of recommendation” restriction and “no shop” restriction on our ability to solicit alternative business combination proposals from third parties and to provide information to, and engage in discussions with, third parties regarding alternative business combination transactions, except as permitted under the terms of the Merger Agreement. We may not terminate the Merger Agreement to accept an alternative business combination and are required to hold a shareholder vote on the Merger Agreement even if the Board withdraws its recommendation to vote in favor of the Merger. Orion Holdings has also made certain covenants in respect of the operation of the business of Brookfield and its affiliates in a manner that would not impair the ability of Brookfield and its affiliates to perform their sponsorship obligations under the Sponsorship Transaction from and after the effective time of the Merger.

The Merger Agreement contains specified termination rights, including the right for each of us or Orion Holdings to terminate the Merger Agreement if the Merger is not consummated by December 6, 2017, subject to extension until March 6, 2018 to obtain required regulatory approvals. The Merger Agreement also provides for other customary termination rights for both us and Orion Holdings, as well as a mutual termination right in the event that the Settlement Agreement is terminated in accordance with its terms. In the event the Merger Agreement is terminated by either us or Orion Holdings due to the failure to obtain the requisite stockholder approvals or the termination of the Settlement Agreement, and the Board did not change its recommendation to our stockholders to approve the Merger, we will pay to Orion Holdings all reasonable and documented out-of-pocket expenses incurred in connection with the Merger Agreement and the Sponsorship Transaction, in an amount not to exceed $17.0 million. The Merger Agreement further provides that upon termination of the Merger Agreement under certain other specified circumstances, we will be required to pay Orion Holdings a termination fee of $50.0 million. Our obligation to pay any combination of out-of-pocket expenses or termination fees shall not in any event exceed $50.0 million.

In addition, the Merger Agreement provides that, at or prior to the effective time of the Merger, we will enter into the following suite of documents that comprise the Sponsorship Transaction and that provides the basis of the arrangements under which Brookfield and certain of its affiliates will act as the new sponsor of the Company. These agreements include: (a) a


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master services agreement (the “Merger MSA”) by and among TerraForm Power, Terra LLC, Terra Operating LLC, Brookfield and certain affiliates of Brookfield (collectively, the “MSA Providers”) pursuant to which the MSA Providers will provide certain management services to TerraForm Power and its subsidiaries commencing at the effective time of the Merger, (b) a revolving credit line agreement, substantially consistent with the term sheet as agreed between Orion Holdings and TerraForm Power as of the date of the Merger Agreement, (the “Sponsor Line Agreement”) by and among TerraForm Power and Brookfield or its affiliates pursuant to which Brookfield or its affiliates will commit up to a $500 million secured revolving credit line to TerraForm Power for use to acquire renewable energy assets or for profit improving capital expenditures, (c) a relationship agreement (the “Relationship Agreement”) by and among TerraForm Power, Terra LLC, Terra Operating LLC and Brookfield, pursuant to which, among other things, Brookfield agrees that the Company will serve as the primary vehicle through which Brookfield and certain of its affiliates will own operating wind and solar assets in North America and certain other Western European nations and that Brookfield will provide, subject to certain terms and conditions, TerraForm Power and its subsidiaries with a right of first offer on certain operating wind and solar assets that are owned by Brookfield and certain of its affiliates and are located in those countries (the “ROFO Pipeline”) and (d) a registration rights agreement (the “Registration Rights Agreement”) by and among TerraForm Power and Orion Holdings providing Orion Holdings with registration rights with respect to its shares in TerraForm Power after the Merger (together with the IDR Transfer Agreement (as defined below), Merger MSA, Sponsor Line Agreement, Relationship Agreement and Registration Rights Agreement, collectively, the “New Sponsorship Agreements” and individually, each a “New Sponsorship Agreement”). 

As consideration for the services provided or arranged for by Brookfield and its affiliates pursuant to the master services agreement, the Company will pay a base management fee on a quarterly basis that will be paid in arrears and calculated as follows:

for each of the first four quarters following the closing date of the Merger, a fixed component of $2.5 million per quarter (subject to proration for the quarter including the closing date of the Merger) plus 0.3125% of the market capitalization value increase for such quarter;
for each of the next four quarters, a fixed component of $3.0 million per quarter plus 0.3125% of the market capitalization value increase for such quarter; and
thereafter, a fixed component of $3.75 million per quarter plus 0.3125% of the market capitalization value increase for such quarter.

For purposes of calculating the quarterly payment of the base management fee, the term market capitalization value increase means, for any quarter, the increase in value of the Company’s market capitalization for such quarter, calculated by multiplying the number of outstanding shares of Class A common stock as of the last trading day of such quarter by the difference between (x) the volume-weighted average trading price of a share of Class A common stock for the trading days in such quarter and (y) $9.52. If the difference between (x) and (y) in the market capitalization value increase calculation for a quarter is a negative number, then the market capitalization value increase is deemed to be zero.

Affiliates of Brookfield will hold the IDRs of Terra LLC. At the closing of the Merger, the limited liability company agreement of Terra LLC will be amended and restated to, among other things, reset the IDR thresholds of Terra LLC to establish a first distribution threshold of $0.93 per share of Class A common stock and a second distribution threshold of $1.05 per share of Class A common stock. As a result of this amendment and restatement, amounts distributed from Terra LLC would be distributed on a quarterly basis as follows:

first, to the Company in an amount equal to the Company’s outlays and expenses for such quarter;
second, to holders of Class A units, until an amount has been distributed to such holders of Class A units that would result, after taking account of all taxes payable by the Company in respect of the taxable income attributable to such distribution, in a distribution to holders of shares of Class A common stock of $0.93 per share (subject to adjustment for distributions, combinations or subdivisions of shares of Class A common stock) if such amount were distributed to all holders of shares of Class A common stock;
third, 15% to the holders of the IDRs and 85% to the holders of Class A units until a further amount has been distributed to holders of Class A units in such quarter that would result, after taking account of all taxes payable by the Company in respect of the taxable income attributable to such distribution, in a distribution to holders of shares of Class A common stock of an additional $0.12 per share (subject to adjustment for distributions, combinations or subdivisions of shares of Class A common stock) if such amount were distributed to all holders of shares of Class A common stock; and
thereafter, 75% to holders of Class A units and 25% to holders of the IDRs.

The Merger Agreement also requires TerraForm Power to issue to Orion Holdings additional Class A shares in respect of any losses to TerraForm Power arising out of certain specified litigation matters upon the final resolution of such matters.


13


Further, at the effective time of the Merger, the governing documents of TerraForm Power, including its by-laws and certificate of incorporation, will be amended and restated to be substantially consistent with the governance terms agreed to between Orion Holdings and TerraForm Power as of the date of the Merger Agreement.

Settlement Agreement and Voting and Support Agreement with SunEdison

As part of our strategic alternatives process, we entered into the Settlement Agreement and the Voting and Support Agreement with SunEdison on March 6, 2017 to resolve intercompany claims in connection with the SunEdison Bankruptcy, to obtain SunEdison's support of, and to facilitate the closing of, the Merger and the Sponsorship Transaction in light of SunEdison's controlling stake in the Company and to facilitate a complete transition away from SunEdison as our sponsor and as a provider of services to us. The Bankruptcy Court authorized and approved the entry by SunEdison (and its applicable debtor affiliates) into the Settlement Agreement and the Voting and Support Agreement on June 6, 2017. The mutual releases and certain other terms and conditions of the Settlement Agreement will become effective upon the consummation of the Merger or other transaction jointly supported by the Company and SunEdison and certain other conditions. Those provisions of the Settlement Agreement would also become effective upon a "Stand-Alone Conversion" as defined in the last paragraph of this section below.

Upon its effectiveness, the Settlement Agreement will resolve claims between TerraForm Power and SunEdison, including among other things, alleged claims of SunEdison against the Company for alleged fraudulent and preferential transfers and claims of the Company against SunEdison, including those outlined in the initial proof of claim filed by the Company in the SunEdison Bankruptcy on September 25, 2016 and on October 7, 2016. Under the Settlement Agreement, all such claims will be mutually released, and, subject to certain exceptions, any agreements between SunEdison Debtors and SunEdison parties to the Settlement Agreement on the one hand and the Company on the other hand will be rejected and no party will be deemed to have liability under those rejected agreements.

Under the Settlement Agreement, SunEdison will exchange, effective as of immediately prior to the record time for the Special Dividend, all of the Class B units of Terra LLC held by it or any of its controlled affiliates for 48,202,310 Class A shares of TerraForm Power (the “Exchange Shares” and the “Exchange,” as applicable). As a result of and following completion of the Exchange, all of the issued and outstanding shares of Class B common stock of TerraForm Power will be redeemed and retired. Immediately prior to the effective time of the Merger, TerraForm Power will also authorize and issue to SunEdison a number of additional Class A shares (the “Additional SunEdison Shares,” together with the Exchange Shares, the “SunEdison Shares”), such that, immediately prior to the effective time of the Merger, SunEdison will hold an aggregate number of Class A shares equal to 36.9% of TerraForm Power’s fully diluted share number. In addition, also as part of the settlement, SunEdison agreed to deliver the outstanding IDRs of Terra LLC held by SunEdison or certain of its affiliates to TerraForm Power or its designee and in connection therewith, concurrently with the execution and delivery of the Merger Agreement, TerraForm Power, Terra LLC, BRE Delaware, Inc. (the “Brookfield IDR Holder”) and SunEdison and certain of its affiliates have entered into an Incentive Distribution Rights Transfer Agreement (the “IDR Transfer Agreement”), pursuant to which certain SunEdison affiliates will transfer all of the IDRs to Brookfield IDR Holder at the effective time of the Merger on the terms and conditions set forth in the IDR Transfer Agreement. Our Board approved the Settlement Agreement upon the recommendation of the Conflicts Committee, each member of which is independent (pursuant to applicable NASDAQ rules) and does not also serve on the Board of Directors of TerraForm Global, Inc.

The Settlement Agreement would also become effective under certain circumstances if the Merger Agreement is terminated as a result of the failure to obtain the approval of the holders of a majority of the Class A common stock of TerraForm Power (as described above) and SunEdison elects to exchange its Class B units in Terra LLC and its Class B shares in TerraForm Power for newly issued Class A common stock constituting 36.9% of the aggregate issued and outstanding Class A common stock on a fully diluted basis (a “Stand-Alone Conversion”). In connection with a Stand-Alone Conversion, SunEdison would be required to deliver a customary voting agreement and an irrevocable proxy in customary form and substance reasonably acceptable to the Company and the holder of the Class A common stock issued to SunEdison, which may be SunEdison or a third party that receives the Class A common stock as part of a distribution in connection with SunEdison's plan of reorganization. This voting agreement would require the applicable stockholder, for a period of one year from the date of the Stand-Alone Conversion, to vote one-half of its voting power in the same proportion of the votes cast by stockholders not a party to a similar voting agreement, which would effectively reduce the voting power of the applicable stockholder.

Transition Services Agreements

In the first half of 2017, we entered into certain transition services agreements with SunEdison with respect to project-level operations and maintenance and asset management services provided by SunEdison. These transition services agreements allow the Company, among other things, to hire employees of SunEdison that are currently performing these project-level


14


services for the Company. These transition services agreements also allow the Company to terminate project-level asset management and operations and maintenance services on 10 days advance notice. Under these agreements, the Company agreed to indemnify SunEdison for certain losses and liabilities to the extent SunEdison failed to perform services under existing services contracts as a result of the transition of SunEdison employees to the Company. SunEdison will also continue to provide certain project related services for a transitional period. The Company is also in the process of negotiating a corporate-level transition services agreement with SunEdison. The Company expects that under this agreement, SunEdison would agree to continue to provide certain corporate-level services, including tax and information technology support services through the end of the third quarter of 2017. At this time, we cannot give firm assurances that we will enter into any such corporate-level transition services agreement with SunEdison.

Corporate Governance Changes

Resignation of Mr. David Springer from the Board

On December 20, 2016, Mr. David Springer resigned from his position as a director of the Board. The resignation was contingent upon, and effective immediately prior to, the election of Mr. David Pauker as a director of the Board. Mr. Springer’s resignation was not the result, in whole or in part, of any disagreement with the Company.

Election of Mr. David Pauker to the Board

On December 20, 2016, the Board voted to elect Mr. David Pauker to be a member of the Board effective immediately. We believe that Mr. Pauker qualifies as an independent director under applicable stock exchange rules. In connection with the election of Mr. Pauker to the Board, the Board consulted with various parties, including SunEdison, Inc., our controlling shareholder, which suggested Mr. Pauker as a board candidate.

Resignation of Mr. David Ringhofer from the Board

On February 12, 2017, Mr. David Ringhofer resigned from his position as a director of the Board. The resignation was contingent upon, and effective immediately prior to, the election of Mr. Christian S. Fong as a director of the Board. Mr. Ringhofer’s resignation was not the result, in whole or in part, of any disagreement with the Company.

Resignation of Mr. Gregory Scallen from the Board

On February 12, 2017, Mr. Gregory Scallen resigned from his position as a director of the Board. The resignation was contingent upon, and effective immediately prior to, the election of Mr. Christian S. Fong as a director of the Board. Mr. Scallen’s resignation was not the result, in whole or in part, of any disagreement with the Company.

Election of Mr. Christian S. Fong to the Board

On February 12, 2017, effective upon the resignations of Messrs. Ringhofer and Scallen from their positions as directors of the Board, Mr. Christian S. Fong became a member of the Board pursuant to a previous vote by the Board. We believe that Mr. Fong qualifies as an independent director under applicable stock exchange rules. In connection with the election of Mr. Fong to the Board, the Board consulted with various parties, including SunEdison, Inc., our controlling shareholder, which suggested Mr. Fong as a board candidate.

Reconstitution of the Conflicts Committee

On February 3, 2017, the Board appointed Ms. Kerri L. Fox and Messrs. Edward “Ned” Hall, Marc S. Rosenberg and David Pauker to the Conflicts Committee, effective immediately upon the resignation of Messrs. Christopher Compton, Hanif “Wally” Dahya and John F. Stark from the Conflicts Committee. Messrs. Compton, Dahya and Stark resigned from the Conflicts Committee on February 3, 2017. On February 26, 2017, Mr. Fong was appointed to the Conflicts Committee. As a result of these changes, the Conflicts Committee consists of five members, Ms. Fox and Messrs. Hall, Rosenberg, Pauker and Fong. Mr. Hall serves as the Chairperson of the Conflicts Committee.

Additionally, on February 3, 2017, the members of the Conflicts Committee of Terra LLC (the “LLC Conflicts Committee”) appointed Ms. Fox and Messrs. Hall, Rosenberg and Pauker to the LLC Conflicts Committee, effective immediately upon the resignation of Messrs. Compton, Dahya and Stark from the LLC Conflicts Committee. Messrs. Compton, Dahya and Stark resigned from the LLC Conflicts Committee on February 3, 2017. Mr. Fong was appointed to the LLC Conflicts Committee on February 27, 2017. As a result of these changes, the LLC Conflicts Committee consists of five


15


members, Ms. Fox and Messrs. Hall, Rosenberg, Pauker and Fong. Mr. Hall serves as the Chairperson of the LLC Conflicts Committee.

Creation of Compensation Committee

For purposes of the applicable stock exchange rules, the Company is a “controlled company.” As a controlled company, we rely upon certain exceptions, including with respect to establishing a compensation committee or nominating committee. While we remain able to rely upon such exceptions, on February 3, 2017, the Board created a Compensation Committee of the Board (the “Compensation Committee”) and appointed Messrs. Stark, Hall and Compton as its members. Mr. Stark serves as the Chairperson of the Compensation Committee.

The Compensation Committee is responsible for, among other matters: (i) reviewing and approving corporate goals and objectives relevant to the compensation of the Company’s Chief Executive Officer, (ii) determining, or recommending to the Board for determination, the Chief Executive Officer’s compensation level based on this evaluation, (iii) determining, or recommending to the Board for determination, the compensation of directors and all other executive officers, (iv) discharging the responsibility of the Board with respect to the Company’s incentive compensation plans and equity-based plans, (v) overseeing compliance with respect to compensation matters, (vi) reviewing and approving severance or similar termination payments to any current or former executive officer of the Company, and (vii) preparing an annual Compensation Committee Report, if required by applicable Securities and Exchange Commission ("SEC") rules.

Notification Letters from NASDAQ

NASDAQ Listing Rule 5620(a) (the "Annual Meeting Rule") requires the Company to hold an annual meeting of shareholders within twelve months of the end of our fiscal year. We did not hold an annual meeting during 2016, and therefore, we are not in compliance with the Annual Meeting Rule. On January 4, 2017, we received a notification letter from a Senior Director of NASDAQ Listing Qualifications, which stated that our failure to hold our annual meeting by December 31, 2016 serves as an additional basis for delisting the Company's securities and that the hearings panel will consider this matter in their decision regarding our continued listing on the NASDAQ Global Select Market. On January 11, 2017, we submitted a response requesting an extension to hold an annual meeting and regain compliance with the Annual Meeting Rule.

On March 6, 2017, we received a notification letter from a Director of NASDAQ Listing Qualifications informing us that because we had not yet filed this Form 10-K for the year ended December 31, 2016, the Company was not in compliance with NASDAQ Listing Rule 5250(c)(1), which requires timely filing of periodic reports with the SEC. The letter noted that on February 24, 2017, we filed our Form 10-Q for the period ended September 30, 2016, and as a result regained compliance with Listing Rule 5250(c)(1). The Notification Letter also noted that, per listing Rule 5815(c)(1)(F), the NASDAQ Hearings Panel may grant us an exception period not to exceed 360 days from the due date of the Form 10-K for the year ended December 31, 2016, or February 26, 2018. The notification letter had no immediate effect on the listing of our common stock on the NASDAQ Global Select Market.

On March 20, 2017, we received a notification letter from a Hearings Advisor from the NASDAQ Office of General Counsel informing us that the hearings panel granted us an extension until June 30, 2017 to regain compliance with NASDAQ’s continued listing requirements with respect to this Form 10-K for the year ended December 31, 2016, our Form 10-Q for the first quarter of 2017 and our delinquency in holding our annual meeting during the year ended December 31, 2016. On May 12, 2017, we received a notification letter from a Senior Director of NASDAQ Listing Qualifications stating that because we had not yet filed our Form 10-Q for the first quarter of 2017, this served as an additional basis for delisting the Company's securities from the NASDAQ Global Select Market.

On June 29, 2017, we received a notification letter from a Hearings Advisor from the NASDAQ Office of General Counsel informing us that the hearings panel granted us further extensions to regain compliance with NASDAQ's continued listing requirements. Under these extensions, the Company's Class A common stock will remain listed on the NASDAQ Global Select Market, subject to the requirement that this Form 10-K for the year ended December 31, 2016 be filed with the SEC by July 24, 2017, our annual meeting of stockholders be held by August 24, 2017, our Form 10-Q for the first quarter of 2017 be filed with the SEC by August 30, 2017 and our Form 10-Q for the second quarter of 2017 be filed with the SEC by September 30, 2017. The hearings panel also requested certain additional information, which the Company provided on July 10, 2017. The hearings panel reserved the right to reconsider the terms of the extension and the NASDAQ Listing and Hearing Review Council may determine to review the hearing panel's decision. This Form 10-K for the year ended December 31, 2016 was filed with the SEC prior to July 24, 2017. We have not yet held our annual meeting for 2016 or filed our Form 10-Q for the first quarter of 2017.



16


Delayed Filing of First Quarter 2017 Form 10-Q

Due mainly to the failure of SunEdison to provide adequate project-level accounting services to us subsequent to the SunEdison Bankruptcy and the time and resources required to complete our delayed SEC periodic reports, including our Form 10-K for the year ended December 31, 2015, our Forms 10-Q for the first, second and third quarters of 2016, and this Form 10-K for the year ended December 31, 2016, we have experienced delays in our ongoing efforts to complete all steps and tasks necessary to finalize financial statements and other disclosures required to be in our Form 10-Q for the first quarter of 2017 and were not able to file our report by the SEC filing deadline in May 2017. On May 11, 2017, we filed a Form 12b-25 Notification of Late Filing with the SEC with respect to our Form 10-Q for the first quarter of 2017. We continue to work to complete, as soon as practicable, all steps and tasks necessary to finalize our financial statements and other disclosures required to be included in our periodic filings with the SEC. There can be no assurance that our future periodic reports will not be delayed for similar reasons. Continued delays in the filing of our periodic reports with the SEC could have a material adverse effect on the Company. See "Continued delays in the filing of our reports with the SEC, as well as further delays in the preparation of audited financial statements at the project level, could have a material adverse effect," in Item 1A. Risk Factors for additional information, including certain of the risks associated with these delays.

Sale of substantially all of the Company's U.K. Portfolio

On May 11, 2017, we announced that Terra Operating LLC completed its previously announced sale of a portfolio of 24 operating solar projects    in the United Kingdom representing 365.0 MW (the "U.K. Portfolio") to Vortex Solar UK Limited, a renewable energy platform managed by the private equity arm of EFG Hermes, an investment bank. Terra Operating LLC received approximately $211 million of proceeds from the sale, net of transaction expenses and distributions taken from the U.K. Portfolio after announcement and before closing of the sale, which is expected to be used for the reduction of the Company's indebtedness. The sale also resulted in a reduction in the Company's non-recourse project debt by approximately GBP 301 million at the U.K. Portfolio level. We have retained 11.1 MW of solar assets in the United Kingdom.

Residential Portfolio Sale

We began exploring a sale of substantially all of our portfolio of residential rooftop solar assets located in the United States through a strategic sales process in 2016, and these assets were determined to meet the criteria to be classified as held for sale during the fourth quarter of 2016. Our analysis indicated that the carrying value of the assets exceeded the fair value less costs to sell, and as a result, an impairment charge of $15.7 million was recognized within impairment of renewable energy facilities in the consolidated statement of operations for the year ended December 31, 2016. We also recorded a $3.3 million charge within impairment of renewable energy facilities for the year ended December 31, 2016 due to the decision to abandon certain residential construction in progress assets that were not completed by SunEdison as a result of the SunEdison Bankruptcy.

On March 14, 2017, Enfinity SPV Holdings 2, LLC, a subsidiary of the Company, entered into a membership interest purchase and sale agreement with Greenbacker Residential Solar II, LLC for the sale of 100% of the membership interests of Enfinity Colorado DHA 1, LLC, a Colorado limited liability company that owns and operates 2.5 MW of solar installations situated on the roof of public housing units located in Colorado and owned by the Denver Housing Authority. We received net proceeds of $1.1 million upon the closing of this transaction on March 31, 2017. In addition, the Company entered into a membership interest purchase and sale agreement with Greenbacker Residential Solar II, LLC on June 12, 2017 for the sale of 100% of the membership interests of TerraForm Resi Solar Manager, LLC, a subsidiary of the Company, which owns and operates 8.9 MW of rooftop solar installations. The transaction closed on June 30, 2017; we received net proceeds of $5.4 million upon closing and expect to receive an additional $0.6 million in the third quarter of 2017.

Upsize to Canada project-level financing

On November 2, 2016, certain of our subsidiaries entered into a new non-recourse loan financing in an aggregate principal amount of $120.0 million Canadian dollars (“CAD”) (including a CAD $6.9 million letter of credit) secured by approximately 40 MW(ac) of utility scale solar power plants located in Canada that are owned by our subsidiaries. On February 28, 2017, we increased the principal amount of the credit facility by an additional CAD $113.9 million (including an additional CAD $6.7 million letter of credit), increasing the total facility to CAD $233.9 million. The proceeds of this additional financing are expected to be used for general corporate purposes and were used to pay down an additional $5.0 million on the Revolver per the terms of the consent agreement and ninth amendment to the Revolver entered into on September 27, 2016. The revolving commitments and borrowing capacity for the Revolver were also reduced by $5.0 million.



17


Revolver Amendments

The terms of the Revolver require the Company to provide audited annual financial statements within 90 days after the end of the fiscal year, with a 10-business day cure period. On April 5, 2017, we entered into a tenth amendment to the terms of the Revolver, which provided that the date on which we must deliver to the Administrative Agent and other parties to the Revolver our annual financial statements and accompanying audit report with respect to fiscal year 2016 and our financial plan for fiscal year 2017 would be extended to April 28, 2017.

On April 26, 2017, we entered into an eleventh amendment to the terms of the Revolver, which further extended the due date for delivery of our 2016 annual financial statements and accompanying audit report to the earlier of (a) July 15, 2017 and (b) the tenth business day prior to the date on which the failure to deliver such financial statements would constitute an event of default under our Indentures. As discussed below, an event of default would not have occurred under our Indentures until July 31, 2017. This Form 10-K for the year ended December 31, 2016 was filed within the 10-business day cure period that commenced on July 15, 2017, and consequently no event of default occurred under the Revolver with respect to this filing. The eleventh amendment also extended the due date for delivery to the Administrative Agent and other parties to the Revolver for our financial statements and accompanying information with respect to the fiscal quarter ended March 31, 2017 to July 31, 2017 and with respect to the fiscal quarters ending June 30, 2017 and September 30, 2017 to the date that is 75 days after the end of each such fiscal quarter, with a 10-business day cure period for each quarterly deliverable.

The eleventh amendment amends the Debt Service Coverage Ratio (as defined in the Revolver credit and guaranty agreement) applicable to the fourth quarter of 2016, and first, second and third quarters of 2017 from 1.75:1.00 to 1.50:1.00. The amendment also amends the Leverage Ratio (as defined therein) applicable to the fourth quarter of 2016 from 6.00:1.00 to 6.50:1.00 and applicable to the first, second and third quarters of 2017 from 5.75:1.00 to 6.50:1.00. In addition, the amendment amends the definitions of Debt Service Coverage Ratio and Leverage Ratio to provide for, in each case, certain pro forma treatment of the repayment or refinancing of Non-Recourse Project Indebtedness (as defined therein) net of any new Non-Recourse Project Indebtedness incurred in connection with any such refinancing. Per the terms of the eleventh amendment, we agreed to prepay $50.0 million of revolving loans outstanding under the Revolver and permanently reduce the revolving commitments and borrowing capacity by such amount. This amount was repaid on May 3, 2017. After giving effect to this reduction, the total borrowing capacity under the Revolver is now $570.0 million.

Senior Notes Default Notices

The Senior Notes due 2023 and the Senior Notes due 2025 require the Company to timely file with the SEC, or make publicly available, audited annual financial statements and unaudited quarterly financial statements no later than 60 days following the date required by the SEC's rules and regulations (including extensions thereof). The Company has a 90-day grace period from the date a notice of default is deemed to be duly given to Terra Operating LLC in accordance with the Senior Notes due 2023 and the Senior Notes due 2025. On May 2, 2017, Terra Operating LLC received a notice from the trustee of an event of default for failure to deliver 2016 audited annual financial statements and thus had until July 31, 2017 to deliver its 2016 audited financial statements before an event of default would occur under the Indentures. However, this Form 10-K for the year ended December 31, 2016 was filed with the SEC within the grace period for delivery, and consequently no event of default occurred with respect to this filing.

On July 11, 2017, Terra Operating LLC received a notice from the trustee of an event of default for failure to comply with its obligation to timely furnish the Company's Form 10-Q for the first quarter of 2017. However, an event of default will not occur under the Indentures with respect to the Form 10-Q for the first quarter of 2017 unless such Form 10-Q is not filed within the 90-day grace period that commenced on July 11, 2017.



18


Changes within Our Portfolio

The following table provides an overview of the changes within our portfolio from December 31, 2015 through December 31, 2016 and June 30, 2017:
 
 
 
 
 
 
Net Nameplate Capacity (MW)¹
 
 
 
Weighted Average Remaining Duration of PPA (Years)²
 
 
 
 
Facility Type
 
 
 Number of Sites
 
Description
 
Source
 
 
 
Total Portfolio as of December 31, 2015
 
 
 
 
 
2,966.9

 
3,054

 
16

Additions to the Blackhawk Solar portfolio
 
SunEdison
 
Solar
 
18.0

 
1

 
19

Additions to the SUNE XVIII portfolio
 
SunEdison
 
Solar
 
1.2

 
3

 
19

Additions to the MPI portfolio
 
Third Party
 
Solar
 
0.9

 
3

 
16

Resi 2015 Portfolio I terminations
 
SunEdison
 
Solar
 
(4.0
)
 
(560
)
 
N/A

Adjustment to Duke Operating sites3
 
N/A
 
Solar
 

 
2

 
N/A

Total Portfolio as of December 31, 2016
 
 
 
 
 
2,983.1

 
2,503

 
15

Sale of U.K. Utility Solar Portfolio
 
N/A
 
Solar
 
(208.4
)
 
(14
)
 
(13
)
Sale of Fairwinds & Crundale
 
N/A
 
Solar
 
(55.9
)
 
(2
)
 
(12
)
Sale of Stonehenge Q1
 
N/A
 
Solar
 
(41.2
)
 
(3
)
 
(12
)
Sale of Stonehenge Operating
 
N/A
 
Solar
 
(23.6
)
 
(3
)
 
(11
)
Sale of Says Court
 
N/A
 
Solar
 
(19.8
)
 
(1
)
 
(12
)
Sale of Crucis Farm
 
N/A
 
Solar
 
(16.1
)
 
(1
)
 
(12
)
Sale of Resi 2015 Portfolio I
 
N/A
 
Solar
 
(8.9
)
 
(1,246
)
 
(18
)
Sale within Resi 2014 Portfolio 1
 
N/A
 
Solar
 
(2.5
)
 
(666
)
 
(15
)
Total Portfolio as of June 30, 2017
 
 
 
 
 
2,606.7

 
567

 
14

——————
(1)
Net nameplate capacity represents the maximum generating capacity at standard test conditions of a facility multiplied by the Company's percentage of economic ownership of that facility after taking into account any redeemable preference shares and stockholder loans the Company holds. Our percentage of economic ownership is subject to change in future periods for certain facilities. Further note the total amount as of December 31, 2016 within the table above does not foot due to rounding.
(2)
Calculated as of December 31, 2015, December 31, 2016 and June 30, 2017, respectively.
(3)
Reflects an adjustment to number of sites.




19



Our Portfolio

Our current portfolio consists of renewable energy facilities located in the United States (including Puerto Rico), Canada, Chile and the United Kingdom with a combined nameplate capacity of 2,606.7 MW as of June 30, 2017. These renewable energy facilities generally have long-term PPAs with creditworthy counterparties. Our PPAs have a weighted average (based on MW) remaining life of 14 years as of June 30, 2017.

The following table lists the renewable energy facilities that comprise our portfolio as of June 30, 2017:
Facility Category / Portfolio
 
Location
 
Nameplate Capacity (MW)
 
Net Nameplate Capacity (MW)¹
 
Number of Sites
 
Weighted Average Remaining Duration of PPA (Years)²
 
Counterparty Credit Rating3
Solar Distributed Generation:
 
 
 
 
 
 
 
 
 
 
 
 
CD DG Portfolio
 
U.S.
 
77.8

 
77.8

 
42

 
16

 
 A- / A1
DG 2015 Portfolio 2
 
U.S.
 
48.1

 
48.1

 
30

 
19

 
 AA- / Aa2
U.S. Projects 2014
 
U.S.
 
45.4

 
45.4

 
41

 
17

 
 AA- / A1
DG 2014 Portfolio 1
 
U.S.
 
44.0

 
44.0

 
46

 
18

 
 AA- / Aa2
TEG
 
U.S.
 
33.8

 
32.0

 
56

 
13

 
 AA- / Aa2
HES
 
U.S.
 
25.2

 
25.2

 
67

 
12

 
 AA / Aa2
MA Solar
 
U.S.
 
21.1

 
21.1

 
4

 
24

 
 AA / Aaa
Summit Solar Projects
 
U.S.
 
19.6

 
19.6

 
50

 
10

 
 AA+ / Aa1
U.S. Projects 2009-2013
 
U.S.
 
15.2

 
15.2

 
73

 
13

 
 A / A1
SUNE XVIII
 
U.S.
 
16.1

 
16.1

 
21

 
19

 
 AAA / Aaa
California Public Institutions
 
U.S.
 
13.5

 
7.0

 
5

 
17

 
 AA- / Aa3
Enfinity
 
U.S.
 
13.2

 
13.2

 
15

 
15

 
 A- / A2
MA Operating
 
U.S.
 
12.2

 
12.2

 
4

 
16

 
 AA+ / Aa2
Duke Operating
 
U.S.
 
10.0

 
10.0

 
3

 
13

 
A- / A1
SunE Solar Fund X
 
U.S.
 
8.8

 
8.8

 
12

 
14

 
 AA+ / Aa1
Summit Solar Projects
 
Canada
 
3.8

 
3.8

 
7

 
15

 
 NR / Aa2
MPI
 
Canada
 
4.7

 
4.7

 
13

 
17

 
 NR / Aa2
Resi 2014 Portfolio 1
 
U.S.
 
0.3

 
0.3

 
34

 
14

 
 NR / NR
Total Solar Distributed Generation
 
412.8

 
404.5

 
523

 
16

 
 AA- / Aa3
 
 
 
 
 
 
 
 
 
 
 
 
 
Solar Utility:
 
 
 
 
 
 
 
 
 
 
 
 
Mt. Signal
 
U.S.
 
265.8

 
265.8

 
1

 
22

 
 A+ / Aa2
Regulus Solar
 
U.S.
 
81.6

 
81.6

 
1

 
17

 
 BBB+ / A3
Blackhawk Solar Portfolio
 
U.S.
 
72.8

 
72.8

 
10

 
20

 
 AA+ / Aa2
North Carolina Portfolio
 
U.S.
 
26.4

 
26.4

 
4

 
12

 
 A / Aa2
Atwell Island
 
U.S.
 
23.5

 
23.5

 
1

 
21

 
 BBB / A3
Nellis
 
U.S.
 
14.0

 
14.0

 
1

 
10

 
 NR / NR
Alamosa
 
U.S.
 
8.2

 
8.2

 
1

 
10

 
A- / A3
CalRENEW-1
 
U.S.
 
6.3

 
6.3

 
1

 
13

 
 BBB / A3
Northern Lights
 
Canada
 
25.4

 
25.4

 
2

 
16

 
 NR / Aa2
Marsh Hill
 
Canada
 
18.5

 
18.5

 
1

 
18

 
 NR / Aa2
SunE Perpetual Lindsay
 
Canada
 
15.5

 
15.5

 
1

 
17

 
 NR / Aa2
Norrington
 
U.K.
 
11.1

 
11.1

 
1

 
12

 
 A- / Baa1
CAP
 
Chile
 
101.6

 
101.6

 
1

 
17

 
 BB+ / NR
Total Solar Utility
 
 
 
670.7

 
670.7

 
26

 
19

 
 A / Aa3
 
 
 
 
 
 
 
 
 
 
 
 
 


20


Facility Category / Portfolio
 
Location
 
Nameplate Capacity (MW)
 
Net Nameplate Capacity (MW)¹
 
Number of Sites
 
Weighted Average Remaining Duration of PPA (Years)²
 
Counterparty Credit Rating3
Wind Utility:
 
 
 
 
 
 
 
 
 
 
 
 
South Plains I
 
U.S.
 
200.0

 
200.0

 
1

 
11

 
 BBB+ / A3
California Ridge
 
U.S.
 
217.1

 
195.6

 
1

 
15

 
 AA+ / Aaa
Bishop Hill
 
U.S.
 
211.4

 
190.5

 
1

 
15

 
 AA+ / Aaa
Rattlesnake
 
U.S.
 
207.2

 
186.7

 
1

 
11

 
 BBB+ / Baa1
Prairie Breeze
 
U.S.
 
200.6

 
180.7

 
1

 
22

 
 AA / Aa2
Cohocton
 
U.S.
 
125.0

 
125.0

 
1

 
3

 
 BBB+ / Baa1
Stetson I & II
 
U.S.
 
82.5

 
82.5

 
2

 
3

 
 BBB / Baa2
Rollins
 
U.S.
 
60.0

 
60.0

 
1

 
14

 
A- / A2
Mars Hill
 
U.S.
 
42.0

 
42.0

 
1

 
3

 
A+ / Aa2
Sheffield
 
U.S.
 
40.0

 
40.0

 
1

 
11

 
 A+ / NR
Bull Hill
 
U.S.
 
34.5

 
34.5

 
1

 
10

 
 A / A2
Kaheawa Wind Power I
 
U.S.
 
30.0

 
30.0

 
1

 
9

 
 BBB- / NR
Kahuku
 
U.S.
 
30.0

 
30.0

 
1

 
14

 
 BBB- / Baa2
Kaheawa Wind Power II
 
U.S.
 
21.0

 
21.0

 
1

 
15

 
 BBB- / NR
Steel Winds I & II
 
U.S.
 
35.0

 
35.0

 
2

 
3

 
 BBB+ / A3
Raleigh
 
Canada
 
78.0

 
78.0

 
1

 
14

 
 NR / Aa2
Total Wind Utility
 
 
 
1,614.3

 
1,531.5

 
18

 
12

 
 A / A1
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Renewable Energy Facilities
 
2,697.8

 
2,606.7

 
567

 
14

 
 A / Aa3
———
(1)
Net nameplate capacity represents the maximum generating capacity at standard test conditions of a facility multiplied by the Company's percentage of economic ownership of that facility after taking into account any redeemable preference shares and stockholder loans the Company holds. Our percentage of economic ownership is subject to change in future periods for certain facilities.
(2)
Calculated as of June 30, 2017.
(3)
Represents counterparty credit rating issued by S&P and/or Moody's as of May 16, 2017. The percentage of counterparties based on MW that are rated by S&P and/or Moody's for our utility-scale Blackhawk Solar Portfolio, which has multiple counterparties, is 42%. The percentage of counterparties based on MW that are rated by S&P and/or Moody's for our distributed generation portfolios with multiple counterparties is as follows:
CD DG Portfolio: 99%
DG 2014 Portfolio 1: 81%
DG 2015 Portfolio 2: 85%
Enfinity: 96%
HES: 78%
TEG: 84%
MA Solar: 72%
Summit Solar Projects (U.S.): 78%
SunE Solar Fund X: 78%
SUNE XVIII: 53%
U.S. Projects 2009-2013: 76%
U.S. Projects 2014: 94%



21


Call Right Projects

We entered into a project support agreement with SunEdison in connection with our IPO (the "Support Agreement"), which required SunEdison to offer us additional qualifying projects from its development pipeline that represented at least $175.0 million of cash available for distribution. In addition, we entered into an agreement with SunEdison in connection with the First Wind acquisition (the "Intercompany Agreement"), pursuant to which we were granted additional call rights with respect to certain projects in the First Wind pipeline.

Subject to the satisfaction of the conditions to the effectiveness of the Settlement Agreement, the Support Agreement and Intercompany Agreement will be rejected as part of the Settlement Agreement entered into with SunEdison without further liability, claims or damages on the part of the Company. At the closing of the Merger, however, we expect to enter into the Relationship Agreement with Brookfield pursuant to which Brookfield and its affiliates will provide the Company with a right of first offer on certain operating wind and solar assets that are owned by Brookfield and its affiliates and are located in North America and certain other Western European nations.

We believe we continue to maintain a call right over 0.5 GW (net) of interests in operating wind power plants that are owned by a warehouse vehicle that was owned and arranged by SunEdison (the "AP Warehouse"). We believe SunEdison has sold or is in the process of selling its equity interest in the AP Warehouse to an unaffiliated third party, and we are currently evaluating our alternatives with regard to these assets.

Seasonality and Resource Availability

The amount of electricity produced and revenues generated by our solar generation facilities is dependent in part on the amount of sunlight, or irradiation, where the assets are located. As shorter daylight hours in winter months results in less irradiation, the electricity generated by these facilities will vary depending on the season. Irradiation can also be variable at a particular location from period to period due to weather or other meteorological patterns, which can affect operating results. As the great majority of our solar power plants are located in the Northern hemisphere, our solar portfolio’s power generation will be at its lowest during the fourth quarter of each year. Therefore, we expect our fourth quarter solar revenue generation to be lower than other quarters.

Similarly, the electricity produced and revenues generated by our wind power plants depend heavily on wind conditions, which are variable and difficult to predict. Operating results for wind power plants vary significantly from period to period depending on the wind conditions during the periods in question. As our wind power plants are located in geographies with different profiles, there is some flattening of the seasonal variability associated with each individual wind power plant’s generation, and we expect that as the fleet expands the effect of such wind resource variability may be favorably impacted, although we cannot guarantee that we will purchase wind power facilities that will achieve such results in part or at all. Historically, our wind production is greater in the first and fourth quarters which can partially offset the lower solar revenue expected to be generated in the fourth quarter.

We do not expect seasonality to have a material effect on the amount of our quarterly dividends. Although we are currently deferring a decision on making dividend payments in the prudent conduct of our business, we intend to revert to a situation where we reserve a portion of our cash available for distribution and maintain sufficient liquidity, including cash on hand in order to, among other things, facilitate the payment of dividends to our stockholders.

Competition

Power generation is a capital-intensive business with numerous industry participants. We compete to acquire new renewable energy facilities with renewable energy developers who retain renewable energy asset ownership, independent power producers, financial investors and certain utilities. We compete to supply energy to our potential customers with utilities and other providers of distributed generation. We compete with other renewable energy developers, independent power producers and financial investors based on our cost of capital, development expertise, pipeline, global footprint and brand reputation. To the extent we re-contract renewable energy facilities upon termination of a PPA or sell electricity into the merchant power market, we compete with traditional utilities and other independent power producers primarily based on low cost of capital, generation located at customer sites, operations and management expertise, price (including predictability of price), green attributes (such as RECs and tax incentives) of renewable power, the ease by which customers can switch to electricity generated by our renewable energy facilities. In our merchant power sales, we also compete with other types of generation resources, including gas and coal-fired power plants.



22


Environmental Matters

We are subject to environmental laws and regulations in the jurisdictions in which we own and operate renewable energy facilities. These laws and regulations generally require that governmental permits and approvals be obtained and maintained both before construction and during operation of these renewable energy facilities. We incur costs in the ordinary course of business to comply with these laws, regulations and permit requirements. While we do not expect that the costs of compliance would generally have a material impact on our business, financial condition or results of operations, it is possible that as the size of our portfolio grows we may become subject to new or modified regulatory regimes that may impose unanticipated requirements on our business as a whole that were not anticipated with respect to any individual renewable energy facility. We also do not anticipate material capital expenditures for environmental compliance for our renewable energy facilities in the next several years. These laws and regulations frequently change and often become more stringent, or subject to more stringent interpretation or enforcement, and therefore future changes could require us to incur materially higher costs which could have a material negative impact on our financial performance or results of operations.

Regulatory Matters

All of the renewable energy facilities located in the United States that the Company owns are QFs as defined under the Public Utilities Regulatory Policies Act of 1978, as amended ("PURPA") or Exempt Wholesale Generators ("EWGs"). As a result, they are exempt from the books and records access provisions of the Public Utilities Holding Company Act of 2005, as amended ("PUHCA"), and most are exempt from state organizational and financial regulation of electric utilities. Depending upon the power production capacity of the renewable energy facility in question, our QFs and their immediate project company owners may be entitled to various exemptions from ratemaking and certain other regulatory provisions of the Federal Power Act, as amended ("FPA").

All of the renewable energy facility companies that we own outside of the United States are Foreign Utility Companies, as defined in PUHCA. They are exempt from state organizational and financial regulation of electric utilities and from most provisions of PUHCA and FPA.

The Company owns a number of renewable energy facilities in the United States with a net power production capacity greater than 20 MW (AC). Each project company that owns such a facility that is subject to the jurisdiction of the Federal Energy Regulatory Commission ("FERC"), under the FPA has obtained “market based rate authorization” and associated blanket authorizations and waivers, which allows it to sell electricity, capacity and ancillary services at wholesale or negotiated market based rates, instead of cost-of-service rates, as well as waivers of, and blanket authorizations under, certain FERC regulations that are commonly granted to market based rate sellers. FERC requires market based rate holders to make additional filings upon certain triggering events in order to maintain market based rate authority. The failure to make timely filings can result in suspension of market based rate authority, refunds of revenues previously collected and the imposition of civil penalties.

Under Section 203 of the FPA (“FPA Section 203”), prior authorization by FERC is generally required for any direct or indirect acquisition of control over, or merger or consolidation with, a “public utility” or in certain circumstances an “electric utility company,” as such terms are used for purposes of FPA Section 203. FERC generally presumes that the acquisition of direct or indirect voting power of 10% or more in an entity results in a change in control of such entity. Violation of FPA Section 203 can result in civil or criminal liability under the FPA, including civil penalties, and the possible imposition of other sanctions by FERC, including the potential voiding of an acquisition made without prior authorization under FPA Section 203. Depending upon the circumstances, liability for violation of FPA Section 203 may attach to a public utility, the parent holding company of a public utility or an electric utility company, or to an acquirer of the voting securities of such holding company or its public utility or electric utility company subsidiaries.

The Company’s renewable energy facilities are also subject to compliance with the mandatory Reliability Standards developed by the North American Electric Reliability Corporation ("NERC") and approved by FERC. In the United Kingdom, Canada and Chile, the Company is also generally subject to the regulations of the relevant energy regulatory agencies applicable to all producers of electricity under the relevant feed-in tariff or other governmental incentive (collectively "FIT") regulations (including the FIT rates); however it is generally not subject to regulation as a traditional public utility, i.e., regulation of our financial organization and rates other than FIT rates.

As the size of our portfolio grows, it may become subject to new or modified regulatory regimes that may impose unanticipated requirements on its business as a whole that were not anticipated with respect to any individual renewable energy facility. For example, the NERC rules approved by FERC impose fleetwide cyber security requirements regarding electronic and physical access to generating facilities in order to protect system reliability; such requirements expand in scope after the


23


point at which a single owner has more than 1,500 MW of reliability assets under its control in a single connection and expand again once the owner has more than 3,000 MW under construction. Such future changes in our regulatory status or the makeup of our fleet could require it to incur materially higher costs which could have a material adverse impact on its financial performance or results of operations.

Government Incentives

Each of the United States, Canada and Chile has established various incentives and financial mechanisms to reduce the cost of renewable energy and to accelerate the adoption of solar and wind energy. These incentives include tax credits, cash grants, favorable tax treatment and depreciation, rebates, RECs or green certificates, net energy metering programs and other incentives. These incentives help catalyze private sector investments in renewable energy and efficiency measures. Changes in the government incentives in each of these jurisdictions could have a material impact on our financial performance.

While we are currently subject to lighter regulation than a traditional utility under United States federal or state law and regulations or the laws and regulations of our foreign markets, we could become more highly regulated in the future.

As the owner of renewable energy facilities in the United States, each of which is either a QF or an EWG, we currently are subject to fewer federal and state standards, restrictions and regulatory requirements than would otherwise be applicable to United States utility companies. As our utility-scale business grows, certain facilities may no longer be eligible for exemption under PURPA from the rate-making or other provisions of the FPA, which would require increased compliance with public utility regulations. Similarly, although we are not currently subject to regulation as an electric utility in the foreign markets in which we provide our renewable energy services, our regulatory position in these markets could change in the future. Any local, state, federal or international regulations could place significant restrictions on our ability to operate our business and execute our business plan by prohibiting or otherwise restricting the sale of electricity by us. If we were deemed to be subject to the same state, federal or foreign regulatory authorities as traditional utility companies, or if new regulatory bodies were established to oversee the renewable energy industry in the United States or in our foreign markets, our operating costs could materially increase, adversely affecting our results of operations.

United States

Federal government support for renewable energy

The federal government provides an uncapped investment tax credit, or “Federal ITC,” that allows a taxpayer to claim a credit of 30% of qualified expenditures for a residential or commercial solar generation facility, for which construction begins by the end of 2019. This investment tax credit is currently scheduled to gradually be reduced to 10% for solar generation facilities commencing construction before December 31, 2022 with permanence thereafter. The U.S. Congress could reduce the ITC to below 30% prior to the end of 2019, reduce the ITC to below 10% for periods after 2022 or replace the expected 10% ITC with an untested production tax credit of an unknown amount. PTCs, which are federal income tax credits related to the quantity of renewable energy produced and sold during a taxable year, or ITCs in lieu of PTCs, are available only for wind power plants that began construction on or prior to December 31, 2019. The Wind PTC and ITC are extended to 2019 but reduced 20% in 2017, 40% in 2018 and 60% in 2019 before expiring in 2020. PTCs and accelerated tax depreciation benefits generated by operating renewable energy facilities can be monetized by entering into tax equity financing agreements with investors that can utilize the tax benefits, which have been a key financing tool for renewable energy facilities. The federal government also provides accelerated depreciation for eligible renewable energy facilities. Based on our portfolio of assets, we will benefit from Federal ITC, Federal PTC and an accelerated tax depreciation schedule, and we will rely on financing structures that monetize a substantial portion of these benefits and provide financing for our renewable energy facilities at the lowest cost of capital.

State government support for renewable energy
    
Many states offer a personal and/or corporate investment or production tax credit for renewable energy facilities, which is additive to the Federal ITC. Further, more than half of the states, and many local jurisdictions, have established property tax incentives for renewable energy facilities that include exemptions, exclusions, abatements and credits. Certain of our renewable energy facilities in the U.S. have been financed with a tax equity financing structure, whereby the tax equity investor is a member holding equity in the limited liability company that directly or indirectly owns the solar generation facility or wind power plant and receives the benefits of various tax credits.

Many state governments, utilities, municipal utilities and co-operative utilities offer a rebate or other cash incentive for the installation and operation of a renewable energy facility for energy efficiency measures. Capital costs or “up-front” rebates


24


provide funds to solar customers based on the cost, size or expected production of a customer’s renewable energy facility. Performance-based incentives provide cash payments to a system owner based on the energy generated by their renewable energy facility during a pre-determined period, and they are paid over that time period. Some states also have established FIT programs that are a type of performance-based incentive where the system owner-producer is paid a set rate for the electricity their system generates over a set period of time.

There are 41 states that have a regulatory policy known as net metering. Net metering typically allows our customers to interconnect their on-site solar generation facilities to the utility grid and offset their utility electricity purchases by receiving a bill credit at the utility’s retail rate for energy generated by their solar generation facility in excess of electric load that is exported to the grid. At the end of the billing period, the customer simply pays for the net energy used or receives a credit at the retail rate if more energy is produced than consumed. Some states require utilities to provide net metering to their customers until the total generating capacity of net metered systems exceeds a set percentage of the utilities’ aggregate customer peak demand.

Some of our solar generation facilities in Massachusetts participate in what is known as Virtual Net Metering. Virtual Net Metering in Massachusetts enables solar generation facilities to be sited remotely from the customer’s meter and still receive a credit against their monthly electricity bill. We bill the customer at a fixed rate or for a percentage of the credit they received which is derived from the G-1 electricity tariff. In addition, multiple customers may be designated as credit recipients from a renewable energy facility, provided they are all within the same Local Distribution Company service territory and load zone. The Virtual Net Metering structure provides a material electricity offtaker credit enhancement for our solar generation facilities by creating the ability to sell to hundreds of entities that are located remotely from the renewable energy facility location within the required area. The authority for Virtual Net Metering in Massachusetts was established by the Green Communities Act of 2008 and would require a change in law to repeal the program.

Many states also have adopted procurement requirements for renewable energy production. There are 29 states that have adopted a renewable portfolio standard ("RPS") that requires regulated utilities to procure a specified percentage of total electricity delivered to customers in the state from eligible renewable energy sources, such as solar and wind power generation facilities, by a specified date. To prove compliance with such mandates, utilities must procure and retire RECs. System owners often are able to sell RECs to utilities directly or in REC markets.

RPS programs and targets have been a key driver of the expansion of solar and wind power and will continue to drive solar and wind power installations in many areas of the United States. In addition to the 29 states with RPS programs, eight other states have non-binding goals supporting renewable energy.

Canada
 
Federal government support for renewable energy

While provincial governments have jurisdiction over their respective intra-provincial electricity markets, from 2007 to 2011 the Canadian federal government supported the development of renewable energy through its ecoENERGY for Renewable Power program, which resulted in a total of 104 renewable energy facilities qualifying for funds, and will represent cash incentives of approximately CAD 1.4 billion over 14 years. It also encouraged an aggregate of approximately 4,500 MW of new renewable energy generating capacity. The program is now fully subscribed, and the Canadian federal government has not signaled an intention to renew it.

Provincial government support for renewable energy

Provincial governments have been active in promoting renewable energy in general and solar power in particular through RPS as well as through requests for proposal ("RFPs") and FIT programs for renewable energy. Several provinces are currently preparing new RFPs for renewable energy. Current provincial targets for renewable energy in those provinces with stated targets are outlined below.

Ontario. In 2009, the Green Energy and Green Economy Act, 2009 was passed into law and the Ontario Power Authority (which was merged with and continued as the Independent Electricity System Operator or “IESO,” effective January 1, 2015) launched its FIT program, which offers stable prices under long-term contracts for electricity generation from renewable energy. In November 2010, the Ontario Ministry of Energy released the draft Supply Mix Directive and Long Term Energy Plan. Ontario, one of our markets, has been a leader in supporting the development of renewable energy through the Long Term Energy Plan, which calls for 10,700 MW of renewable energy generating capacity (excluding small-scale hydroelectricity power) by 2018. The Ontario Ministry of Energy is developing the next Long-Term Energy Plan which is


25


expected to be released in the summer of 2017. Ontario was also the first jurisdiction in North America to introduce a FIT program, which has resulted in contracts being executed for approximately 4,710 MW of electricity generating capacity as of March 31, 2017.

In April and July of 2012, the Ontario Ministry of Energy implemented version 2.0 of the FIT program, which, among other things, reduced contract prices for new solar generation facilities, limited the acceptance of applications to specific application windows, and prioritized projects based upon project type (community participation, Aboriginal participation, public infrastructure participation), municipal and Aboriginal support, project readiness and electricity system benefit. The revisions to the FIT program did not affect FIT contracts issued prior to October 31, 2011. Prices under the FIT program were reviewed annually, with prices established in November to take effect January 1 of the following year. Such price changes did not affect previously issued FIT contracts but, rather, only FIT contracts entered into subsequent to the price change. The revisions had the potential, however, to make renewable energy facility economics less attractive (because of the PPA price reduction) and by granting priority points or status to certain types of renewable energy facilities, to make it more difficult to obtain PPAs.

The FIT program was further renewed by the Ontario Ministry of Energy for FIT 3 (123.5 MW) awarded in the summer of 2014, FIT 3 Extension (100 MW) awarded in December 2014 and FIT 4 (241.4 MW) awarded in the summer of 2016. On April 5, 2016, the Ontario Ministry of Energy directed the IESO to commence a further renewal (FIT 5). The application period for the FIT 5 (150 MW) program closed on November 28, 2016, and FIT 5 contracts are expected to be offered in the third quarter of 2017. On December 16, 2016, the Ontario Ministry of Energy directed that the 2016 application period (FIT 5) shall be the final application period for the FIT program and directed the IESO to cease accepting applications under the FIT program by December 31, 2016. From 2014 through 2016, the FIT program was available for renewable energy facilities from 10 kW to 500 kW.

There is also a “microFIT” program for renewable energy facilities under 10 kW. On April 5, 2016, the Ontario Ministry of Energy directed the IESO to cease accepting applications under the microFIT program by December 31, 2017. The microFIT program is being transitioned to a net-metering program and on July 1, 2017, amendments to Ontario's net-metering regulation came into effect.

On June 12, 2013, December 16, 2013, March 31, 2014, and November 7, 2014, the Ontario Ministry of Energy directed the Ontario Power Authority (now the IESO) to develop a new competitive process for the procurement of renewable energy facilities larger than 500 kW. On March 10, 2015 (as amended on June 12, 2015 and July 31, 2015), IESO issued a Request for Proposals for Procurement of up to 565 MW of New Large Renewable Energy Projects, or “LRP I RFP”. The LRP I RFP process concluded in April 2016, with the execution of approximately 455 MW of new wind, solar and water power contracts. On July 29, 2016, the IESO issued a Request for Qualifications for further Large Renewable Procurement ("LRP II RFQ"). The LRP II RFQ process was cancelled by the IESO on September 27, 2016, as directed by the Ontario Ministry of Energy.

Other Provinces. Provincial support for renewable energy in other provinces includes the following objectives:

Alberta: To generate 30% of electricity from renewable sources by 2030. The Government of Alberta announced on March 24, 2017 that the first competition under Alberta's Renewable Electricity Program would open on March 31, 2017, seeing companies bidding to provide up to 400 MW of renewable energy. The Request for Proposal (RFP) stage of this first competition is expected to open on September 15, 2017.
British Columbia: To achieve energy self-sufficiency by 2016 with at least 93% of net electricity generation from clean or renewable sources.
New Brunswick: To meet 40% of provincial electricity demand with renewable sources by 2020.
Nova Scotia: To generate 25% and 40% of net electricity generation from new (post-2001) sources of renewable energy by 2015 and 2020, respectively.
Saskatchewan: To achieve 50% renewables-sourced electricity generation by Crown utility company, SaskPower, by 2030. As part of this objective, SaskPower is moving forward with its competitive process for the selection of energy producers for utility-scale solar (10 MW) and wind (200 MW) projects.

Chile
    
Chile currently has two major electricity grids, the Central Interconnected System (“SIC”) and the Greater Northern Interconnected System (“SING”). A project to inter-connect and unite the SIC and the SING, thus creating a single major electricity grid in the country, called the National Energy System (the "Sistema Eléctrico Nacional", or "SEN"), is currently under construction. According to recent reports, the interconnection is expected to be operational by 2018.


26



As of January 1, 2017, these two main grids (and afterwards the SEN) consolidated their system operations under a single independent system operator, the National Electric Coordinator ("Coordinador Eléctrico Nacional", or "CEN"). The CEN's main functions include ensuring a reliable, adequate supply of electricity into the system, directing the dispatch of generating facilities to assure an efficient, reliable and economic operations, monitoring market competition and payments in the system and reporting on the use of energy from renewable sources. The CEN is subject to the oversight by the National Energy Commission (the "Comisión Nacional de Energía", or "CNE").
              
In 2013, the Chilean government enacted law No. 20.698, which in turn amended law No. 20.257, the Non-Conventional Renewable Energy Law, which promotes the use of non-conventional renewable energy, or "NCRE," and defines the different types of technologies qualified as sources of NCRE as wind, solar, biomass, geothermal and small (<20MW) hydroelectric technology. The law requires that any load serving energy supplier must source a portion of the electricity from NCRE sources.

The current legislation requires that load serving energy suppliers who enter into contracts on or after July 1, 2013, must source at least 9% of their total supply from NCRE generation by 2017. That requirement increases by 1% annually, reaching 12% in 2020, with further increases to reach 20% in 2025. Suppliers can meet their NCRE requirements by developing their own NCRE generation capacity, purchasing from other market participants with excess NCRE credits, or paying the applicable fines for non-compliance.
 
The current penalty for non-compliance (at the current applicable exchange rate) is approximately US$28 per MWh of deficit with respect to such supplier's NCRE generation obligation, as certified as of March 1st of the following year. The penalty rate increases for the following three years to US$42 per MWh. Should the supplier comply for the following three years, the penalty rate would revert back to the base rate of US$28 per MWh.
 
On June 22, 2016, Law No. 20.928 was published, establishing a new “tariff parity” system. This system seeks to equalize tariff rates for residential customers both across the country, as well as within a supplier’s residential customer base. The Law and its terms are not yet in force, pending the issuance of the necessary enabling regulations.
    
Financial Information about Segments

The Company has two reportable segments: Solar and Wind. These segments comprise the Company's entire portfolio of renewable energy assets and are determined based on the management approach. This approach designates the internal reporting used by management for making decisions and assessing performance as the source of the reportable segments. The Company’s operating segments consist of Distributed Generation, North America Utility and International Utility that are aggregated into the Solar reportable segment and Northeast Wind, Central Wind, and Hawaii Wind that are aggregated into the Wind reportable segment. The operating segments have been aggregated as they have similar economic characteristics and meet all of the aggregation criteria. Corporate expenses include general and administrative expenses, acquisition costs, formation and offering related fees and expenses, interest expense on corporate-level indebtedness, stock-based compensation and depreciation, accretion and amortization expense. All net operating revenues for the years ended December 31, 2016, 2015 and 2014 were earned by the Company's reportable segments from external customers in the United States (including Puerto Rico), Canada, the United Kingdom and Chile.

Customer Concentration

For the year ended December 31, 2016, significant customers representing greater than 10% of total operating revenue were Tennessee Valley Authority and San Diego Gas & Electric, which accounted for 11.2% and 10.0%, respectively, of our consolidated operating revenues, net.

Employees

Historically, the Company has not had any employees. Through the end of 2016, the personnel that managed our operations (other than our Chairman and Interim Chief Executive Officer Peter Blackmore, our Chief Operating Officer, Tom Studebaker, and our Interim Chief Accounting Officer, David Rawden) were employees of SunEdison and their services were provided to the Company under the MSA or project-level asset management and O&M services agreements. In a number of cases, the personnel that have been providing services to us have in the past simultaneously provided services to SunEdison and/or TerraForm Global. Following the SunEdison Bankruptcy, as part of our efforts to create a stand-alone corporate organization, we have identified and established a retention program for key employees. As of January 1, 2017, the key employees that provide most of our corporate-level services were hired directly by the Company to ensure continuity of


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corporate operations. To date in 2017, we have also hired additional employees who previously were employed by SunEdison and provided services to us, including those focused on project-level operations. However, we continue to depend on a substantial number of outside contractors, including Messrs. Studebaker and Rawden who are employees of AlixPartners, LLP and whose services are provided pursuant to an engagement letter with an affiliate of AlixPartners, LLP, and SunEdison employees for certain of our continuing operations. As of June 30, 2017, the Company had 119 employees, the substantial majority of which were located in the United States.

Except for our Interim Chief Executive Officer, Peter Blackmore, our Executive Vice President and Chief Financial Officer, Rebecca Cranna, our Chief Operating Officer, Tom Studebaker, our Interim Chief Accounting Officer, David Rawden, and a limited number of other employees who continue to serve in the same functions for TerraForm Global for the time being, all other officers of the Company and substantially all of our non-officer personnel provide services exclusively to the Company. For more information regarding our executive officers also serving in the same roles for TerraForm Global, please refer to the risk factor entitled “We may have conflicts of interest with TerraForm Global,” within Item 1A. Risk Factors.
    
Geographic Information

The following table reflects operating revenues, net for the years ended December 31, 2016, 2015 and 2014 by geographic location:
 
 
Year Ended December 31,
(In thousands)
 
2016
 
2015
 
2014
United States (including Puerto Rico)
 
$
528,513

 
$
368,117

 
$
87,502

Chile
 
28,065

 
27,148

 
23,130

United Kingdom
 
51,600

 
55,542

 
15,890

Canada
 
46,378

 
18,699

 
634

Total operating revenues, net
 
$
654,556

 
$
469,506

 
$
127,156

    
Long-lived assets, net consist of renewable energy facilities and intangible assets as of December 31, 2016. As of December 31, 2015, this amount also included $55.9 million of goodwill, which was determined to be impaired during 2016 and fully written off. The following table is a summary of long-lived assets, net by geographic area:
(In thousands)
 
December 31, 2016
 
December 31, 2015
United States (including Puerto Rico)
 
$
5,524,136

 
$
5,876,846

Chile
 
175,204

 
181,756

United Kingdom
 
16,045

 
659,176

Canada
 
419,978

 
418,494

Total long-lived assets, net
 
6,135,363

 
7,136,272

Current assets
 
893,016

 
936,761

Other non-current assets1
 
677,486

 
144,376

Total assets
 
$
7,705,865

 
$
8,217,409

———
(1)
As of December 31, 2016, includes $532.7 million and $19.5 million of non-current assets held for sale located in the United Kingdom and United States, respectively.

Available Information

We make available free of charge through our website (http://www.terraformpower.com) the reports we file with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an internet site containing these reports and proxy and information statements at http://www.sec.gov. Any materials we file can be read and copied online at that site or at the SEC's Public Reference Room at 100 F Street, NE, Washington DC 20549, on official business days during the hours of 10:00 am and 3:00 pm. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.



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The following corporate governance documents are posted on our website at www.terraformpower.com:
The TerraForm Power, Inc. Corporate Governance Guidelines;
The TerraForm Power, Inc. Code of Business Conduct;
The TerraForm Power, Inc. Conflict of Interests Policy;
The TerraForm Power, Inc. Audit Committee Charter;
The TerraForm Power, Inc. Corporate Governance and Conflicts Committee Charter; and
The TerraForm Power, Inc. Compensation Committee Charter.
    
If you would like a printed copy of any of these corporate governance documents, please send your request to 7550 Wisconsin Avenue, 9th Floor, Bethesda, Maryland 20814.

The information on our website is not incorporated by reference into this annual report on Form 10-K.


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Item 1A. Risk Factors.

The following pages discuss the principal risks we face. These include, but are not limited to, risks arising from the bankruptcy of our controlling shareholder, SunEdison. Any of these risk factors could have a significant or material adverse effect on our businesses, results of operations, financial condition or liquidity. They could also cause significant fluctuations and volatility in the trading price of our securities. Readers should not consider any descriptions of these factors to be a complete set of all potential risks and uncertainties that could affect us. These factors should be considered carefully together with the other information contained in this annual report and the other reports and materials filed by us with the SEC. Furthermore, many of these risks are interrelated, and the occurrence of certain of them may in turn cause the emergence or exacerbate the effect of others. Such a combination could materially increase the severity of the impact of these risks on our businesses, results of operations, financial condition and liquidity.

Risks Related to our Proposed Sponsorship Transaction with Brookfield and Certain of its Affiliates

The proposed Sponsorship Transaction is subject to a number of conditions, which may not be satisfied on a timely basis or at all.

On March 6, 2017, we entered into the Merger Agreement with certain affiliates of Brookfield. There can be no assurance that our entry into the Merger Agreement will result in any transaction being consummated, and speculation and uncertainty regarding the outcome of the proposed sponsorship transaction may adversely impact our business. Our Board has determined that the Merger Agreement, the Sponsorship Transaction and the transactions contemplated thereby are fair to, and in the best interests of, the Company and its stockholders and will submit the Merger Agreement to our stockholders for their consideration and will recommend that our stockholders adopt and approve the Merger Agreement and that our stockholders approve an amendment to our charter to reflect certain governance rights of affiliates of Brookfield following the consummation of the merger and other transactions set forth in the Merger Agreement. Approval of the proposal to adopt and approve the Merger Agreement requires (i) the affirmative vote of holders of a majority of the total voting power of the outstanding shares of our Class A common stock and Class B common stock entitled to vote thereon and (ii) the affirmative vote of holders of a majority of the outstanding shares of our Class A common stock entitled to vote thereon (excluding SunEdison, Brookfield and their respective affiliates or any person with whom any of them has formed a group). SunEdison holds a majority of the total voting power of our outstanding shares and has entered into a Voting and Support Agreement pursuant to which it has agreed to vote its shares of our Class B common stock in favor of the Merger Agreement. However, there can be no assurance that the Merger Agreement will be approved by a majority of our stockholders excluding SunEdison, Brookfield and their respective affiliates or any person with whom any of them has formed a group. As described more fully under Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters and the risk factor entitled “Certain of our shareholders have accumulated large concentrations of holdings of our Class A shares below, certain of our stockholders hold large concentrations of our Class A common stock and may possess the ability to significantly impact the outcome of the requisite majority of the minority approval.

Concurrently with the execution and delivery of the Merger Agreement, SunEdison and the Company, along with certain of their respective subsidiaries, executed and delivered a Settlement Agreement, which, among other things, generally resolves claims, disputes and other issues arising from the historical sponsor relationship between the Company and SunEdison. On June 12, 2017, SunEdison submitted an amended disclosure statement pursuant to section 1125 of the Bankruptcy Code for purposes of soliciting votes to accept or reject a Joint Plan of SunEdison, Inc., et al. (the “Plan of Reorganization”). There is no assurance that the Plan of Reorganization will be approved by the requisite members of the bankruptcy estate of SunEdison or by the Bankruptcy Court. The Merger Agreement may be terminated at any time if the Settlement Agreement is terminated in accordance with its terms.

Completion of the Merger Agreement requires regulatory approvals from certain regulatory agencies, including approval by the Federal Energy Regulatory Commission and approval from certain state and foreign regulatory agencies. While the Company has begun the process of notifying agencies and obtaining approvals and is continuing to take actions to obtain the required regulatory approvals prior to closing or, as appropriate, to confirm that approvals will not be required prior to closing, there is no assurance that we will be able to obtain the requisite regulatory approvals. The waiting period applicable to the consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, has been terminated early.

In addition, certain of our stockholders may file litigation seeking to enjoin or delay the completion of the Merger Agreement. We may be required to expend significant resources, including legal fees and the time and attention of our executive officers and senior management, defending such litigation. The completion of the Merger Agreement may be delayed


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pending the resolution of any such litigation and an adverse ruling in any such lawsuit may prevent the Merger Agreement from being consummated.

We may not realize the expected benefits of the Sponsorship Transaction.

If the Sponsorship Transaction is consummated, the Company may not perform as we expect, or as the market expects, which could have an adverse effect on the price of our Class A common stock. Concurrently with the closing of the Merger Agreement, Brookfield and its affiliates will enter into various sponsorship obligations with respect to the Company, including the provision by Brookfield and its affiliates of strategic and investment management services pursuant to a Master Services Agreement, a pipeline of certain operating wind and solar assets located in North America and certain Western European nations to which the Company will have a right of first offer should Brookfield or its applicable affiliate decide to sell such asset (the ROFO Pipeline) under a Relationship Agreement with Brookfield and its affiliates and a $500 million secured revolving line of credit to TerraForm Power for acquisitions and permitted profit improving capital expenditures (the Sponsor Line Agreement). A wholly owned affiliate of Brookfield will also be given IDRs, a fixed and variable management fee, certain registration rights and certain governance rights to be reflected in amendments to our governing documents and the Terra LLC operating agreement, in addition to a governance agreement by and among the Company and affiliates of Brookfield.

There is no assurance that the projects in the ROFO Pipeline will be successfully acquired by the Company at attractive prices or at all. We do not have experience operating the particular projects in the ROFO Pipeline and we may experience difficulty integrating these projects into our fleet or successfully operating any projects we acquire from the ROFO Pipeline. The ROFO Pipeline is a right of first offer subject to the terms of the Relationship Agreement and is not a unilateral right to call or acquire an asset. Thus while the Company will not need to independently source the opportunity to acquire the assets in the ROFO Pipeline to the extent Brookfield and its affiliates elect to sell such assets, the Company may be required to compete with other third parties on price, terms or otherwise to acquire the assets in the ROFO Pipeline. In addition, we may not identify future acquisitions or be able to secure financing on attractive terms or at all for future acquisitions and we may not realize the expected benefits of the Sponsor Line. If the Sponsorship Transaction is consummated, Brookfield may not be able to maintain our current relationships with suppliers, lenders and other third parties. Brookfield lacks familiarity with our assets and may experience difficulty successfully managing our projects or replicating their previous management strategies. The foregoing risks may adversely affect our operational performance or limit our growth prospects, including our ability to grow our dividend per share.

The Merger Agreement contains provisions that limit the Company’s ability to pursue alternatives to the Sponsorship Transaction with Brookfield and its affiliates, which could discourage a third party from making a competing transaction proposal.

The Merger Agreement contains provisions that make it more difficult for us to sell our business to a party other than Brookfield and its affiliates during the period between signing and the closing of the Merger Agreement and might discourage competing offers for a higher price or premium. These provisions include the general prohibition on our soliciting any alternative acquisition proposal or offer for a competing transaction, the requirement that we pay a termination fee of $50.0 million if the Merger Agreement is terminated in specified circumstances and the requirement that we submit the Merger Agreement to a vote of the Company’s stockholders even if our Board changes its recommendation, subject to certain exceptions. Additionally, in certain circumstances if the Merger is not consummated, we may be required to reimburse Brookfield and its affiliates for up to $17.0 million of Brookfield and its affiliates' reasonable and documented expenses in connection with the Merger Agreement and the transactions contemplated thereby.

The pendency of the Sponsorship Transaction and related uncertainty could cause disruptions in our business, which could have an adverse effect on our business and financial results and the price of our Class A common stock.

We have important counterparties at every level of operations, including offtakers under our PPAs, corporate and project-level lenders and tax equity investors, suppliers and service providers. Uncertainty about the effect of the sponsorship with Brookfield may negatively affect our relationship with our counterparties due to concerns about the Brookfield sponsorship and its impact on our business. These concerns may cause counterparties to be more likely to reduce utilization of our services (or the provision of supplies or services) where the counterparty has flexibility in volume or duration or otherwise seek to change the terms on which they do business with us. These concerns may also cause our existing or potential new counterparties to be less likely to enter into new agreements or to demand more expensive or onerous terms, credit support, security or other conditions. Damage to our existing or potential future counterparty relationships may materially and adversely affect our business, financial condition and results of operations, including our growth strategy and the price of our Class A common stock.
    


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In addition, as a result of the announcement and pendency of the Brookfield sponsorship, current and prospective employees could experience uncertainty about their future with the Company. These uncertainties may impair our ability to retain, recruit or motivate key personnel, and may negatively impact the productivity of current employees.

The Merger Agreement contains provisions that limit our ability to take certain actions prior to the consummation of the Merger without the consent of Brookfield. These provisions include limitations on our ability to pursue strategic transactions, undertake project acquisitions and undertake certain significant financing transactions, even if such actions would prove beneficial. These limitations may materially and adversely affect our business, financial condition and results of operations and prevent us from taking advantage of otherwise beneficial opportunities.

Our executive officers and directors may have interests that are different from, or in addition to, those of our stockholders generally.

Our executive officers and directors may have interests in the Sponsorship Transaction that are different from, or are in addition to, those of our stockholders generally. These interests include direct or indirect ownership of our common stock and restricted stock units and for executive officers, change of control and severance agreements. In addition, certain of our directors and executive officers are also directors or executive officers of TerraForm Global, Inc., which has also entered into a merger agreement with affiliates of Brookfield.

The successful consummation of the Sponsorship Transaction may result in significant employee departures, including turnover of our executive officers and members of our senior management.

If the Sponsorship Transaction is consummated, we may experience departures of a significant number of employees as a result of actual or perceived uncertainty of our employees about their future with the Company, as a result of strategic operating decisions by Brookfield or other factors related to the completion of the Sponsorship Transaction. In addition, we expect to experience changes to our executive officers and senior management. The governance agreements to be entered into between the Company and Brookfield in connection with the Sponsorship Transaction provide Brookfield the ability to indirectly appoint our Chief Executive Officer, Chief Financial Officer and General Counsel, and Brookfield will directly set the compensation of these officers. There is no assurance that we will be able to retain the other core members of our senior management team following the completion of the Sponsorship Transaction.

If we consummate the Sponsorship Transaction, we will be a “controlled company,” controlled by Brookfield, whose interest in our business may be different from ours or other holders of our Class A common stock.

Following the completion of the Sponsorship Transaction, Brookfield and its affiliates will own an approximate 51% interest in the Company. The Merger Agreement and other agreements to be entered into in connection with the Sponsorship Transaction provide Brookfield and its affiliates with certain economic and management rights which are different from other holders of our Class A common stock. At the effective time of the merger, SunEdison will transfer certain IDRs currently held by SunEdison to an affiliate of Brookfield pursuant to an Incentive Distribution Rights Transfer Agreement, Terra LLC will enter into an amended and restated limited liability company agreement (the “New TERP LLC Agreement”) and Brookfield, the Company and certain of their respective affiliates will enter into a Master Services Agreement (the Merger MSA). Pursuant to the terms of the New TERP LLC Agreement, cash distributions from Terra LLC will be allocated between the holders of the Class A Units in Terra LLC and the holders of the IDRs according to a fixed formula. In addition, pursuant to the terms of the Merger MSA, Brookfield and its affiliates will be entitled to certain fixed and variable management fees for services performed for the Company. As a result of these economic rights, Brookfield and/or its affiliates may have interests in our business that are different from our interests or the interests of the other holders of our Class A common stock.

Brookfield and its affiliates currently own interests in, manage and control, and may in the future own or acquire interests in, manage and/or control, other yield focused publicly listed and private electric power businesses that own clean energy assets, primarily hydroelectric facilities and wind assets, and other public and private businesses that own and invest in other real property and infrastructure assets. Affiliates of Brookfield have also agreed to acquire a 100% interest in TerraForm Global, Inc. pursuant to a pending merger agreement. Brookfield and its affiliates, including the chief executive officer, chief financial officer and general counsel of the Company, who would be employees of Brookfield or its affiliates following the consummation of the Merger, may have conflicts or potential conflicts, including resulting from the operation by Brookfield and its affiliates of their other businesses, including their other yield focused electric power businesses, including with respect to project dropdowns, and Brookfield’s attention to and management of our business may be negatively affected by Brookfield and its affiliates' ownership and/or management of other power businesses and other public and private businesses that they own, control or manage.



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For so long as Brookfield or another entity controls greater than 50% of the total outstanding voting power of our common stock, we will be considered a “controlled company” for the purposes of the NASDAQ Global Select Market listing requirements. As a “controlled company,” we are permitted to opt out of the NASDAQ Global Select Market listing requirements that require (i) a majority of the members of our Board to be independent, (ii) that we establish a compensation committee and a nominating and governance committee, each comprised entirely of independent directors and (iii) an annual performance evaluation of the nominating and governance and compensation committees. Following the completion of the Sponsorship Transaction, we may rely on exceptions with respect to having a majority of independent directors, establishing a compensation committee or nominating committee and annual performance evaluations of such committees. Brookfield or its affiliates may sell part or all of its stake in the Company which could result in a loss of the “controlled company” exemption under the NASDAQ Global Select Market rules. We would then be required to comply with those provisions of the NASDAQ Global Select Market on which we currently or in the future may rely upon exemptions.

Following the Sponsorship Transaction, Brookfield and its affiliates will control the Company and have the ability to designate a majority of the members of the Company’s Board.

The governance agreements to be entered into between the Company and Brookfield and its affiliates in connection with the Sponsorship Transaction provide affiliates of Brookfield the ability to designate a majority of our Board to our Corporate Governance and Nominations Committee for nomination for election by our stockholders. Due to such agreements and Brookfield and its affiliates' approximate 51% interest in the Company, the ability of other holders of our Class A common stock to exercise control over the corporate governance of the Company will be limited. In addition, due to its approximate 51% interest in the Company, Brookfield and its affiliates will have a substantial influence on our affairs and its voting power will constitute a large percentage of any quorum of our stockholders voting on any matter requiring the approval of our stockholders. As discussed in the risk factor entitled “If we consummate the Sponsorship Transaction, we will be a “controlled company,” controlled by Brookfield and its affiliates, whose interest in our business may be different from ours or other holders of our Class A common stock above, Brookfield and its affiliates may hold certain interests that are different from ours or other holders of our Class A common stock and there is no assurance that Brookfield and its affiliates will exercise its control over the Company in a manner that is consistent with our interests or those of the other holders of our Class A common stock.

SunEdison may retain a large percentage of the shares of Class A common stock not owned by Brookfield and its affiliates and this ownership stake may cause SunEdison to have interests and incentives that are different than those of Brookfield or other holders of Class A Common stock.

In connection with the Sponsorship Transaction, SunEdison will convert its shares of our Class B common stock into shares of our Class A common stock on a one-to-one basis. In addition, immediately prior to the closing of the Merger, we will issue certain additional shares of our Class A common stock to SunEdison. Following these transactions, SunEdison may choose to retain a large percentage of the shares of our Class A common stock not owned by Brookfield and its affiliates. This concentration of ownership may reduce the liquidity of our Class A common stock and may also have the effect of delaying or preventing a future change in control of our company or discouraging others from making tender offers for our shares, which could depress the price per share a bidder might otherwise be willing to pay. Currently, however, through its plan of reorganization and a rights offering it is conducting in connection with its plan of reorganization, SunEdison is proposing to distribute or issue approximately 90% of the Class A common stock that SunEdison will hold following the closing of the Merger to its creditors. If SunEdison consummates its plan of reorganization and rights offering or otherwise liquidates a large number of shares of our Class A common stock, it may have the effect of reducing the trading price of our Class A common stock.

There can be no assurance that the Company will pay dividends or the amount of any dividends that are paid following a successful completion of the Sponsorship Transaction.

The amount of any dividends that are paid following a successful consummation of the Sponsorship Transaction is subject to a number of uncertainties, including the amount of cash available for distribution generated by our business. There can be no assurance that our business will perform as we expect, or as the market expects, following the consummation of the Sponsorship Transaction and the amount of dividends we pay, if any, may be limited by our performance and growth. The decision to pay any dividend, and the amount of any such dividend paid is subject to the discretion of our Board who may choose to limit the amount of any dividends paid following the successful consummation of the Sponsorship Transaction.

The Sponsorship Transaction would trigger “change in control” provisions under certain of the Company’s material contracts.



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The consummation of the Sponsorship Transaction would trigger a change in control under the terms of our Revolver. Such change in control constitutes an event of default under the Revolver and would entitle our Revolver lenders to accelerate the principle amount outstanding under the Revolver. The Company intends to pay down and terminate the Revolver concurrently with completing the Sponsorship Transaction through a refinancing transaction. However, there can be no assurance that the Company will be able to enter into a replacement credit facility or otherwise secure financing on equal or more favorable terms. Such inability could have a materially adverse effect on our liquidity and our growth strategy. There is no financing contingency or condition to the consummation of the transactions contemplated by the Merger Agreement.

The consummation of the Sponsorship Transaction would also trigger a change in control under our Indentures. The Indentures require the Company to make an offer to repurchase the Senior Notes issued under the Indentures at 101% of the applicable principal amount, plus accrued and unpaid interest and additional interest, if any, to the repurchase date following a change in control. Brookfield and its affiliates have secured a backstop financing facility that is available to be drawn by the Company subject to certain conditions in the event the Company makes this offer and noteholders elect to accept the offer. If a significant number of noteholders tender into the offer to repurchase at 101% of par, the Company would need to draw upon this backstop financing facility which would have a shorter maturity and more restrictive covenants than the Senior Notes issued under the Indentures, which could have a material adverse effect on the Company’s financial position, performance and operations.

Pursuant to the terms of our 2014 Second Amended and Restated Long-Term Incentive Plan and individual employee grant agreements, all of our outstanding restricted stock units (“RSUs”) will vest upon a change in control as defined in the plan. This immediate vesting could result in the turnover of key personnel following the consummation of the Sponsorship Transaction and could have a material adverse effect on the Company.

One of our PPAs and a limited number of our non-recourse debt and tax equity financing arrangements also include change in control provisions that would permit the counterparty to terminate the contract or accelerate maturity following the consummation of the Sponsorship Transaction. We are working to obtain consents or waivers from those counterparties to the applicable change of control provisions, however, there is no assurance those consents will be obtained.

There is no assurance we will be able to successfully negotiate a waiver to any such change in control provision.

Risks Related to a Failure to Consummate our Proposed Sponsorship Transaction with Brookfield and its affiliates. The following risk factors assume that we remain a stand-alone company except as otherwise noted:

Failure to consummate, or delays in consummating, the Merger and the Sponsorship Transaction with Brookfield and its affiliates could materially and adversely affect our business, results of operations and prospects and the price of the shares of our Class A common stock.

We believe that the current trading price of our Class A common stock reflects some amount of speculation regarding the probability of the closing of the Merger and the Sponsorship Transaction. The loss of the benefits or perceived benefits of the Sponsorship Transaction, including the loss of Brookfield as a sponsor and the right to receive the merger consideration payable to the holders of our Class A common stock at the consummation of the Merger and the Sponsorship Transaction could negatively impact the price of our Class A common stock. Likewise, potential returns on any investment in our common stock may also be limited until the closing or abandonment of the Merger and the Sponsorship Transaction.

If we are unable to successfully consummate the Merger and the Sponsorship Transaction, the Company would be forced to reevaluate its available strategic alternatives. Such reevaluation would likely result in a diversion of the Company’s resources to focus on that reevaluation, including legal fees, financial advisor fees and management’s time and attention.

Moreover, a failure to consummate the Sponsorship Transaction will result in the Company operating without a financially viable sponsor for, at a minimum, the length of time required to reevaluate our strategic alternatives. Our ability to successfully operate the Company without a financially viable sponsor is uncertain. Our business, including our growth strategy, has been substantially dependent on our sponsor, including our sponsor’s ability to obtain financing and generate sufficient cash to adequately fund its operations and on our sponsor’s ability to fund the construction and development of projects to be dropped down to the Company pursuant to certain contractual arrangements. The Company would likely face difficulties acquiring new projects during the pendency of a reevaluation of strategic alternatives or period of stand-alone operations and the Company’s management, and our Board may choose to prioritize stabilization of the Company’s operations and determination of strategic alternatives over pursuing growth opportunities. If we are unable to consummate the Merger and the Sponsorship Transaction, current and prospective employees may experience uncertainty about their future with the


34


Company. This uncertainty may impair our ability to retain, recruit or motivate key personnel, may negatively impact the productivity of current employees and may result in an increase in retention costs.

Depending on the circumstances surrounding a potential failure to consummate the Merger and the Sponsorship Transaction we may face increased exposure to litigation and attendant costs and we may be required to pay a termination fee of $50.0 million to Brookfield. Additionally, in certain circumstances if the Merger is not consummated, we may be required to reimburse Brookfield for up to $17.0 million of Brookfield’s reasonable and documented expenses in connection with the Merger Agreement and the transactions contemplated thereby.

If we fail to consummate the Merger and the Sponsorship Transaction with Brookfield and its affiliates, the Settlement Agreement entered into with SunEdison and certain of its affiliates in the Chapter 11 Bankruptcy Case of SunEdison may be terminated.

Concurrently with the execution and delivery of the Merger Agreement, SunEdison and the Company, along with certain of their respective subsidiaries, executed and delivered a Settlement Agreement, which, among other things, generally resolves claims, disputes and other issues arising from the historical sponsor relationship between the Company and SunEdison. If the Merger Agreement is terminated, the Settlement Agreement may also be terminated by either party thereto. The Settlement Agreement provides for the resolution of the intercompany claims and defenses between the Company and SunEdison in connection with the SunEdison Bankruptcy in exchange for, among other things, a set allocation of the proceeds of the Merger being provided to SunEdison. In the event the Settlement Agreement is terminated, there is no guarantee that the Company will be able to enter into a comparable transaction or that the Company would be able to negotiate settlement terms with equal or more favorable terms than those contained in the Settlement Agreement.
    
Moreover, we believe that the resolution of the intercompany claims and defenses is a necessary prerequisite to the execution of any strategic alternative with a third party. The termination of the Settlement Agreement could negatively impact the Company’s ability to engage in a change of control transaction with an alternative third party due to the uncertainty regarding the resolution of the intercompany claims and defenses in connection with the SunEdison Bankruptcy.

In the event that the Settlement Agreement is terminated, the Company would be forced to continue to litigate its claims and defenses in the SunEdison Bankruptcy case or renegotiate the terms of an alternative settlement agreement with SunEdison. Either option is likely to result in a drain on the Company’s resources, including significant litigation costs and management’s time and attention. Among the claims currently resolved by the Settlement Agreement which the Company would be forced to defend are certain avoidance actions seeking to recapture payments or transfers of value made by SunEdison to the Company prior to SunEdison’s bankruptcy filing. SunEdison's unsecured creditors committee asserted in their original objection to the Settlement Agreement that in connection with the Company's IPO, “the Company received completed energy projects, services and payments worth hundreds of millions, if not billions, of dollars, for which the Debtors did not receive reasonably equivalent value in exchange." The Company disagrees with the unsecured creditor committee's assertions regarding potential avoidance claims. The Company would not consider settling these potential avoidance claims alone and has not recorded a loss related to such claims. However, in the event of an unfavorable determination with respect to such claims, the Company could be forced to pay significant amounts to the SunEdison estate. If the Settlement Agreement is terminated, we will continue to be subject to certain risks associated with SunEdison as described more fully under “Risks Related to our Relationship with SunEdison and the SunEdison Bankruptcy” below.

If we fail to consummate the Merger, there is no guarantee that SunEdison will be able to successfully exit its Chapter 11 Bankruptcy case or that SunEdison’s interests in the Company, including its shares of our Class B common stock and Class B units in Terra LLC, will be disposed of in a way that is favorable to the holders of the Company’s Class A common stock.

SunEdison’s proposed Plan of Reorganization in the SunEdison Bankruptcy case is predicated on the successful consummation of the Merger. If we fail to consummate the Merger, the Plan of Reorganization will not be successful and there is no guarantee that SunEdison will be able to successfully exit its Chapter 11 Bankruptcy case. In such an event, SunEdison’s current Chapter 11 reorganization may be converted into a Chapter 7 liquidation. We continue to utilize SunEdison for certain business and operational services and, as such, a liquidation of SunEdison may have a material adverse effect on our business, results of operations and financial condition. In addition, if the Settlement Agreement is terminated and the Plan of Reorganization is not successfully implemented, SunEdison may seek Bankruptcy Court approval to transfer its shares of our Class B common stock and Class B units in Terra LLC without converting them into shares of our Class A common stock and without seeking our approval. Such a disposition may be less favorable to our holders of Class A common stock than the Merger and the Sponsorship Transaction.



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Risks Related to our Relationship with SunEdison and the SunEdison Bankruptcy

We are transitioning away from our historical dependence on SunEdison for important corporate, project and other services, which involves management challenges and poses risks that may materially adversely affect our business, results of operations and financial condition.

Since the SunEdison Bankruptcy, we have been engaged in efforts to transition away from our historical dependence on SunEdison for corporate, project and other services, including providing for critical systems and information technology infrastructure, by seeking to identify alternative service providers and to establish and manage new relationships, as well as develop our own capabilities and resources in these areas. These efforts include creating a separate stand-alone corporate organization, including, among other things, directly hiring employees and establishing our own accounting, information technology, human resources and other systems and infrastructure, and also include transitioning the project-level O&M and asset management services in-house or to third party service providers. However, our efforts in this regard, although designed to mitigate risks posed by the SunEdison Bankruptcy, involve a number of new risks and challenges that may materially adversely affect our business, results of operations and financial condition.

We may be unable to replicate the corporate and project-level services provided by SunEdison, either through outsourcing or performing those services ourselves on terms or at costs similar to those provided by SunEdison or at all. The fees of substitute service providers or the costs of performing all or a portion of the services ourselves are likely to be substantially more than the fees that we would pay under the MSA, which are equal to 2.5% of the Company’s cash available for distribution to shareholders in 2016 and 2017 (not to exceed $7.0 million in 2016 or $9.0 million in 2017). In addition, in light of SunEdison’s familiarity with our assets, a substitute service provider may not be able to provide the same level of service. We also continue to depend on a substantial number of outside contractors for accounting services and the costs for these services are substantially greater than those we would incur if we directly hired employees to perform the same services.

We may also be unable to perform the services ourselves, through hiring employees and migrating or establishing separate information technology systems. Implementing any changes in connection with such transition may take longer than we expect, cost more than we expect, and divert management’s attention from other aspects of our business. We may also incur substantial legal and compliance costs in many of the jurisdictions where we operate. In addition, as we have limited experience in developing our own capabilities and resources, there is no assurance that we would ultimately be successful in our efforts in each of these areas, if at all, which could result in delays or disruptions in our business and operations.

The SunEdison Bankruptcy could result in a material adverse effect on many of our projects because SunEdison is a party to a material project agreement or a guarantor thereof, or because SunEdison was the original owner of the project.

In most of our debt-financed projects, a SunEdison Debtor is a party to one or more material project agreements, including asset management or O&M agreements in its capacity as our O&M provider or asset manager, or is a guarantor of the obligations of those service providers or has provided other guarantees for the benefit of the projects and/or our financing parties. Many of our project-debt financing agreements contain covenants or defaults relating to such agreements or guarantees. As a result, the SunEdison Bankruptcy has resulted in defaults under many of our project-debt financing agreements, which are generally curable. During the course of 2016 and to date in 2017, we have obtained waivers or temporary forbearances with respect to most of these defaults and have transitioned, or are working to transition, the project-level services provided by SunEdison Debtors to third parties or in-house to a Company affiliate; however, certain of these defaults persist and no assurance can be given that any remaining waivers and/or forbearance agreements will be obtained. Similarly, in most of our tax equity-financed projects, a SunEdison Debtor is a party to one or more material project agreements, including asset management or O&M contract agreements, or provides guarantees of those project agreements or has provided other guarantees for the benefit of the projects and/or our financing parties. Many of our tax equity financed project agreements contain provisions related to, or that could be impacted by, such agreements. As a result, the SunEdison Bankruptcy could result in adverse consequences to us under many of our tax equity-financed projects. Several of our tax-equity projects are structured as master lease arrangements, under which the SunEdison Bankruptcy may trigger termination rights of the applicable tax investors.

Such defaults in our debt-financed projects and adverse consequences to us in tax equity-financed projects, if not cured or waived, may restrict the ability of the project-level subsidiaries to make distributions to us. These defaults may also entitle the related lenders to demand repayment, or enforce their security interests, which could have a material adverse effect on our business, results of operations and financial condition. These defaults may also permit the financing parties in our master lease arrangements to terminate the applicable leases, seek damages for contractual breaches or sweep or net project cash flows to the extent of any damages they may have incurred. If we are unable to make distributions from our project-level


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subsidiaries, it would likely have a material adverse effect on our ability to meet corporate-level debt service obligations, as well as pay dividends to holders of our Class A common stock.

To date, we have not identified any significant PPAs that include a provision that would directly permit the offtake counterparty to terminate the agreement due to the event of the SunEdison Bankruptcy. However, to date we have identified one PPA that contains an event of default that can be triggered if the related project-level credit agreement is accelerated. This project-level credit agreement is currently in default because of our failure to deliver project-level audited financial statements for 2016 but is still within the contractual grace period for failure to deliver which extends to the end of July 2017. This project is expected to provide approximately $8.0 million of project-level cash available for distribution for 2017. We are working to obtain waivers or forbearance agreements from the project-level lenders with respect to this project that would avoid triggering this default under the PPA. Given the importance of maintaining PPAs, we believe our lenders for this project will likely be incentivized to take steps to avoid defaults under the PPA if we fail to cure the default, but we cannot assure that result.

Historically, SunEdison has provided asset management services and O&M services under project-level asset management and O&M agreements. We are in the process of transitioning away from SunEdison as our asset manager and O&M provider. We manage certain of our projects ourselves and, in some instances, we outsource our asset management and/or O&M functions. We may not be able to adequately perform on the projects that we manage in house or secure third-party service providers which may lead to defaults under the terms of project-level debt contracts, hedging agreements, and tax equity agreements, as well as adverse consequences for our unlevered projects. An inability to successfully manage these projects or secure third-party service providers, and the resulting defaults and other consequences, or managing them at an excessively burdensome cost, could have a material adverse effect on our business, results of operations and financial condition.

SunEdison was the construction contractor or module supplier for many of our projects, and it is unlikely that we will be able to recover on any claims under those contracts or related warranties.

SunEdison served as the prime construction contractor pursuant to engineering, procurement and construction contracts with our subsidiaries for most of our renewable energy facilities acquired from SunEdison. These contracts are generally fixed price, turn-key construction contracts that include workmanship and other warranties with respect to the design and construction of the facilities that survive for a period of time after the completion of construction. These contracts or related contracts (including O&M agreements) also often include production or availability guarantees with respect to the output or availability of the facility that survive completion of construction. Moreover, we also generally obtained solar module warranties from SunEdison, including module workmanship warranties and output guarantees, for those solar facilities that we acquired from SunEdison that utilized SunEdison modules. Because of these relationships, we have existing warranty or contract claims and will likely in the future have such claims. The Settlement Agreement would eliminate our recoveries on claims under these agreements and warranties.

SunEdison is a party to important agreements at the corporate and project levels, which may be adversely affected by the SunEdison Bankruptcy and terminated pursuant to the Settlement Agreement.

As detailed in other risk factors under “Risks Related to our Relationship with SunEdison and the SunEdison Bankruptcy,” we had a number of important agreements with SunEdison at the corporate and project levels and for acquisitions, including the sponsorship arrangement. For instance, SunEdison has cash payment obligations to us under the Amended Interest Payment Agreement, which were expected to be an additional $8.0 million in 2016 ($8.0 million was paid in the first quarter of 2016) and $16.0 million in 2017 and in conjunction with the First Wind acquisition had committed to reimburse the Company for capital expenditures and operations and maintenance and labor fees in excess of budgeted amount (not to exceed $53.9 million through 2019) for certain of its wind power plants. The Settlement Agreement would provide for the termination of these agreements. Although we did not expect SunEdison to perform under these agreements going forward, the Settlement Agreement will result in the settlement of our intercompany claims against SunEdison in connection with such agreements.

Our audited financial statements for the year ended December 31, 2016 include a going concern explanatory note because of the risk that our assets and liabilities could be consolidated with those of SunEdison in the SunEdison Bankruptcy, in addition to risks related to project-level defaults.

We believe that we have observed formalities and operating procedures to maintain our separate existence from SunEdison, that our assets and liabilities can be readily identified as distinct from those of SunEdison and that we do not rely substantially on SunEdison for funding or liquidity and will have sufficient liquidity to support our ongoing operations. Our initiatives with respect to the SunEdison Bankruptcy have included and will include, among other things, establishing stand-alone information technology, accounting and other systems and infrastructure, establishing separate human resources systems


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and employee retention efforts, seeking proposals for backup O&M and asset management services for our power plants from other providers and the pursuit of strategic alternatives.

However, there is a risk that an interested party in the SunEdison Bankruptcy could request that the assets and liabilities of the Company be substantively consolidated with SunEdison and that the Company and/or its assets and liabilities be included in the SunEdison Bankruptcy. Substantive consolidation is an equitable remedy in bankruptcy that results in the pooling of assets and liabilities of the debtor and one or more of its affiliates solely for purposes of the bankruptcy case, including for purposes of distributions to creditors and voting on and treatment under a reorganization plan. While it has not been requested to date and we believe there is no basis for substantive consolidation in our circumstances, we cannot provide assurance that substantive consolidation will not be requested in the future or that the bankruptcy court would not consider it.

To the extent the bankruptcy court were to determine that substantive consolidation was appropriate under the facts and circumstances, then the assets and liabilities of any entity that was subject to the substantive consolidation order could be available to help satisfy the debt or contractual obligations of other entities. Bankruptcy courts have broad equitable powers, and as a result, outcomes in bankruptcy proceedings are inherently difficult to predict. Due to the significant liabilities of SunEdison, substantive consolidation of the Company with SunEdison and inclusion in the SunEdison Bankruptcy would impede our ability to satisfy our liabilities in the normal course of business and otherwise restrict our operations and capacity to function as a standalone enterprise. As a result of the foregoing and the risks related to project-level defaults (as discussed in separate risks within this section), our financial statements for the year ended December 31, 2016 and the related audit report include an explanatory note regarding the Company’s ability to continue as a going concern.

We have expended and may continue to expend significant resources in connection with the SunEdison Bankruptcy.

We have expended significant resources on contingency planning and other matters resulting from the SunEdison Bankruptcy. Our additional expenses include legal fees, consultant and financial advisor fees and related expenses, and it is likely that such expenses will continue during the duration of the SunEdison Bankruptcy even following our entry into the Settlement Agreement. We have also dedicated, and anticipate that we will continue to dedicate, significant internal resources and management time to contingency planning and to addressing the consequences of the SunEdison Bankruptcy. This could reduce the internal time and resources available for other areas of our business and substantially increase our operating expenses.

The SunEdison Bankruptcy has subjected us to increased litigation risk, including claims seeking to avoid payments SunEdison made to us or transactions that we consummated with SunEdison in the period prior to the SunEdison Bankruptcy.

The SunEdison Bankruptcy has increased the risk that we will be subject to litigation and could increase our potential exposure to litigation costs and could divert substantial time and resources of our management. While SunEdison and the Company have entered into a Settlement Agreement providing for the settlement of intercompany claims and defenses in connection with the SunEdison Bankruptcy, and the Settlement Agreement has been approved by the Bankruptcy Court, there is no guarantee that the Settlement Agreement will become effective. There is also no assurance that the Plan of Reorganization will be approved by the requisite members of the bankruptcy estate of SunEdison or by the Bankruptcy Court. In the event that the Settlement Agreement does not become effective, there is a risk that SunEdison or creditors acting on its behalf may bring actions against us to avoid payments made to us by SunEdison or transactions that we consummated with SunEdison. On November 7, 2016, the official committee of unsecured creditors of SunEdison filed a motion requesting standing and leave to file a complaint against us (with settlement authority) with respect to such avoidance actions. In the future, SunEdison itself may pursue similar avoidance actions against us. We also face increased risks of liability and litigation to the extent that the SunEdison Bankruptcy results in SunEdison becoming unable to fulfill its contractual commitments in circumstances where the Company has a financial interest.

Additionally, because our directors’ and officers’ insurance policies through the period of July 15, 2016, including a number of policies under which SunEdison is the named insured, were shared with SunEdison and TerraForm Global, the SunEdison Bankruptcy will limit our ability to utilize such insurance to cover the liability of, and our indemnification obligations to, our directors and officers. If we are required to make indemnification payments to our officers or directors, our business, financial condition and results of operations may be negatively impacted. Subsequent to July 15, 2016, our directors' and officers' insurance policies are independent of SunEdison and TerraForm Global.



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The SunEdison Bankruptcy may adversely affect our relationships with current or potential counterparties.

We have important counterparties at every level of operations, including offtakers under the PPAs, corporate and project-level lenders, suppliers and service providers. The SunEdison Bankruptcy may damage our relationships with our counterparties due to concerns about the SunEdison Bankruptcy and its impact on our business. These concerns may cause counterparties to be less willing to grant waivers or forbearances if needed for other matters and more likely to enforce contractual provisions or reduce utilization of our services (or the provision of supplies or services) where the counterparty has flexibility in volume or duration. These concerns may also cause our existing or potential new counterparties to be less likely to enter into new agreements or to demand more expensive or onerous terms, credit support, security or other conditions. Damage to our existing or potential future counterparty relationships may materially and adversely affect our business, financial condition and results of operations, including our growth strategy.

SunEdison is our controlling stockholder and exercises substantial influence over TerraForm Power; it may take actions that conflict with the interests of our other stockholders.

SunEdison beneficially owns all of our outstanding Class B common stock. Each share of our outstanding Class B common stock entitles SunEdison to 10 votes on all matters presented to our stockholders. As a result of its ownership of our Class B common stock, SunEdison possesses approximately 83.9% of the combined voting power of our stockholders even though SunEdison only owns approximately 34.2% of total shares outstanding (inclusive of Class A common stock and Class B common stock) as of June 30, 2017. As a result of this ownership, SunEdison has a substantial influence on our affairs and its voting power will constitute a large percentage of any quorum of our stockholders voting on any matter requiring the approval of our stockholders. SunEdison has entered into a Voting and Support Agreement pursuant to which SunEdison has agreed to vote its shares of Class B common stock in favor of the Merger and the Sponsorship Transaction. However, outside of the matters covered by the Voting and Support Agreement, SunEdison has no such contractual obligation. Such matters include the election of directors, the adoption of amendments to our amended and restated certificate of incorporation and bylaws other than those contemplated by the Merger Agreement and approval of mergers or sale of all or substantially all of our assets other than the Sponsorship Transaction. In the event the Merger and the Sponsorship Transaction are not consummated, this concentration of ownership may also have the effect of delaying or preventing an alternative change in control of our company or discouraging others from making tender offers for our shares, which could depress the price per share a bidder might otherwise be willing to pay. In addition, SunEdison, for so long as it and its controlled affiliates possess a majority of the combined voting power, has the power, directly or indirectly, to appoint or remove all of our directors, including the members of our Conflicts Committee and all of our executive officers. SunEdison also has a right to specifically designate up to two directors to our Board until such time as SunEdison and its controlled affiliates cease to own shares representing a majority voting power in us. On November 20, 2015, SunEdison designated two directors to our Board. SunEdison has the right to remove and replace these directors at any time and for any reason. SunEdison may take actions that conflict with the interests of our other stockholders (including holders of our Class A common stock).

In connection with the SunEdison Bankruptcy, SunEdison has received final approval from the bankruptcy court for its DIP financing and related credit agreement. We expect SunEdison's DIP lenders will have significant influence over SunEdison’s interactions with us during the SunEdison Bankruptcy due to the covenants in the DIP credit agreement, although we expect SunEdison to act as a fiduciary for all of its stakeholders, including unsecured creditors. The DIP credit agreement also gives substantial authority, on behalf of management of SunEdison, over the restructuring and the relationship between SunEdison and us to the chief restructuring officer of SunEdison, who has been appointed the chief executive officer of SunEdison. In connection with the SunEdison Bankruptcy, SunEdison will also be required to seek approval of the bankruptcy court prior to engaging in activities or transactions outside of the ordinary course of business, which activities or transactions could be challenged by parties in interest, including SunEdison's unsecured creditors. The covenants in the DIP credit agreement, the interests of other SunEdison stakeholders, or developments in the bankruptcy may lead SunEdison to take actions that conflict with the interests of our Class A common stock.

Our organizational and ownership structure may create significant conflicts of interest that may be resolved in a manner that is not in our best interests or the best interests of holders of our Class A common stock and that may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our organizational and ownership structure involves a number of relationships that may give rise to certain conflicts of interest between us and holders of our Class A common stock, on the one hand, and SunEdison, on the other hand. Historically, the personnel that manage our operations (other than our Chairman and Interim Chief Executive Officer, Peter Blackmore, our Chief Operating Officer, Tom Studebaker, and our Interim Chief Accounting Officer, David Rawden) were employees of SunEdison and their services were provided to the Company under the MSA or project-level asset management and O&M services agreements. SunEdison is a related party under the applicable securities laws governing related party


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transactions and may have interests which differ from our interests or those of holders of our Class A common stock, including with respect to the types of acquisitions made, the timing and amount of dividends by TerraForm Power, the reinvestment of returns generated by our operations, the use of leverage when making acquisitions and the appointment of outside advisers and service providers. We have a Conflicts Committee to assist us in addressing conflicts of interest as they arise. SunEdison, for so long as it and its controlled affiliates possess a majority of our combined voting power, has the power, directly or indirectly, to appoint or remove all of our directors and committee members, including the members of our Conflicts Committee, and our executive officers. These powers have affected and may in the future affect the functioning of our Conflicts Committee. On November 20, 2015, the members of our Conflicts Committee were removed by the Board from that committee and two of the three members subsequently resigned from our Board. In their resignation letters, these two independent directors stated that they did not believe they would be able to protect the interests of the shareholders going forward and therefore resigned. In addition, contemporaneously, our Chief Executive Officer was removed as an officer and director and our Chief Financial Officer was removed as an officer. Our next Chief Executive Officer, who resigned on March 30, 2016, served as both the Chief Financial Officer of SunEdison and as the Chief Executive Officer of TerraForm Global, which may have created conflicts of interest during this period. These management changes resulted in considerable negative publicity. While certain of our officers and most of our non-officer employees provide services exclusively to the Company, our Interim Chief Executive Officer, Peter Blackmore, our Executive Vice President and Chief Financial Officer, Rebecca Cranna, our Chief Operating Officer, Tom Studebaker, and our Interim Chief Accounting Officer, David Rawden, continue to serve in the same functions for TerraForm Global for the time being.

Any material transaction between us and SunEdison are subject to our related party transaction policy, which will require prior approval of such transaction by our Conflicts Committee. There are inherent limitations in the ability of our Conflicts Committee to help us manage conflicts of interest or perceived conflicts of interest and the various measures we have taken to address conflicts of interest, including our Conflicts Committee and our related party transaction approval policy, have, in the past, not prevented shareholders from instituting shareholder derivative claims related to conflicts of interest. Regardless of the merits of these claims, we may be required to expend significant management time and financial resources if such claims were brought. Additionally, to the extent we fail to appropriately deal with conflicts of interest, or are perceived to have failed to deal appropriately with any such conflicts, it could negatively impact our reputation and ability to raise additional funds and the willingness of counterparties to do business with us, all of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our organizational and ownership structure is complex and has been, and may continue to be, subject to increased scrutiny and negative publicity, particularly relating to changes in our senior management and our Board, which may have a material adverse effect on, among other things, the value of our securities and our ability to conduct our business, as well as subject us to increased litigation risk.

Our organizational and ownership structure is complex and has recently been subject to increased scrutiny, including inquiries from our stakeholders, litigation from activist shareholders and negative publicity. In particular, there has been considerable negative publicity in the media relating to the resignations and removals of certain members of our Board, including members of our Conflicts Committee, as well as the replacement of our Chief Executive Officer and Chief Financial Officer in November of 2015. Negative publicity has also included allegations of breaches of fiduciary duty by our Board and our executive officers, perceived conflicts of interest among us, our executive officers and our affiliates and criticism of our and our affiliates’ business strategies. Our reputation may be closely related to that of SunEdison, and the reputation and public image of SunEdison has suffered as a result of its financial condition and the SunEdison Bankruptcy. Such negative publicity may materially adversely impact our business in a number of ways, including, among other things:

causing the trading value of our outstanding securities to diminish;
damaging our reputation and adversely affecting the willingness of counterparties to do business with us, including obtaining consents and approvals from counterparties;
subjecting us and our affiliates to increased risks of future litigation or affecting the course of our current litigation;
disrupting our ability to execute our and our affiliates’ business plans, including in respect of potential transactions with our affiliates, and potentially reducing our cash available for distribution; and
limiting our ability to raise capital and refinance existing obligations.

SunEdison has pledged the shares of Class B common stock, Class B units and IDRs that it owns to its lenders under its credit facilities. If the lenders foreclose on these shares, the market price of our shares of Class A common stock could be materially adversely affected.

SunEdison has pledged all of the shares of Class B common stock, and a corresponding amount of the Class B units of Terra LLC, as well as our IDRs, that SunEdison owns to SunEdison’s lenders as security under its DIP financing and its first


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and second lien credit facilities and outstanding second lien secured notes. Foreclosure by the lenders under the first and second lien credit facilities and outstanding second lien secured notes likely will be stayed during the pendency of the SunEdison Bankruptcy. However, if SunEdison breaches certain covenants and obligations in its DIP financing, an event of default or maturity of the DIP financing could result and the lenders could exercise their right to accelerate all the debt under the DIP financing and foreclose on the pledged shares, units and IDRs. Foreclosures or transfers are subject to certain limitations in our governing documents, including that SunEdison (together with its controlled affiliates) must continue to own a number of Class B units equal to 25% of the units held by SunEdison upon completion of our IPO until the earlier of (i) three years from the completion of the IPO and (ii) the date that Terra LLC has made cash distributions in excess of the Third Target Distribution (as defined in Terra LLC’s amended and restated operation agreement) for four quarters (“Class B Share Lock Up”). However, such limitations may not be enforceable against foreclosures or transfers occurring in connection with the SunEdison Bankruptcy, including foreclosures by the lenders under SunEdison’s DIP financing.

Any future sale of the shares of Class A common stock received that have been converted from Class B common stock upon foreclosure of the pledged securities or upon the sale or other disposition of SunEdison’s Class B common stock could cause the market price of our Class A common stock to decline. SunEdison, through wholly owned subsidiaries, owns 48,202,310 Class B units of Terra LLC, which are exchangeable (together with shares of our Class B common stock) for shares of our Class A common stock, subject to certain conditions. Moreover, subject to the Class B Share Lock Up and certain other restrictions, we may have limited ability to consent to or otherwise influence or control the ultimate purchaser or purchasers of the Class A common stock sold by SunEdison. A foreclosure on or sale of the shares of our Class B common stock and of Class B units of Terra LLC’s units held by SunEdison may result in a change of control. Any such change of control could have a material adverse effect on our business, financial condition, results of operation and cash flows.

The holder or holders of our IDRs may elect to cause Terra LLC to issue Class B1 units to it or them in connection with a resetting of target distribution levels related to the IDRs, without the approval of our Conflicts Committee or the holders of Terra LLC’s units, us as manager of Terra LLC, or our Board (or any committee thereof). This could result in lower distributions to holders of our Class A common stock.

Currently the holder or holders of a majority of the IDRs (currently SunEdison through one or more wholly owned subsidiaries)) have the right, if the Subordination Period has expired and if we have made cash distributions in excess of the then-applicable Third Target Distribution for each of the prior four consecutive fiscal quarters, to reset the initial target distribution levels at higher levels based on Terra LLC’s cash distribution levels at the time of the exercise of the reset election. The right to reset the target distribution levels may be exercised without the approval of the holders of Terra LLC’s units, us, as manager of Terra LLC, or our Board (or any committee thereof). Following a reset election, a baseline distribution amount will be calculated as an amount equal to the average cash distribution per Class A unit, Class B1 unit and Class B unit for the two consecutive fiscal quarters immediately preceding the reset election (such amount is referred to as the “Reset Minimum Quarterly Distribution”), and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the Reset Minimum Quarterly Distribution. Pursuant to the Merger Agreement and the transactions contemplated thereby, SunEdison has agreed to transfer the IDRs to an affiliate of Brookfield in connection with the closing of the Sponsorship Transaction, and resetting the IDR target distribution levels through the issuance of additional securities is not expected to be a feature of the IDRs held by affiliates of Brookfield.

The IDRs may be transferred to an unaffiliated third party without the consent of holders of Terra LLC’s units, us, as manager of Terra LLC, or the consent of our Board (or any committee thereof).
    
Other than the approved transfer to affiliates of Brookfield in connection with the Merger and the Sponsorship Transaction, SunEdison may not sell, transfer, exchange, pledge (other than as collateral under its credit facilities) or otherwise dispose of the IDRs to any unaffiliated third party (other than its controlled affiliates) until after it has satisfied its $175.0 million aggregate Projected FTM CAFD commitment to us in accordance with the Support Agreement, and during the pendency of the SunEdison Bankruptcy, subject to the approval of the Bankruptcy Court. SunEdison has pledged the IDRs as collateral under its DIP facility and its existing first and second lien credit agreements, and second lien secured notes but our constituent documents prohibit transfer of the IDRs upon foreclosure until after SunEdison has satisfied its Projected FTM CAFD commitment to us. These prohibitions may not be enforceable against foreclosures occurring in connection with the SunEdison Bankruptcy, including foreclosures by the lenders under SunEdison’s DIP financing. After that period, SunEdison may transfer the IDRs to an unaffiliated third party at any time without the consent of the holders of Terra LLC’s units, us, as manager of Terra LLC, or our Board (or any committee thereof). However, Terra LLC has been granted in the Terra LLC limited liability company agreement a right of first refusal with respect to any proposed sale of IDRs to an unaffiliated third party (other than its controlled affiliates), under which we may exercise to purchase the IDRs proposed to be sold on the same terms offered to such third party at any time within 30 days after we receive written notice of the proposed sale and its terms. This right of first refusal may not be enforceable with respect to sales occurring in connection with the SunEdison Bankruptcy.


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If SunEdison transfers the IDRs to an unaffiliated third party, including as part of the SunEdison Bankruptcy process, SunEdison would not have the same incentive to grow our business and increase quarterly distributions to holders of Class A common stock over time.

If we incur material tax liabilities, distributions to holders of our Class A common stock may be reduced without any corresponding reduction in the amount of distributions paid to SunEdison or other holders of the IDRs, Class B units and Class B1 units.

We are entirely dependent upon distributions we receive from Terra LLC in respect of the Class A units held by us for payment of our expenses and other liabilities. We must make provisions for the payment of our income tax liabilities, if any, before we can use the cash distributions we receive from Terra LLC to make distributions to our Class A common stockholders. If we incur material tax liabilities, our distributions to holders of our Class A common stock may be reduced. However, the cash available to make distributions to the holders of the Class B units and IDRs issued by Terra LLC (all of which are currently held by SunEdison), or to the holders of any Class B1 units that may be issued by Terra LLC in connection with an IDR reset or otherwise, will not be reduced by the amount of our tax liabilities. As a result, if we incur material tax liabilities, distributions to holders of our Class A common stock may be reduced, without any corresponding reduction in the amount of distributions paid to SunEdison or other holders of the IDRs, Class B units and Class B1 units of Terra LLC.

In connection with the Sponsorship Transaction, the Limited Liability Company Agreement of Terra LLC will be amended and restated to provide for, among other things, a first priority of distributions from Terra LLC to cover the Company’s outlays and expenses properly incurred.

Outside of the Sponsorship Transaction, our ability to terminate the MSA early may be limited.

In connection with the Sponsorship Transaction, the Company, SunEdison and certain of their respective affiliates entered into a Settlement Agreement providing for, among other things, the termination of the MSA. In that event that the Sponsorship Transaction is not consummated or the Settlement Agreement does not become effective for any reason, our ability to terminate the MSA early may be limited.

The agreement continues in perpetuity until terminated in accordance with its terms. SunEdison has breached its obligations under the MSA, in particular with respect to financial reporting and internal control matters. However, the termination provisions upon a bankruptcy or insolvency of SunEdison are likely not enforceable, and during the pendency of the SunEdison Bankruptcy, the automatic stay may prevent us from terminating the agreement in accordance with its terms without authorization from the Bankruptcy Court. The MSA also includes non-compete provisions that prohibit us from engaging in certain activities competitive with SunEdison’s power project development and construction business. The agreement provides that these non-compete provisions survive termination indefinitely. If SunEdison's performance does not meet the expectations of investors, the market price of our Class A common stock could suffer.

As described under the risk factor “SunEdison is a party to important agreements at the corporate and project levels, which may be adversely affected by the SunEdison Bankruptcy,” as part of the SunEdison Bankruptcy, SunEdison could also seek to reject or renegotiate the Management Services Agreement and any new terms or replacement agreement could be materially less favorable.

The liability of SunEdison is limited under our arrangements with it and we have agreed to indemnify SunEdison against claims that it may face in connection with such arrangements, which may lead it to assume greater risks when making decisions relating to us than it otherwise would if acting solely for its own account.

In the event the Merger and the Sponsorship Transaction are not consummated or if the Settlement Agreement is terminated for any reason, we will continue to be subject to certain risks related to the MSA. Under the MSA, SunEdison will not assume any responsibility other than to provide or arrange for the provision of the services described in the MSA in good faith. In addition, under the MSA, the liability of SunEdison and its affiliates will be limited to the fullest extent permitted by law to conduct involving bad faith, fraud, willful misconduct or gross negligence or, in the case of a criminal matter, action that was known to have been unlawful. In addition, we have agreed to indemnify SunEdison to the fullest extent permitted by law from and against any claims, liabilities, losses, damages, costs or expenses incurred by an indemnified person or threatened in connection with our operations, investments and activities or in respect of or arising from the MSA or the services provided by SunEdison, except to the extent that the claims, liabilities, losses, damages, costs or expenses are determined to have resulted from the conduct in respect of which such persons have liability as described above. These protections may result in SunEdison tolerating greater risks when making decisions than otherwise would be the case. The indemnification arrangements in favor of


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SunEdison may also give rise to legal claims by SunEdison for indemnification from us that are adverse to us or holders of our Class A common stock.

We may have conflicts of interest with TerraForm Global.

Actual, perceived and potential conflicts of interest may arise between us and TerraForm Global in a number of areas arising from, among other sources, current and potential shared systems, assets and services and common business opportunities, and may receive increased scrutiny as a result of overlaps among members of our management teams and boards of directors as well as the controlling interests in both companies of SunEdison.

Until recently we and TerraForm Global generally had common boards of directors, and historically we and TerraForm Global shared common management with limited exceptions, principally as a result of the control of both companies by SunEdison. Four of the nine members of our Board currently serve on the ten-person Board of Directors of TerraForm Global. In addition, some of our executive officers serve as executive officers of TerraForm Global, including Peter Blackmore, our and TerraForm Global’s Chairman and Interim Chief Executive Officer, and Rebecca Cranna, our and TerraForm Global’s Chief Financial Officer. Our directors and executive officers that overlap with those of TerraForm Global owe fiduciary duties to both companies.

Although conflicts between TerraForm Global and us were not expected to be significant when the companies were formed, as a result of various developments, including the SunEdison Bankruptcy and the Merger and the Sponsorship Transaction, we have been presented with certain business decisions, including decisions regarding business opportunities, that involve material interests of both companies. In such circumstances the allocations of expected costs and benefits between us and TerraForm Global necessarily give rise to conflicts. While we will endeavor to appropriately identify and manage such conflicts, the Company, as well as its directors and executive officers, will be subject to increased risk of conflict of interest claims.

In addition, certain of our directors and executive officers own stock or restricted stock units in both companies, and these ownership interests could create actual, perceived or potential conflicts of interest when our common directors and officers are faced with decisions that could have different implications for us and TerraForm Global, including, but not limited to, approval of the Merger and the Sponsorship Transaction.

Risks Related to our Delayed Exchange Act Filings

Continued delays in the filing of our reports with the SEC, as well as further delays in the preparation of audited financial statements at the project level, could have a material adverse effect.

We are continuing our efforts to regain compliance with NASDAQ’s continued listing requirements with respect to our delayed SEC periodic reports, however, due to, among other things, the time and resources required to complete our delayed SEC periodic reports, including our Form 10-K for the year ended December 31, 2015 and our Forms 10-Q for the first, second and third quarters of 2016, the Company has experienced delays in its ongoing efforts to complete all steps and tasks necessary to finalize financial statements and other disclosures required to be in this Form 10-K for the year ended December 31, 2016 and subsequent quarterly reports. There can be no assurance that the Company’s future periodic reports will not be delayed for similar reasons.

On June 29, 2017, we received a notification letter from NASDAQ that granted us further extensions to regain compliance with NASDAQ’s continued listing requirements, subject to the requirement that this Form 10-K for the year ended December 31, 2016 be filed with the SEC by July 24, 2017, our annual meeting of stockholders be held by August 24, 2017, our Form 10-Q for the first quarter of 2017 be filed with the SEC by August 30, 2017 and our Form 10-Q for the second quarter of 2017 be filed with the SEC by September 30, 2017. The NASDAQ hearings panel reserved the right to reconsider the terms of the extension and the NASDAQ Listing and Hearing Review Council may determine to review the hearing panel's decision. This Form 10-K for the year ended December 31, 2016 was filed with the SEC prior to July 24, 2017. In the event that our Forms 10-Q for the first and second quarter of 2017 are not filed by these dates or if any future periodic report is delayed, or if we are unable to hold our annual meeting before August 24, 2017, there is no assurance that we will be able to obtain further extensions from NASDAQ to regain compliance with NASDAQ’s continued listing requirements with respect to any such delayed periodic report or annual meeting. If we fail to obtain such further extensions from NASDAQ, our Class A common stock would likely be delisted from the NASDAQ Global Select Market.

On April 26, 2017, we entered into an amendment to the terms of the Revolver extending the date by which the financial statements and accompanying information with respect to the fiscal quarter ended March 31, 2017 must be delivered


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until July 31, 2017, with a 10-business day cure period. The terms of the amendment also extended the dates by which the financial statements and accompanying information with respect to the fiscal quarters ending June 30, 2017 and September 30, 2017 must be delivered until the date that is 75 days after the end of each such fiscal quarter, with a 10-business day cure period. Failure to file our respective Forms 10-Q by these dates may result in an event of default under the terms of the Revolver.

The delay in filing our Forms 10-K and Forms 10-Q and related financial statements may impair our ability to obtain financing and access the capital markets, including our ability to consummate any financings required in connection with the Merger and the Sponsorship Transaction. For example, as a result of the delayed filing of our periodic reports with the SEC, we will not be eligible to register the offer and sale of our securities using a short-form registration statement on Form S-3 until we have timely filed all periodic reports required under the Securities Exchange Act of 1934, as amended, for one year. Should we wish to register the offer and sale of our securities to the public prior to the time that we regain eligibility to use Form S-3, our transaction costs and the amount of time required to complete financing transactions could increase. These delays will also negatively impact our ability to obtain project financing and our ability to obtain waivers or forbearances with respect to defaults or breaches of project-level financing. An inability to obtaining financing may have a material adverse effect on our ability to grow our business, acquire assets through acquisitions or optimize our portfolio and capital structure. Additionally, the delay in audited financial statements may reduce the comfort of our Board with approving the payment of dividends.

Audited financial statements at the project-level have also been delayed. This delay has created defaults under most of our non-recourse financing agreements, which, if not cured or waived may restrict the ability of the project-level subsidiaries to make distributions to us or entitle the related lenders to demand repayment or enforce their security interests, which could have a material adverse effect on our business, results of operations, financial condition and ability to pay dividends. Such defaults may also restrict the ability of the project companies to make distributions to us, which could impact our ability to comply with corporate-level debt covenants.

Risks Related to our Business

Our failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act as a public company could have a material adverse effect on our business and share price.

Prior to completion of our IPO on July 23, 2014, we had not operated as a public company and did not have to independently comply with Section 404(a) of the Sarbanes-Oxley Act. We are required to meet these standards in the course of preparing our financial statements as of and for the year ended December 31, 2016, and our management is required to report on the effectiveness of our internal control over financial reporting for such year. Additionally, as we are no longer an emerging growth company, as defined by the JOBS Act, our independent registered public accounting firm is required pursuant to Section 404(b) of the Sarbanes-Oxley Act to attest to the effectiveness of our internal control over financial reporting on an annual basis. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected on a timely basis. The existence of any material weakness would require management to devote significant time and incur significant expense to remediate any such material weaknesses and management may not be able to remediate any such material weaknesses in a timely manner.

As of December 31, 2016, we did not maintain an effective control environment attributable to certain identified material weaknesses. Refer to Item 9A. Controls and Procedures for discussion regarding these material weaknesses.

These control deficiencies resulted in several material misstatements to the preliminary consolidated financial statements that were corrected prior to the issuance of the audited consolidated financial statements. These control deficiencies create a reasonable possibility that a material misstatement to the consolidated financial statements will not be prevented or detected on a timely basis, and therefore we concluded that the deficiencies represent material weaknesses in the Company’s internal control over financial reporting and our internal control over financial reporting was not effective as of December 31, 2016.

The existence of these or other material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting


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obligations and cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect our business and stock price.

Our inability to access the capital markets has increased certain of the risks we face.

Our ability to access the capital markets has been limited as a result of the SunEdison Bankruptcy and other risks that we face. This inability to access the capital markets has contributed to increased uncertainty and heightened some of the risks we face. While we remain focused on executing our near-term objectives, we will continue to monitor market developments and consider further adjustments to our plans and priorities if required, which could result in further significant changes to our business strategy. As a result of the negative impact on our business from these developments, we no longer expect in the near-term to achieve the growth rate in our dividend per Class A common share that we had been targeting.

Furthermore, any significant disruption to our ability to access the capital markets, or a significant increase in interest rates, could make it difficult for us to successfully acquire attractive renewable energy facilities and may also limit our ability to obtain debt or equity financing to complete such acquisitions. If we are unable to raise adequate proceeds when needed to fund such acquisitions, the ability to grow our renewable energy facility portfolio may be limited, which could have a material adverse effect on our ability to implement our growth strategy and, ultimately, our projected cash available for distribution, business, financial condition, results of operations and cash flows.

We are involved in costly and time-consuming litigation and other regulatory proceedings, including the SunEdison Bankruptcy proceedings, which require significant attention from our management and involve a greater exposure to legal liability.

We have been and continue to be involved in legal proceedings, administrative proceedings, claims and other litigation that arise in the ordinary course of business, including due to failed or terminated transactions. In addition, we are named as defendants from time to time in other lawsuits and regulatory actions relating to our business, some of which may claim significant damages. SunEdison’s controlling interests in TerraForm Power and the position of certain of our executive officers on the Board and in senior management of TerraForm Power have resulted in, and may increase the possibility of future claims of breaches of fiduciary duties including claims of conflicts of interest related to TerraForm Power. We have also been subject to claims arising out of our acquisition activities with respect to certain payments in connection with the acquisition of First Wind by SunEdison. In the event that we are not able to consummate the Merger and the Sponsorship Transaction or if the Settlement Agreement does not become effective for any reason, we also may be subject to litigation arising out of the SunEdison Bankruptcy, including actions to avoid transfers made to us by SunEdison or transactions that we consummated with SunEdison including transactions relating to our initial public offering and the acquisition by us of renewable energy projects from SunEdison. For more information regarding our outstanding legal proceedings and related matters, see Note 19 to our consolidated financial statements included in this Annual Report on Form 10-K. We may face additional litigation exposure in connection with the completion or termination of the Merger and the Sponsorship Transaction.

Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. Unfavorable outcomes or developments relating to these proceedings, or new proceeding involving similar allegations or otherwise, such as monetary damages or equitable remedies, could have a material adverse impact on our business and financial position, results of operations or cash flows or limit our ability to engage in certain of our business activities. Settlement of claims could adversely affect our financial condition and results of operations. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are often expensive, lengthy and disruptive to normal business operations and require significant attention from our management. We are currently, and/or may be subject in the future, to claims, lawsuits or arbitration proceedings related to matters in tort or under contracts, employment matters, securities class action lawsuits, shareholder derivative actions, breaches of fiduciary duty, conflicts of interest, tax authority examinations or other lawsuits, regulatory actions or government inquiries and investigations.

In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We have become the target of such securities litigation (see Note 19. Commitments and Contingencies to our consolidated financial statements) and we may become the target of additional securities litigation in the future, which could result in substantial costs and divert our management’s attention from other business concerns, which could have a material adverse effect on our business.

Current or future litigation or administrative proceedings relating to the operation of our renewable energy facilities could have a material adverse effect on our business, financial condition and results of operations.



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We have and continue to be involved in legal proceedings, administrative proceedings, claims and other litigation relating to the operation of our renewable energy facilities that arises in the ordinary course of business. Individuals and interest groups may sue to challenge the issuance of a permit for a renewable energy facility. A renewable energy facility may also be subject to legal proceedings or claims contesting the operation of the facility. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. Unfavorable outcomes or developments relating to these proceedings, such as judgments for monetary damages, injunctions or denial or revocation of permits, could have a material adverse effect on our business, financial condition and results of operations. Settlement of claims could adversely affect our financial condition and results of operations. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are often expensive, lengthy and disruptive to normal business operations and require significant attention from our management. As described in the risk factor “The SunEdison Bankruptcy has subjected us to increased litigation risk,” the SunEdison bankruptcy also increases our risks in certain of these proceedings and in future litigation.

Board and management changes could have a material adverse impact on our business.

Since November of 2015, as a result of personnel decisions by SunEdison, the SunEdison Bankruptcy, our evaluation of strategic alternatives and related developments, we have experienced a series of significant changes in the Board and our senior management, including, among other things, the removal of our initial President and Chief Executive Officer, the resignation of his successor, the appointment of our Chairman and Interim Chief Executive Officer, the removal and appointment of our Chief Financial Officer and a substantial change in the composition of the Board. For additional information, see “Recent Developments - Corporate Governance Changes within Item 1. Business. As a significant number of the members of the Board and our senior management have served in such capacity for only a short time, we face the risks that they may have limited familiarity with our business and operations or lack experience in communicating within the management team and with our other staff. Although we endeavor to implement any director and management transition in as non-disruptive a manner as possible, leadership changes can be inherently difficult to manage and may cause significant disruption to our business and give rise to uncertainty among our customers, business partners, service providers, staff, investors and other third parties concerning our future direction and performance. This could, in turn, impair our ability to execute our business strategy successfully and adversely affect our business and results of operations.

A significant portion of our assets consists of long-lived assets, the value of which may be reduced if we determine that those assets are impaired.

Long-lived assets consist of renewable energy facilities, intangible assets and goodwill. Renewable energy facilities and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate carrying values may not be recoverable. An impairment loss is recognized if the total future estimated undiscounted cash flows expected from an asset are less than its carrying value. Goodwill is evaluated for impairment annually or more frequently if circumstances indicate impairment may have occurred; the impairment assessment requires that we consider, among other factors, differences between the current book value and estimated fair value of the respective reporting unit, including goodwill. As of December 31, 2016, the net carrying value of long-lived assets represented $6,135.4 million, or 79.6%, of our total assets.

Based on our annual goodwill impairment testing conducted as of December 1, 2016, and a review of any potential indicators of impairment, we concluded that the carrying value of goodwill of $55.9 million was impaired and it was fully written off in 2016. In addition, as a result of classifying substantially all of our portfolio of residential rooftop solar assets located in the United States as held for sale during the fourth quarter of 2016 and determining that the carrying value exceeded the fair value less costs to sell, we recorded an impairment charge of $15.7 million within impairment of renewable energy facilities in the consolidated statement of operations for the year ended December 31, 2016. We also recorded a $3.3 million charge within impairment of renewable energy facilities for the year ended December 31, 2016 due to the decision to abandon certain residential construction in progress assets that were not completed by SunEdison as a result of the SunEdison Bankruptcy. There were no impairments of intangible assets. If intangible assets or additional renewable energy facilities are impaired based on a future impairment test, we could be required to record further non-cash impairment charges to our operating income. Such non-cash impairment charges, if significant, could materially and adversely affect our results of operations in the period recognized.

Counterparties to our PPAs may not fulfill their obligations or may seek to terminate the PPA early, which could result in a material adverse impact on our business, financial condition, results of operations and cash flows.

All but a minor portion of the electricity generated by our current portfolio of renewable energy facilities is sold under long-term PPAs, including power purchase agreements with public utilities or commercial, industrial or government end-users or hedge agreements with investment banks and creditworthy counterparties. Certain of the PPAs associated with renewable


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energy facilities in our portfolio allow the offtake purchaser to terminate the PPA in the event certain operating thresholds or performance measures are not achieved within specified time periods or, in certain instances, by payment of an early termination fee. If a PPA was terminated or if, for any reason, any purchaser of power under these contracts is unable or unwilling to fulfill their related contractual obligations or refuses to accept delivery of power delivered thereunder, and if we are unable to enter a new PPA on acceptable terms in a timely fashion or at all, we would be required to sell the power from the associated renewable energy facility into the wholesale power markets, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. The risks factors “The SunEdison Bankruptcy may adversely affect our relationships with current or potential counterparties” and “The SunEdison Bankruptcy could result in a material adverse effect on many of our projects because SunEdison is a party to a material project agreement or a guarantor thereof, or because SunEdison was the original owner of the project” describe additional risks with respect to our counterparty relationships and PPAs due to the SunEdison Bankruptcy.

Certain of our PPAs allow the offtake purchaser to buy out a portion of the renewable energy facility upon the occurrence of certain events, in which case we will need to find suitable replacement renewable energy facilities to invest in.

Certain of the PPAs for renewable energy facilities in our portfolio or that we may acquire in the future allow the offtake purchaser to purchase all or a portion of the applicable renewable energy facility from us. If the offtake purchaser exercises its right to purchase all or a portion of the renewable energy facility, we would need to reinvest the proceeds from the sale in one or more renewable energy facilities with similar economic attributes in order to maintain our cash available for distribution. If we were unable to locate and acquire suitable replacement renewable energy facilities in a timely fashion it could have a material adverse effect on our results of operations and cash available for distribution.

Most of our PPAs do not include inflation-based price increases.

In general, our PPAs do not contain inflation-based price increase provisions. To the extent that the countries in which we conduct our business experience high rates of inflation, thereby increasing our operating costs in those countries, we may not be able to generate sufficient revenues to offset the effects of inflation, which could materially and adversely affect our business, financial condition, results of operations and cash flows.

A material drop in the retail price of utility-generated electricity or electricity from other sources could increase competition for new PPAs, limiting our ability to attract new customers and adversely affecting our growth.

Decreases in the retail prices of electricity supplied by utilities or other clean energy sources would harm our ability to offer competitive pricing and could harm our ability to sign PPAs with new customers. The price of electricity from utilities could decrease for a number of reasons, including:

the construction of a significant number of new power generation plants, including nuclear, coal, natural gas or renewable energy facilities;
the construction of additional electric transmission and distribution lines;
a reduction in the price of natural gas, including as a result of new drilling techniques or a relaxation of associated regulatory standards;
energy conservation technologies and public initiatives to reduce electricity consumption; and
the development of new clean energy technologies that provide less expensive energy.

A shift in the timing of peak rates for utility-supplied electricity to a time of day when solar energy generation is less efficient could make solar energy less competitive and reduce demand. If the retail price of energy available from utilities were to decrease, we would be at a competitive disadvantage in negotiating new PPAs and therefore we may be unable to attract new customers and our growth would be limited, and the value of our renewable energy facilities may be impaired or their useful life may be shortened.

We may not be able to replace expiring PPAs with contracts on similar terms. If we are unable to replace an expired distributed generation PPA with an acceptable new contract, we may be required to remove the renewable energy facility from the site or, alternatively, we may sell the assets to the site host.

We may not be able to replace an expiring PPA with a contract on equivalent terms and conditions, including at prices that permit operation of the related facility on a profitable basis. If we are unable to replace an expiring PPA with an acceptable new revenue contract, the affected site may temporarily or permanently cease operations or we may be required to sell the power produced by the facility at wholesale prices which are exposed to market fluctuations and risks. In the case of a distributed generation solar facility that ceases operations, the PPA terms generally require that we remove the assets, including


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fixing or reimbursing the site owner for any damages caused by the assets or the removal of such assets. The cost of removing a significant number of distributed generation solar facilities could be material. Alternatively, we may agree to sell the assets to the site owner, but the terms and conditions, including price, that we would receive in any sale, and the sale price may not be sufficient to replace the revenue previously generated by the solar generation facility.

Our renewable energy facilities are exposed to curtailment risks, which may reduce the return to us on those investments and adversely impact our business, financial condition, and results of operations.

Certain of our renewable energy facilities’ generation of electricity may be curtailed without compensation due to transmission limitations or limitations on the electricity grid’s ability to accommodate intermittent electricity generating sources, reducing our revenues and impairing our ability to capitalize fully on a particular assets potential.

We are also experiencing curtailment with respect to other of our solar and wind power plants. Solutions to ameliorate or eliminate curtailment with respect to our power plants may not be available or may not be effective or may be cost prohibitive to undertake and implement. Curtailment at levels above our expectations could have a material adverse effect on our business, financial condition and results of operations and cash flows and our ability to pay dividends to holders of our Class A common stock.

The growth of our business depends on locating and acquiring interests in attractive renewable energy facilities at favorable prices and with favorable financing terms. Additionally, even if we consummate such acquisitions and financings on terms that we believe are favorable, such acquisitions may in fact result in a decrease in cash available for distribution per Class A common share.

Our primary business strategy is to acquire renewable energy facilities that are operational at the time of acquisition. We may also, in limited circumstances, acquire renewable energy facilities that are pre-operational. We have not changed our long-term strategy which is to pursue opportunities to acquire renewable energy facilities and grow our portfolio. The following factors, among others, could affect the availability of attractive renewable energy facilities to grow our business and dividend per Class A common share:

competing bids for a renewable energy facility, including from companies that may have substantially greater capital and other resources than we do;
fewer third party acquisition opportunities than we expect, which could result from, among other things, available renewable energy facilities having less desirable economic returns or higher risk profiles than we believe suitable for our business plan and investment strategy;
risk relating to our ability to successfully acquire projects from the ROFO Pipeline pursuant to the Sponsorship Transaction with Brookfield; and
our access to the capital markets for equity and debt (including project-level debt) at a cost and on terms that would be accretive to our shareholders.

We will not be able to increase our dividend per share unless we are able to acquire additional renewable energy facilities at favorable prices, optimize our portfolio and capital structure. Even if we consummate acquisitions that we believe will be accretive to our dividends per share, those acquisitions may in fact result in a decrease in dividends per share as a result of incorrect assumptions in our evaluation of such acquisitions, unforeseen consequences or external events beyond our control.

Our acquisition strategy exposes us to substantial risk.

The acquisition of renewable energy facilities is subject to substantial risk, including the failure to identify material problems during due diligence (for which we may not be indemnified post-closing), the risk of over-paying for assets (or not making acquisitions on an accretive basis), the ability to obtain or retain customers and, if the renewable energy facilities are in new markets, the risks of entering markets where we have limited experience. While we perform due diligence on prospective acquisitions, we may not be able to discover all potential operational deficiencies in such renewable energy facilities. In addition, our expectations for the operating performance of newly constructed renewable energy facilities as well as those under construction are based on assumptions and estimates made without the benefit of operating history. However, the ability of these renewable energy facilities to meet our performance expectations is subject to the risks inherent in newly constructed renewable energy facilities and the construction of such facilities, including, but not limited to, degradation of equipment in excess of our expectations, system failures and outages. Future acquisitions may not perform as expected or the returns from such acquisitions may not support the financing utilized to acquire them or maintain them. Furthermore, integration and consolidation of acquisitions requires substantial human, financial and other resources and may divert management’s attention from our existing business concerns, disrupt our ongoing business or not be successfully integrated. As a result, the


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consummation of acquisitions may have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may not be able to effectively identify or consummate any future acquisitions. Additionally, even if we consummate acquisitions, such acquisitions may in fact result in a decrease in cash available for distribution to holders of our Class A common stock. In addition, we may engage in asset dispositions or other transactions that result in a decrease in our cash available for distribution.

Future acquisition opportunities for renewable energy facilities are limited. While Brookfield and its affiliates will grant us a right of first offer with respect to the projects in the ROFO Pipeline following consummation of the Merger, there is no assurance we will be able to acquire or successfully integrate any such projects. We will compete with other companies for future acquisition opportunities from Brookfield and its affiliates and third parties.

This may increase our cost of making acquisitions or cause us to refrain from making acquisitions at all. Some of our competitors are much larger than us with substantially greater resources. These companies may be able to pay more for acquisitions and may be able to identify, evaluate, bid for and purchase a greater number of assets than our resources permit. If we are unable to identify and consummate future acquisitions, it will impede our ability to execute our growth strategy and limit our ability to increase the amount of dividends paid to holders of our Class A common stock. In addition, as we continue to manage our liquidity profile, we may engage in asset dispositions, or incur additional project-level debt, which may result in a decrease in our cash available for distribution.

The substantial decline of our stock price has significantly increased the difficulty of identifying acquisitions that we believe will be accretive to cash available for distribution to shareholders per unit. Even if we consummate acquisitions that we believe will be accretive to such cash per unit, those acquisitions may in fact result in a decrease in such cash per unit as a result of incorrect assumptions in our evaluation of such acquisitions, unforeseen consequences or other external events beyond our control. Furthermore, if we consummate any future acquisitions, our capitalization and results of operations may change significantly, and stockholders will generally not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in determining the application of these funds and other resources. As a result of the negative impact on our business from these developments, we no longer expect to achieve the growth rate in our dividend per Class A common share that we had been targeting. If our stock price continues to trade at current levels, we may not be able to consummate transactions that are accretive to such cash per unit or increase our dividend per share of Class A common stock.

Our ability to grow and make acquisitions with cash on hand may be limited by our cash dividend policy.

Although we believe it is prudent to defer any decision on paying dividends to our stockholders for the time being given the limitations on our ability to access the capital markets and the other risks that we face, in the future we intend to continue our dividend policy of causing Terra LLC to distribute an appropriate portion of cash to unitholders in order to permit TerraForm Power to pay dividends to its shareholders each quarter and to rely primarily upon external financing sources, including the issuance of debt and equity securities and to fund our acquisitions and growth capital expenditures. We may be precluded from pursuing otherwise attractive acquisitions if the projected short-term cash flow from the acquisition or investment is not adequate to service the capital raised to fund the acquisition or investment. As such, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations.

Our indebtedness could adversely affect our financial condition and ability to operate our business, including restricting our ability to pay cash dividends or react to changes in the economy or our industry.

Our substantial debt could have important negative consequences on our financial condition and we may incur substantial indebtedness in the future. These negative consequences may include:

increasing our vulnerability to general economic and industry conditions and to the consequences of the SunEdison Bankruptcy and to our delayed financial statements;
requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to pay dividends to holders of our Class A common stock or to use our cash flow to fund our operations, capital expenditures and future business opportunities;
limiting our ability to enter into or receive payments under long-term power sales which require credit support;
limiting our ability to fund operations or future acquisitions;
restricting our ability to make certain distributions with respect to our capital stock and the ability of our subsidiaries to make certain distributions to us, in light of restricted payment and other financial covenants in our credit facilities and other financing agreements;


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exposing us to the risk of increased interest rates because certain of our borrowings, which may include borrowings under our Revolver, are at variable rates of interest;
limiting our ability to obtain additional financing for working capital, including collateral postings, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; and
limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have less debt.

Our Revolver, Senior Notes due 2023 and Senior Notes due 2025 contain financial and other restrictive covenants that limit our ability to return capital to stockholders or otherwise engage in activities that may be in our long-term best interests. Our inability to satisfy certain financial covenants could prevent us from paying cash dividends, and our failure to comply with those and other covenants could result in an event of default which, if not cured or waived, may entitle the related lenders to demand repayment and accelerate the indebtedness or, in the case of the Revolver, enforce their security interests, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Limitations on our ability to distribute cash from our project-level subsidiaries to the Company, including as a result of defaults on our project-level indebtedness, will negatively impact our ability to satisfy financial tests under our Revolver or otherwise meet financial tests under our Senior Notes due 2023 and Senior Notes due 2025. As described above, on April 26, 2017, Terra Operating LLC entered into an amendment to the Revolver amending the financial tests under our Revolver. There can be no assurance that we will be able to comply with the amendment financial tests.

Our existing agreements governing our non-recourse financing also contain financial and other restrictive covenants that limit our project subsidiaries’ ability to make distributions to us or otherwise engage in activities that may be in our long-term best interests. We expect any future project financings that we incur or assume will contain similar provisions. The non-recourse financing agreements generally prohibit distributions from the project entities to us unless certain specific conditions are met, including the satisfaction of certain financial ratios and the absence of defaults or events of default. As described above, during the course of 2016 most of our projects that have project-level debt financing were in default. While we have cured most of those defaults, we have experienced, or expect to experience, additional defaults in most of these same project-level debt financings as a result in delays in delivering our 2016 corporate and project-level audited financial statements. Our inability to satisfy certain financial covenants or cure these or other defaults or events of default may prevent cash distributions by the particular project(s) to us. The risks with respect to the SunEdison Bankruptcy on our project financings is further detailed in "Because SunEdison is a party to a material project agreement or a guarantor thereof, the SunEdison Bankruptcy could result in a material adverse effect on many of our projects" above. Our failure to obtain such waivers or forbearance agreements with respect to defaults or to comply with those and other covenants has resulted in (or could result in future) events of default which, if not cured or waived may entitle the related lenders to demand repayment or enforce their security interests, which could have a material adverse effect on our business, results of operations and financial condition. If we are unable to make distributions from our project-level subsidiaries, it would likely have a material adverse effect on our ability to meet corporate-level debt service obligations, as well as pay dividends to holders of our Class A common stock.

If our subsidiaries default on their obligations under their non-recourse indebtedness or voluntarily or involuntarily commence bankruptcy proceedings, this may constitute an event of default under our Revolver, and we may be required to make payments to lenders to avoid such default or to prevent foreclosure on the collateral securing the non-recourse debt. If we are unable to or decide not to make such payments, we would lose certain of our renewable energy facilities upon foreclosure.

Our subsidiaries incur, and we expect will in the future incur, various types of non-recourse indebtedness. Non-recourse debt is repayable solely from the applicable renewable energy facility’s revenues and is secured by the facility’s physical assets, major contracts, cash accounts and, in many cases, our ownership interest in the project subsidiary. We may incur non-recourse indebtedness with respect to a single asset or with respect to a portfolio of assets. Limited recourse debt is debt where a limited guarantee is provided, and recourse debt is debt where a full corporate guarantee is provided, which means if our subsidiaries default on these obligations, we would be liable directly to those lenders, although in the case of limited recourse debt only to the extent of our limited recourse obligations. To satisfy these obligations, we may be required to use amounts distributed by our other subsidiaries as well as other sources of available cash, reducing our cash available to execute our business plan and pay dividends to holders of our Class A common stock. In addition, if our subsidiaries default on their obligations under any limited recourse financing agreements or voluntarily or involuntarily commence bankruptcy proceedings, this may, under certain circumstances if Terra LLC or Terra Operating LLC were to guarantee such obligations and the amounts guaranteed exceeded $75 million, individually or in the aggregate, result in an event of default under our Revolver, allowing our lenders to foreclose on their security interests in our ownership interests in our subsidiaries.

Even if that is not the case, we may decide to make payments to prevent the lenders of these subsidiaries from foreclosing on the relevant collateral. Such a foreclosure could result in us losing our ownership interest in the subsidiary or in


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some or all of its assets. The loss of our ownership interest in one or more of our subsidiaries or some or all of their assets could have a material adverse effect on our business, financial condition, results of operations and cash flows.

If we are unable to renew letter of credit facilities, our business, financial condition, results of operations and cash flows may be materially adversely affected.

Our Revolver includes a letter of credit facility to support project-level contractual obligations. This letter of credit facility will need to be renewed as of January 27, 2020 and we are required to satisfy the applicable financial ratios and covenants throughout the term of the letter of credit facility. In the event that we consummate the Merger and the Sponsorship Transaction we will need to secure a replacement letter of credit facility. If we are unable to renew our letters of credit as expected or if we are only able to replace them with letters of credit under different facilities on less favorable terms, we may experience a material adverse effect on our business, financial condition, results of operations and cash flows. Furthermore, the inability to provide letters of credit could constitute a default under certain non-recourse financing arrangements, restrict the ability of the project-level subsidiary to make distributions to us and/or reduce the amount of cash available at such subsidiary to make distributions to us.

Our ability to raise additional capital to fund our operations may be limited.

Our primary business strategy is to own, operate and acquire operational clean power generation assets. We do not always expect to have sufficient amounts of cash on hand to fund all such future acquisition costs. As a result, we will need to arrange additional financing to fund a portion of such acquisitions, potential contingent liabilities and other aspects of our operations. Our ability to arrange additional financing, either at the corporate-level or at a non-recourse project-level subsidiary, may be limited. Additional financing, including the costs of such financing, will be dependent on numerous factors, including:

general economic and capital market conditions;
credit availability from banks and other financial institutions;
investor confidence in us, our partners, SunEdison or Brookfield (assuming the consummation of the Sponsorship Transaction), as our principal stockholder (on a combined voting basis), manager under the MSA and frequently as asset and O&M manager for our projects, and the regional wholesale power markets;
the impact of the SunEdison Bankruptcy and the Sponsorship Transaction;
our financial performance and the financial performance of our subsidiaries;
our level of indebtedness and compliance with covenants in debt agreements;
when we file our Forms 10-Q for the quarters ended March 31, 2017 and June 30, 2017 and future quarters and obtain audited project-level financial statements;
maintenance of acceptable credit ratings or credit quality, including maintenance of the legal and tax structure of the project-level subsidiary upon which the credit ratings may depend;
our cash flows; and
provisions of tax and securities laws that may impact raising capital.

We may not be successful in obtaining additional financing for these or other reasons. Furthermore, we may be unable to refinance or replace non-recourse financing arrangements or other credit facilities on favorable terms or at all upon the expiration or termination thereof. Our failure, or the failure of any of our renewable energy facilities, to obtain additional capital or enter into new or replacement financing arrangements when due may constitute a default under such existing indebtedness and may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Credit ratings downgrades have resulted in a negative perception of our creditworthiness, and will adversely affect our ability to raise additional financing.

Credit ratings agencies have issued corporate and issuer credit ratings with respect to us and our Senior Notes due 2023 and Senior Notes due 2025. These ratings are used by investors (including debt investors) and other third parties in evaluating our credit risk. Credit ratings are continually revised. Our credit ratings have declined as a result of the SunEdison Bankruptcy and other risks that we face. This decline in our credit ratings will have a material negative impact on our ability to raise additional equity or indebtedness in the capital markets or could adversely affect the trading prices of our Class A common stock or Senior Notes due 2023 and Senior Notes due 2025. These declines could also negatively impact the perception of our counterparties and other stakeholders regarding our ability to meet our obligations. These perceptions and concerns may also cause our existing or potential new counterparties to be less likely to enter into new agreements or to demand more expensive or onerous terms, credit support, security or conditions. Further declines in our credit ratings may materially and negatively impact our business, financial condition and results of operations.


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Our ability to generate revenue from certain utility-scale solar and wind power plants depends on having interconnection arrangements and services.

If the interconnection or transmission agreement of a clean power generation asset we own or acquire is terminated for any reason, we may not be able to replace it with an interconnection or transmission arrangement on terms as favorable as the existing arrangement, or at all, or we may experience significant delays or costs in securing a replacement. If a transmission network to which one or more of our existing power plants or a power plant we acquire is connected experiences “down time,” the affected clean power generation asset may lose revenue and be exposed to non-performance penalties and claims from its customers. The owners of the network will not usually compensate electricity generators for lost income due to down time. These factors could materially affect our ability to forecast operations and negatively affect our business, results of operations, financial condition and cash flows.

We cannot predict whether transmission facilities will be expanded in specific markets to accommodate competitive access to those markets. In addition, certain of our operating facilities’ generation of electricity may be physically or economically curtailed without compensation due to transmission limitations, reducing our revenues and impairing our ability to capitalize fully on a particular facility’s generating potential. Such curtailments could have a material adverse effect on our business, financial condition, results of operations and cash flows. Furthermore, economic congestion on the transmission grid (for instance, a positive price difference between the location where power is put on the grid by a clean power generation asset and the location where power is taken off the grid by the facility’s customer) in certain of the bulk power markets in which we operate may occur and we may be deemed responsible for those congestion costs. If we were liable for such congestion costs, our financial results could be adversely affected.

We face competition from traditional and renewable energy companies.

The solar and wind energy industries, and the broader clean energy industry, are highly competitive and continually evolving, as market participants strive to distinguish themselves within their markets and compete with large incumbent utilities and new market entrants. We believe that our primary competitors are the traditional incumbent utilities that supply energy to our potential customers under highly regulated rate and tariff structures. We compete with these traditional utilities primarily based on price, predictability of price and the ease with which customers can switch to electricity generated by our renewable energy facilities. If we cannot offer compelling value to our customers based on these factors, then our business will not grow. Traditional utilities generally have substantially greater financial, technical, operational and other resources than we do, and as a result may be able to devote more resources to the research, development, promotion and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Traditional utilities could also offer other value-added products or services that could help them to compete with us even if the cost of electricity they offer is higher than ours. In addition, the source of a majority of traditional utilities’ electricity is non-renewable, which may allow them to sell electricity more cheaply than electricity generated by our solar generation facilities, wind power plants, and other types of clean power generation assets we may acquire.

We also face risks that traditional utilities could change their volumetric-based (i.e., cents per kWh) rate and tariff structures to make distributed solar generation less economically attractive to their retail customers. Currently, net metering programs are utilized in 43 states to support the growth of distributed generation solar facilities by requiring traditional utilities to reimburse certain of their retail customers for the excess power they generate at the level of the utilities’ retail rates rather than the rates at which those utilities buy power at wholesale. In Arizona, the state has allowed its largest traditional utility, Arizona Public Service, to assess a surcharge on customers with solar generation facilities for their use of the utility’s grid, based on the size of the customer’s solar generation facility. This surcharge will reduce the economic returns for the excess electricity that the solar generation facilities produce. These types of changes or other types of changes that could reduce or eliminate the economic benefits of net metering could be implemented in other states, which could significantly change the economic benefits of solar energy as perceived by traditional utilities’ retail customers.

We also face competition in the energy efficiency evaluation and upgrades market and we expect to face competition in additional markets as we introduce new energy-related products and services. As the solar and wind industries grow and evolve, we will also face new competitors who are not currently in the market. Our failure to adapt to changing market conditions and to compete successfully with existing or new competitors will limit our growth and will have a material adverse effect on our business and prospects.

There are a limited number of purchasers of utility-scale quantities of electricity, which exposes us and our utility-scale facilities to additional risk.


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Since the transmission and distribution of electricity is either monopolized or highly concentrated in most jurisdictions, there are a limited number of possible purchasers for utility-scale quantities of electricity in a given geographic location, including transmission grid operators, state and investor-owned power companies, public utility districts and cooperatives. As a result, there is a concentrated pool of potential buyers for electricity generated by our renewable energy facilities, which may restrict our ability to negotiate favorable terms under new PPAs and could impact our ability to find new customers for the electricity generated by our renewable energy facilities should this become necessary. Furthermore, if the financial condition of these utilities and/or power purchasers deteriorated or the RPS programs, climate change programs or other regulations to which they are currently subject and that compel them to source renewable energy supplies change, demand for electricity produced by our utility-scale facilities could be negatively impacted.

In addition, provisions in our power sale arrangements may provide for the curtailment of delivery of electricity for various operational reasons at no cost to the power purchaser, including preventing damage to transmission systems and for system emergencies, force majeure, safety, reliability, maintenance and other operational reasons. Such curtailment would reduce revenues earned by us at no cost to the purchaser including, in addition to certain of the general types noted above, events in which energy purchases would result in costs greater than those which the purchaser would incur if it did not make such purchases but instead generated an equivalent amount of energy (provided that such curtailment is due to operational reasons and does not occur solely as a consequence of purchaser’s filed avoided energy cost being lower than the agreement rates or purchasing less expensive energy from another facility). In Hawaii, where several of our wind power plants are located, purchasers are required to take reasonable steps to minimize the number and duration of curtailment events, and that such curtailments will generally be made in reverse chronological order based upon Hawaii utility commission approval (which is beneficial to older facilities such as our Kaheawa Wind Power I, or “KWP I”), such curtailments could still occur and reduce revenues to our Hawaii wind power plants. If we cannot enter into power sale arrangements on terms favorable to us, or at all, or if the purchaser under our power sale arrangements were to exercise its curtailment or other rights to reduce purchases or payments under such arrangements, our revenues and our decisions regarding development of additional renewable energy facilities may be adversely affected. The risks discussed above under “The SunEdison Bankruptcy may adversely affect our relationships with current or potential counterparties” may be increased by our dependence on a limited number of purchasers.

A significant deterioration in the financial performance of the brick and mortar retail industry could materially adversely affect our distributed generation business.

The financial performance of our distributed generation business depends in part upon the continued viability and financial stability of our customers in the retail industry with physical locations, such as medium and large independent retailers and distribution centers. If the retail industry is materially and adversely affected by an economic downturn, increase in inflation, increase in online competition, or other factors, one or more of our largest customers could encounter financial difficulty, and possibly, bankruptcy. If one or more of our largest customers were to encounter financial difficulty or declare bankruptcy, they may reduce their PPA payments to us or stop them altogether.

Our hedging activities may not adequately manage our exposure to commodity and financial risk, which could result in significant losses or require us to use cash collateral to meet margin requirements, each of which could have a material adverse effect on our business, financial condition, results of operations and liquidity, which could impair our ability to execute favorable financial hedges in the future.

Certain of our wind power plants are party to financial swaps or other hedging arrangements. We may also acquire additional assets with similar hedging arrangements in the future. Under the terms of the existing financial swaps, certain wind power plants are not obligated to physically deliver or purchase electricity. Instead, they receive payments for specified quantities of electricity based on a fixed-price and are obligated to pay the counterparty the market price for the same quantities of electricity. These financial swaps cover quantities of electricity that we estimated are highly likely to be produced. As a result, gains or losses under the financial swaps are designed to be offset by decreases or increases in a facility’s revenues from spot sales of electricity in liquid markets. However, the actual amount of electricity a facility generates from operations may be materially different from our estimates for a variety of reasons, including variable wind conditions and wind turbine availability. If a wind power plant does not generate the volume of electricity covered by the associated swap contract, we could incur significant losses if electricity prices in the market rise substantially above the fixed-price provided for in the swap. If a wind power plant generates more electricity than is contracted in the swap, the excess production will not be hedged and the related revenues will be exposed to market price fluctuations. In some power markets, including the ERCOT market in Texas where we own two wind power plants with hedges with a gross nameplate capacity of approximately 407 MWs, at times we have experienced negative power prices with respect to merchant energy sales. In these situations, we must pay grid operators to take our power. Because our tax investors receive production tax credits from the production of energy from our wind plants, it may be economical for the plant to continue to produce power at negative prices, which results in our wind


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facility paying for the power it produces. Moreover, certain of these financial or hedging arrangements are financially settled with reference to energy prices (or locational marginal prices) at a certain hub or node on the transmission system in the relevant energy market. At the same time, revenues generated by physical sales of energy from the applicable facility may be determined by the energy price (or locational marginal price) at a different node on the transmission system. This is an industry practice used to address the lack of liquidity at individual facility locations. There is a risk, however, that prices at these two nodes differ materially, and as a result of this so called “basis risk,” we may be required to settle our financial hedges at prices that are higher than the prices at which we are able to sell physical power from the applicable facility, thus reducing the effectiveness of the swap hedges.

We are exposed to foreign currency exchange risks because certain of our renewable energy facilities are located in foreign countries.

We generate a portion of our revenues and incur a portion of our expenses in currencies other than U.S. dollars. Changes in economic or political conditions in any of the countries in which we operate could result in exchange rate movement, new currency or exchange controls or other restrictions being imposed on our operations or expropriation. As our financial results are reported in U.S. dollars, if we generate revenue or earnings in other currencies, the translation of those results into U.S. dollars can result in a significant increase or decrease in the amount of those revenues or earnings. To the extent that we are unable to match revenues received in foreign currencies with costs paid in the same currency, exchange rate fluctuations in any such currency could have a negative impact on our profitability. Our debt service requirements are primarily in U.S. dollars even though a percentage of our cash flow is generated in other foreign currencies and therefore significant changes in the value of such foreign currencies relative to the U.S. dollar could have a material negative impact on our financial condition and our ability to meet interest and principal payments on debts denominated in U.S. dollars. In addition to currency translation risks, we incur currency transaction risks whenever we or one of our facilities enter into a purchase or sales transaction using a currency other than the local currency of the transacting entity.

Given the volatility of exchange rates, we cannot assure you that we will be able to effectively manage our currency transaction and/or translation risks. It is possible that volatility in currency exchange rates will have a material adverse effect on our financial condition or results of operations. We expect to experience economic losses and gains and negative and positive impacts on earnings as a result of foreign currency exchange rate fluctuations, particularly as a result of changes in the value of the Canadian dollar, the British pound and other currencies.

Additionally, although a portion of our revenues and expenses are denominated in foreign currency, we will pay dividends to holders of our Class A common stock in U.S. dollars. The amount of U.S. dollar denominated dividends paid to our holders of our Class A common stock will therefore be exposed to currency exchange rate risk. Although we have entered into certain hedging arrangements to help mitigate some of this exchange rate risk, these arrangements may not be sufficient. Changes in the foreign exchange rates could have a material negative impact on our results of operations and may adversely affect the amount of cash dividends paid by us to holders of our Class A common stock.

A substantial portion of our revenues are attributable to the sale of renewable energy credits and solar renewable energy credits, which are renewable energy attributes that are created under the laws of individual states of the United States, and our failure to be able to sell such RECs or SRECs at attractive prices, or at all, could materially adversely affect our business, financial condition and results of operation.
    
A substantial portion of our revenues (23% for fiscal 2016) are attributable to our sale of RECs and other environmental attributes of our facilities which are created under the laws of the state of the United States where the facility is located. We sometimes seek to sell forward a portion of our RECs or other environmental attributes under contracts having terms in excess of one year to fix the revenues from those attributes and hedge against future declines in prices of RECs or other environmental attributes. If our renewable energy facilities do not generate the amount of electricity required to earn the RECs or other environmental attributes sold under such forward contracts or if for any reason the electricity we generate does not produce RECs or other environmental attributes for a particular state, we may be required to make up the shortfall of RECs or other environmental attributes under such forward contracts through purchases on the open market or make payments of liquidated damages. We have from time to time provided guarantees of Terra LLC as credit support for these obligations. Additionally, forward contracts for REC sales often contain adequate assurances clauses that allow our counterparties to require us to provide credit support in the form of parent guarantees, letters of credit or cash collateral. In the months following the SunEdison Bankruptcy, we received requests for adequate assurance from several of our REC agreement counterparties. To date, despite these requests, we have not been required to provide such additional credit support.

We are currently limited in our ability to hedge sufficient volumes of our anticipated RECs or other environmental attributes, leaving us exposed to the risk of falling prices for RECs or other environmental attributes. RECs are created through


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state law requirements for utilities to purchase a portion of their energy from renewable energy sources and changes in state laws or regulation relating to RECs may adversely affect the availability of RECs or other environmental attributes and the future prices for RECs or other environmental attributes, which could have an adverse effect on our business, financial condition and results of operations.

Operation of renewable energy facilities involves significant risks and hazards that could have a material adverse effect on our business, financial condition, results of operations and cash flows. We may not have adequate insurance to cover these risks and hazards.

The ongoing operation of our facilities involves risks that include the breakdown or failure of equipment or processes or performance below expected levels of output or efficiency due to wear and tear, latent defect, design error or operator error or force majeure events, among other things. Operation of our facilities also involves risks that we will be unable to transport our product to our customers in an efficient manner due to a lack of transmission capacity. Unplanned outages of generating units, including extensions of scheduled outages, occur from time to time and are an inherent risk of our business. Unplanned outages typically increase our operation and maintenance expenses and may reduce our revenues as a result of generating and selling less power or require us to incur significant costs as a result of obtaining replacement power from third parties in the open market to satisfy our forward power sales obligations.

Our inability to efficiently operate our renewable energy facilities, manage capital expenditures and costs and generate earnings and cash flow from our asset-based businesses could have a material adverse effect on our business, financial condition, results of operations and cash flows. While we maintain insurance, obtain warranties from vendors and obligate contractors to meet certain performance levels, the proceeds of such insurance, warranties or performance guarantees may not cover our lost revenues, increased expenses or liquidated damages payments should we experience equipment breakdown or non-performance by contractors or vendors.

Power generation involves hazardous activities, including delivering electricity to transmission and distribution systems. In addition to natural risks such as earthquake, flood, lightning, hurricane and wind, other hazards, such as fire, structural collapse and machinery failure are inherent risks in our operations. These and other hazards can cause significant personal injury or loss of life, severe damage to and destruction of property, plant and equipment and contamination of, or damage to, the environment and suspension of operations. The occurrence of any one of these events may result in our being named as a defendant in lawsuits asserting claims for substantial damages, including for environmental cleanup costs, personal injury and property damage and fines and/or penalties. We maintain an amount of insurance protection that we consider adequate but we cannot provide any assurance that our insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject. Furthermore, our insurance coverage is subject to deductibles, caps, exclusions and other limitations. A loss for which we are not fully insured could have a material adverse effect on our business, financial condition, results of operations or cash flows. Further, due to rising insurance costs and changes in the insurance markets, we cannot provide any assurance that our insurance coverage will continue to be available at all or at rates or on terms similar to those presently available. Any losses not covered by insurance could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our business is subject to substantial governmental regulation and may be adversely affected by changes in laws or regulations, as well as liability under, or any future inability to comply with, existing or future regulations or other legal requirements.

Our business is subject to extensive federal, state and local laws in the U.S. and regulations in the foreign countries in which we operate. Compliance with the requirements under these various regulatory regimes may cause us to incur significant costs, and failure to comply with such requirements could result in the shutdown of the non-complying facility or, the imposition of liens, fines and/or civil or criminal liability.

With the exception of certain of our utility scale plants, our renewable energy facilities located in the United States in our portfolio are QFs as defined under PURPA. Depending upon the power production capacity of the facility in question, our QFs and their immediate project company owners may be entitled to various exemptions from ratemaking and certain other regulatory provisions of the FPA, from the books and records access provisions of PUHCA, and from state organizational and financial regulation of electric utilities.

Certain of our utility scale plants and the owners of the EWG Projects (each, an “EWG Project Co”) are an EWG which exempts it and us (for purposes of our ownership of each such company) from the federal books and access provisions of PUHCA. Certain of the EWG Projects are also QFs. EWGs and their owners are subject to regulation for most purposes as “public utilities” under the FPA, including regulation of their rates and their issuances of securities. Each of our EWG


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ProjectCos has obtained “market based rate authorization” and associated blanket authorizations and waivers from FERC under the FPA, which allows it to sell electricity, capacity and ancillary services at wholesale at negotiated, market based rates, instead of cost-of-service rates, as well as waivers of, and blanket authorizations under, certain FERC regulations that are commonly granted to market based rate sellers, including blanket authorizations to issue securities.

The failure of our QFs to maintain QF status may result in their becoming subject to significant additional regulatory requirements. In addition, the failure of the EWG ProjectCos, or our QFs to comply with applicable regulatory requirements may result in the imposition of penalties as discussed further in "Business - Regulatory Matters".

In particular, the EWG ProjectCos, and any project companies that own or operate our QFs that obtain market based rate authority from FERC under the FPA are or will be subject to certain market behavior and anti-manipulation rules as established and enforced by FERC, and if they are determined to have violated those rules, will be subject to potential disgorgement of profits associated with the violation, penalties, and suspension or revocation of their market-based rate authority. If such entities were to lose their market-based rate authority, they would be required to obtain FERC’s acceptance of a cost-of-service rate schedule for wholesale sales of electric energy, capacity and ancillary services and could become subject to significant accounting, record-keeping, and reporting requirements that are imposed on FERC regulated public utilities with cost-based rate schedules.

Substantially all of our assets are also subject to the rules and regulations applicable to power generators generally, in particular the Reliability Standards of NERC or similar standards in Canada, the United Kingdom and Chile. If we fail to comply with these mandatory Reliability Standards, we could be subject to sanctions, including substantial monetary penalties, increased compliance obligations and disconnection from the grid.

The regulatory environment for electricity generation in the United States has undergone significant changes in the last several years due to state and federal policies affecting the wholesale and retail power markets and the creation of incentives for the addition of large amounts of new renewable energy generation and demand response resources. These changes are ongoing and we cannot predict the ultimate effect that the changing regulatory environment will have on our business. In addition, in some of these markets, interested parties have proposed material market design changes, as well as made proposals to re-regulate the markets or require divestiture of power generation assets by asset owners or operators to reduce their market share. If competitive restructuring of the power markets is reversed, discontinued or delayed, our business prospects and financial results could be negatively impacted.

Laws, governmental regulations and policies supporting renewable energy, and specifically solar and wind energy (including tax incentives), could change at any time, including as a result of new political leadership, and such changes may materially adversely affect our business and our growth strategy.

Renewable energy generation assets currently benefit from, or are affected by, various federal, state and local governmental incentives and regulatory policies. As further explained under “Tax provisions and policies supporting renewable energy could change at any time, and such changes may result in a material increase in our estimated future income tax liability and may limit the current benefits of solar and wind energy investment” below, in the United States, these policies include federal ITCs, PTCs, and trade import tariff policies, as well as state RPS and integrated resource plan (“IRP”) programs, state and local sales and property taxes, siting policies, grid access policies, rate design, net energy metering, and modified accelerated cost-recovery system of depreciation. The growth of our wind and solar energy business may be dependent on the U.S. Congress further extending the expiration date of, renewing or replacing ITC and PTCs, without which the market for tax equity financing for wind and solar power plants would likely be materially impaired or altogether cease to exist. The president of the United States has made public statements regarding overturning or modifying policies of or regulations enacted by the previous administration that placed limitations on coal and gas electric generation, mining and/or exploration. Any effort to overturn federal and state laws, regulations or policies that are supportive of wind and solar power plants or that remove costs or other limitations on other types of generation that compete with wind and solar power plants could materially and adversely affect our business, financial condition, results of operations and cash flows.

Many U.S. states have adopted RPS programs mandating that a specified percentage of electricity sales come from eligible sources of renewable energy. If the RPS requirements are reduced or eliminated, it could lead to fewer future power contracts or lead to lower prices for the sale of power in future power contracts, which could have a material adverse effect on our future growth prospects. Such material adverse effects may result from decreased revenues, reduced economic returns on certain project company investments, increased financing costs and/or difficulty obtaining financing.

Renewable energy sources in Canada benefit from federal and provincial incentives, such as RPS programs, accelerated cost recovery deductions allowed for tax purposes, the availability of offtake agreements through RPS and the


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Ontario FIT program, and other commercially oriented incentives. Renewable energy sources in Chile benefit from an RPS program. Any adverse change to, or the elimination of, these incentives could have a material adverse effect on our business and our future growth prospects.

If any of the laws or governmental regulations or policies that support renewable energy change, or if we are subject to new and burdensome laws or regulations, such changes may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Maintenance, expansion and refurbishment of renewable energy facilities involve significant risks that could result in unplanned power outages or reduced output.

Our facilities may require periodic upgrading and improvement. Any unexpected operational or mechanical failure, including failure associated with breakdowns and forced outages, and any decreased operational or management performance, could reduce our facilities’ generating capacity below expected levels, reducing our revenues and jeopardizing our ability to pay dividends to holders of our Class A common stock at forecasted levels or at all. Incomplete performance by SunEdison or third parties under O&M agreements may increase the risks of operational or mechanical failure of our facilities. Degradation of the performance of our renewable energy facilities provided for in the related PPAs may also reduce our revenues. Unanticipated capital expenditures associated with maintaining, upgrading or repairing our facilities may also reduce profitability.

We may also choose to refurbish or upgrade our facilities based on our assessment that such activity will provide adequate financial returns and key assumptions underpinning a decision to make such an investment may prove incorrect, including assumptions regarding construction costs, timing, available financing and future power prices. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Moreover, spare parts for wind turbines and solar facilities and key pieces of equipment may be hard to acquire or unavailable to us. Sources of some significant spare parts and other equipment are located outside of North America and the other jurisdictions in which we operate. If we were to experience a shortage of or inability to acquire critical spare parts we could incur significant delays in returning facilities to full operation, which could negatively impact our business financial condition, results of operations and cash flows.

Our KWP II wind power plant is required under its PPA to install and maintain a battery energy storage system, the manufacturer of which is in bankruptcy and no longer supplies batteries to any customers. If we are unable to source acceptable replacement batteries, this could result in a default under, or termination of, KWP II’s PPA.

Our Kaheawa Wind Power II (“KWP II”) wind power plant is required under its PPA to install and maintain a battery energy storage system (“BESS”). The manufacturer of the BESS is in bankruptcy and is no longer providing replacement batteries and other components for the BESS. We are sourcing replacement batteries from a new supplier, but such replacement batteries may not be sufficient for the system to operate as designed or may not be available in the quantities or at an economical price. Our Kahuku wind power plant had a similar BESS that was required to be operated under its PPA, but the BESS was destroyed in a fire. The facility installed a D-Var system as a replacement for the BESS under the Kahuku facility PPA, which has been operating as designed. If the BESS system at KWP II was damaged or could no longer operate, a D-Var could not be used at the KWP II facility as a replacement to the BESS due to technical constraints, and another replacement system may not be compatible or available at a price that would allow the facility to operate economically. Failure to maintain the battery system constitutes a default under KWP II’s PPA and could result in the termination of KWP II’s PPA, which could negatively impact our business financial condition, results of operations and cash flows.

Certain of the wind power plants use equipment originally produced and supplied by Clipper Windpower, LLC, or its affiliates (“Clipper”) which no longer manufactures, warrants or services the wind turbines it produced. If Clipper equipment experiences defects in the future, we may not be able to obtain replacement components and will need to self-fund the correction or replacement of such equipment.

The Cohocton, Kahuku, Sheffield, and Steel Winds I and II wind power plants operate 92 Liberty turbines, with a combined nameplate capacity of 230.0 MW, supplied by Clipper. Since initial deployment, Clipper has announced and remediated various defects affecting the Liberty turbines deployed by us and by other customers, which resulted in prolonged downtime for turbines at various facilities. Moreover, Clipper no longer manufactures, warrants or services the Liberty turbines or other wind equipment it produced.



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Beginning in 2012, we engaged in a number of litigation and arbitration proceedings with Clipper concerning the performance of the Liberty turbines. On February 12, 2013, all such disputes were settled pursuant to a Settlement, Release and Operation and Maintenance Transition Agreement among certain of our and Clipper entities. Pursuant to this agreement, we have, among other things, released Clipper of all of its warranty obligations with respect to the equipment supplied by Clipper, and the obligations under the related operation and maintenance contracts, and we have been granted by Clipper a non-exclusive, royalty-free, perpetual, irrevocable license to make, improve and modify any equipment supplied by Clipper and to create derivative works from such equipment.

As a result, if Clipper equipment experiences defects in the future, we will not have the benefit of a manufacturer’s warranty on such original equipment, may not be able to obtain replacement components and will need to self-fund the correction or replacement of such equipment, which could negatively impact our business financial condition, results of operations and cash flows.

Developers of renewable energy facilities depend on a limited number of suppliers of solar panels, inverters, module turbines, towers and other system components and turbines and other equipment associated with wind power plants. Any shortage, delay or component price change from these suppliers could result in construction or installation delays, which could affect the number of renewable energy facilities we are able to acquire in the future.

There have been periods of industry-wide shortage of key components, including solar panels and wind turbines, in times of rapid industry growth. The manufacturing infrastructure for some of these components has a long lead time, requires significant capital investment and relies on the continued availability of key commodity materials, potentially resulting in an inability to meet demand for these components. In addition, the United States government has imposed tariffs on solar cells manufactured in China. Based on determinations by the United States government, the applicable anti-dumping tariff rates range from approximately 8% to 239%. To the extent that United States market participants experience harm from Chinese pricing practices, an additional tariff of approximately 15%-16% will be applied. If project developers purchase solar panels containing cells manufactured in China, our purchase price for renewable energy facilities would reflect the tariff penalties mentioned above. A shortage of key commodity materials could also lead to a reduction in the number of renewable energy facilities that we may have the opportunity to acquire in the future, or delay or increase the costs of acquisitions. The risks discussed above under “The SunEdison Bankruptcy may adversely affect our relationships with current or potential counterparties” may be increased by our dependence on a limited number of suppliers.

We may incur unexpected expenses if the suppliers of components in our renewable energy facilities default in their warranty obligations.

The solar panels, inverters, modules and other system components utilized in our solar generation facilities are generally covered by manufacturers’ warranties, which typically range from 5 to 20 years. When purchasing wind turbines, the purchaser will enter into warranty agreements with the manufacturer which typically expire within two to five years after the turbine delivery date. In the event any such components fail to operate as required, we may be able to make a claim against the applicable warranty to cover all or a portion of the expense associated with the faulty component. However, these suppliers could cease operations and no longer honor the warranties, which would leave us to cover the expense associated with the faulty component. For example, a portion of our solar power plants utilize modules made by SunEdison and certain of its affiliates that are debtors in the SunEdison Bankruptcy. Our business, financial condition, results of operations and cash flows could be materially adversely affected if we cannot make claims under warranties covering our renewable energy facilities.

We are subject to environmental, health and safety laws and regulations and related compliance expenditures and liabilities.

Our assets are subject to numerous and significant federal, state, local and foreign laws, and other requirements governing or relating to the environment. Our facilities could experience incidents, malfunctions and other unplanned events, such as spills of hazardous materials that may result in personal injury, penalties and property damage. In addition, certain environmental laws may result in liability, regardless of fault, concerning contamination at a range of properties, including properties currently or formerly owned, leased or operated by us and properties where we disposed of, or arranged for disposal of, waste and other hazardous materials. As such, the operation of our facilities carries an inherent risk of environmental liabilities, and may result in our involvement from time to time in administrative and judicial proceedings relating to such matters. While we have implemented environmental management programs designed to continually improve environmental, health and safety performance, we cannot assure you that such liabilities including significant required capital expenditures, as well as the costs for complying with environmental laws and regulations, will not have a material adverse effect on our business, financial condition, results of operations and cash flows.



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Harming of protected species can result in curtailment of wind power plant operations, monetary fines and negative publicity.

The operation of wind power plants can adversely affect endangered, threatened or otherwise protected animal species. Wind power plants, in particular, involve a risk that protected species will be harmed, as the turbine blades travel at a high rate of speed and may strike flying animals (such as birds or bats) that happen to travel into the path of spinning blades.

Our wind power plants are known to strike and kill flying animals, and occasionally strike and kill endangered or protected species, including protected golden or bald eagles. As a result, we expect to observe all industry guidelines and governmentally recommended best practices to avoid harm to protected species, such as avoiding structures with perches, avoiding guy wires that may kill birds or bats in flight, or avoiding lighting that may attract protected species at night. In addition, we will attempt to reduce the attractiveness of a site to predatory birds by site maintenance (e.g., mowing, removal of animal and bird carcasses, etc.).

Where possible, we will obtain permits for incidental taking of protected species. We hold such permits for some of our wind power plants, particularly in Hawaii, where several species are endangered and protected by law. We are currently in discussions with the U.S. Fish & Wildlife Service (“USF&WS”) about obtaining incidental take permits for bald and golden eagles at locations with low to moderate risk of such events. We are also discussing with USF&WS amending the incidental take permits for certain wind power plants in Hawaii, where observed endangered species mortality has exceeded prior estimates and may exceed permit limits on such takings.

Excessive taking of protected species could result in requirements to implement mitigation strategies, including curtailment of operations, and/or substantial monetary fines and negative publicity. Our wind power plants in Hawaii, several of which hold incidental take permits to authorize the incidental taking of small numbers of protected species, are subject to curtailment (i.e., reduction in operations) if excessive taking of protected species is detected through monitoring. At some of the facilities in Hawaii, curtailment has been implemented, but not at levels that materially reduce electricity generation or revenues. Such curtailments (to protect bats) have reduced nighttime operation and limited operation to times when wind speeds are high enough to prevent bats from flying into a wind power plant’s blades. Based on continuing concerns about species other than bats, however, additional curtailments are possible at those locations. We cannot guarantee that such curtailments, any monetary fines that are levied or negative publicity that we receive as a result of incidental taking of protected species will not have a material adverse effect on our business, financial condition, results of operations and cash flows.

Risks that are beyond our control, including but not limited to acts of terrorism or related acts of war, natural disasters, hostile cyber intrusions, theft or other catastrophic events, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our renewable energy facilities, or those that we otherwise acquire in the future, may be targets of terrorist activities that could cause environmental repercussions and/or result in full or partial disruption of the facilities’ ability to generate electricity. Hostile cyber intrusions, including those targeting information systems as well as electronic control systems used at the facilities and for the related distribution systems, could severely disrupt business operations and result in loss of service to customers, as well as create significant expense to repair security breaches or system damage.

Furthermore, certain of our renewable energy facilities are located in active earthquake zones. The occurrence of a natural disaster, such as an earthquake, hurricane, lightning, flood or localized extended outages of critical utilities or transportation systems, or any critical resource shortages, affecting us could cause a significant interruption in our business, damage or destroy our facilities or those of our suppliers or the manufacturing equipment or inventory of our suppliers.

Additionally, certain of our renewable energy facilities and equipment are at risk for theft and damage. For example, we are at risk for copper wire theft, especially at our solar generation facilities, due to an increased demand for copper in the United States and internationally. Theft of copper wire or solar panels can cause significant disruption to our operations for a period of months and can lead to operating losses at those locations. Damage to wind turbine equipment may also occur, either through natural events such as lightning strikes that damage blades or in-ground electrical systems used to collect electricity from turbines, or through vandalism, such as gunshots into towers or other generating equipment. Such damage can cause disruption of operations for unspecified periods which may lead to operating losses at those locations.

Any such terrorist acts, environmental repercussions or disruptions, natural disasters or theft incidents could result in a significant decrease in revenues or significant reconstruction, remediation or replacement costs, beyond what could be recovered through insurance policies, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.


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Any cyber-attack or other failure of the Company’s communications and technology infrastructure and systems could have an adverse impact on the Company.

The Company relies on the secure storage, processing and transmission of electronic data and other information and technology systems, including software and hardware, for the efficient operation of its renewable energy facilities. If the Company, its communications systems or computer hardware or software are impacted by a cyber-attack or cyber-intrusion, particularly or as part of a broader attack or intrusion by third parties, including computer hackers, foreign governments and cyber terrorists, the Company’s operations or capabilities could be interrupted or diminished and important information could be lost, deleted or stolen, which could have a negative impact on the Company’s revenues and results of operations or which could cause the Company to incur unanticipated liabilities or costs and expenses to replace or enhance affected systems, including costs related to cyber security for the Company’s renewable energy facilities.

Our use and enjoyment of real property rights for our renewable energy facilities may be adversely affected by the rights of lienholders and leaseholders that are superior to those of the grantors of those real property rights to us.

Renewable energy facilities generally are and are likely to be located on land occupied by the facility pursuant to long-term easements and leases. The ownership interests in the land subject to these easements and leases may be subject to mortgages securing loans or other liens (such as tax liens) and other easement and lease rights of third parties (such as leases of oil or mineral rights) that were created prior to the facility’s easements and leases. As a result, the facility’s rights under these easements or leases may be subject, and subordinate, to the rights of those third parties. We perform title searches and obtain title insurance to protect ourselves against these risks. Such measures may, however, be inadequate to protect us against all risk of loss of our rights to use the land on which our renewable energy facilities are located, which could have a material adverse effect on our business, financial condition and results of operations.

International operations subject us to political and economic uncertainties.

Our portfolio consists of renewable energy facilities located in the United States (including Puerto Rico), Canada, the United Kingdom and Chile. In addition, since solar and wind energy generation and other forms of clean energy are in the early stages of development and the industry is evolving rapidly, we could decide to expand into other international markets. As a result, our activities are and will be subject to significant political and economic uncertainties that may adversely affect our operating and financial performance. These uncertainties include, but are not limited to:

the risk of a change in renewable power pricing policies, possibly with retroactive effect;
political and economic instability;
measures restricting the ability of our facilities to access the grid to deliver electricity at certain times or at all;
the macroeconomic climate and levels of energy consumption in the countries where we have operations;
the comparative cost of other sources of energy;
changes in taxation policies and/or the regulatory environment in the countries in which we have operations, including reductions to renewable power incentive programs;
the imposition of currency controls and foreign exchange rate fluctuations;
high rates of inflation;
protectionist and other adverse public policies, including local content requirements, import/export tariffs, increased regulations or capital investment requirements;
changes to land use regulations and permitting requirements;
risk of nationalization or other expropriation of private enterprises and land, including creeping regulation that reduces the value of our facilities or governmental incentives associated with renewable energy;
difficulty in timely identifying, attracting and retaining qualified technical and other personnel;
difficulty competing against competitors who may have greater financial resources and/or a more effective or established localized business presence;
difficulties with, and extra-normal costs of, recruiting and retaining local individuals skilled in international business operations;
difficulty in developing any necessary partnerships with local businesses on commercially acceptable terms; and
being subject to the jurisdiction of courts other than those of the United States, which courts may be less favorable to us.

These uncertainties, many of which are beyond our control, could have a material adverse effect on our business, financial condition, results of operations and cash flows.


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Our international operations require us to comply with anti-corruption laws and regulations of the United States government and various non-U.S. jurisdictions.

Doing business in multiple countries requires us and our subsidiaries to comply with the laws and regulations of the United States government and various non-U.S. jurisdictions. Our failure to comply with these rules and regulations may expose us to liabilities. These laws and regulations may apply to us, our subsidiaries, individual directors, officers, employees and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. In particular, our non-U.S. operations are subject to United States and foreign anti-corruption laws and regulations, such as the Foreign Corrupt Practices Act of 1977, as amended (“FCPA”). The FCPA prohibits United States companies and their officers, directors, employees and agents acting on their behalf from corruptly offering, promising, authorizing or providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately and fairly reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. As part of our business, we deal with state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of the FCPA. As a result, business dealings between our employees and any such foreign official could expose the Company to the risk of violating anti-corruption laws even if such business practices may be customary or are not otherwise prohibited between the Company and a private third party. Violations of these legal requirements are punishable by criminal fines and imprisonment, civil penalties, disgorgement of profits, injunctions, debarment from government contracts as well as other remedial measures. We have established policies and procedures designed to assist us and our personnel in complying with applicable United States and non-U.S. laws and regulations; however, we cannot assure you that these policies and procedures will completely eliminate the risk of a violation of these legal requirements, and any such violation (inadvertent or otherwise) could have a material adverse effect on our business, financial condition and results of operations.

In the future, we may acquire certain assets in which we have limited control over management decisions and our interests in such assets may be subject to transfer or other related restrictions.

We have acquired, and may seek to acquire, assets in the future in which we own less than a majority of the related interests in the assets. In these investments, we will seek to exert a degree of influence with respect to the management and operation of assets in which we own less than a majority of the interests by negotiating to obtain positions on management committees or to receive certain limited governance rights, such as rights to veto significant actions. However, we may not always succeed in such negotiations, and we may be dependent on our co-venturers to operate such assets. Our co-venturers may not have the level of experience, technical expertise, human resources management and other attributes necessary to operate these assets optimally. In addition, conflicts of interest may arise in the future between us and our stockholders, on the one hand, and our co-venturers, on the other hand, where our co-venturers’ business interests are inconsistent with our interests and those of our stockholders. Further, disagreements or disputes between us and our co-venturers could result in litigation, which could increase our expenses and potentially limit the time and effort our officers and directors are able to devote to our business.

The approval of co-venturers also may be required for us to receive distributions of funds from assets or to sell, pledge, transfer, assign or otherwise convey our interest in such assets. Alternatively, our co-venturers may have rights of first refusal or rights of first offer in the event of a proposed sale or transfer of our interests in such assets. These restrictions may limit the price or interest level for our interests in such assets, in the event we want to sell such interests.

We may not be able to renew our sale-leasebacks on similar terms. If we are unable to renew a sale-leaseback on acceptable terms we may be required to remove the renewable energy facility from the facility site subject to the sale-leaseback transaction or, alternatively, we may be required to purchase the renewable energy facilities from the lessor at unfavorable terms.

Provided the lessee is not in default, customary end of lease term provisions for sale-leaseback transactions obligate the lessee to (i) renew the sale-leaseback assets at fair market value, (ii) purchase the renewable energy facilities at fair market value or (iii) return the renewable energy facility to the lessor. The cost of acquiring or removing a significant number of solar energy assets could be material. Further, we may not be successful in obtaining the additional financing necessary to purchase such renewable energy facilities from the lessor. Failure to renew our sale-leaseback transactions as they expire may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Negative public or community response to renewable energy facilities could adversely affect our acquisition of new facilities and the operation of our existing facilities.



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Negative public or community response to solar, wind and other renewable energy facilities, could adversely affect our ability to acquire and operate our facilities. Our experience is that such opposition subsides over time after renewable energy facilities are completed and are operating, but there are cases where opposition, disputes and even litigation continue into the operating period and could lead to curtailment of a facility or other facility modifications.

The seasonality of our operations may affect our liquidity.

We will need to maintain sufficient financial liquidity to absorb the impact of seasonal variations in energy production or other significant events. Our principal sources of liquidity are cash generated from our operating activities, the cash retained by us for working capital purposes out of the gross proceeds of financing activities as well as our borrowing capacity under our Revolver, subject to the conditions required to draw under our Revolver. Our quarterly results of operations may fluctuate significantly for various reasons, mostly related to economic incentives and weather patterns.

For instance, the amount of electricity and revenues generated by our solar generation facilities is dependent in part on the amount of sunlight, or irradiation, where the assets are located. Due to shorter daylight hours in winter months which results in less irradiation, the generation produced by these facilities will vary depending on the season. The electricity produced and revenues generated by a wind power plant depend heavily on wind conditions, which are variable and difficult to predict. Operating results for wind power plants vary significantly from period to period depending on the wind conditions during the periods in question. Additionally, to the extent more of our renewable energy facilities are located in the northern or southern hemisphere, overall generation of our entire asset portfolio could be impacted by seasonality. Further, time-of-day pricing factors vary seasonally which contributes to variability of revenues. We expect our portfolio of renewable energy facilities to generate the lowest amount of electricity during the fourth quarter. However, we expect aggregate seasonal variability to decrease if geographic diversity of our portfolio between the northern and southern hemisphere increases.

If we fail to adequately manage the fluctuations in the timing of our renewable energy facilities, our business, financial condition or results of operations could be materially affected. The seasonality of our energy production may create increased demands on our working capital reserves and borrowing capacity under our Revolver during periods where cash generated from operating activities are lower. In the event that our working capital reserves and borrowing capacity under our Revolver are insufficient to meet our financial requirements, or in the event that the restrictive covenants in our Revolver restrict our access to such facilities, we may require additional equity or debt financing to maintain our solvency. Additional equity or debt financing may not be available when required or available on commercially favorable terms or on terms that are otherwise satisfactory to us, in which event our financial condition may be materially adversely affected.

The production of wind energy depends heavily on suitable wind conditions, and the production of solar depends on irradiance, which is the amount of solar energy received at a particular site. If wind or solar conditions are unfavorable or below our estimates, our electricity production, and therefore our revenue, may be substantially below our expectations.

The electricity produced and revenues generated by a wind power plant depend heavily on wind conditions, which are variable and difficult to predict. Operating results for wind power plants vary significantly from period to period depending on the wind conditions during the periods in question. The electricity produced and revenues generated by a solar power plant depends heavily on insolation, which is the amount of solar energy received at a site. While somewhat more predictable than wind conditions, operating results for solar power plants can also vary from period to period depending on the solar conditions during the periods in question. We have based our decisions about which sites to develop in part on the findings of long-term wind, irradiance and other meteorological data and studies conducted in the proposed area, which, as applicable, measure the wind’s speed and prevailing direction, the amount of solar irradiance a site is expected to receive and seasonal variations. Actual conditions at these sites, however, may not conform to the measured data in these studies and may be affected by variations in weather patterns, including any potential impact of climate change. Therefore, the electricity generated by our power plants may not meet our anticipated production levels or the rated capacity of the turbines or solar panels located there, which could adversely affect our business, financial condition and results of operations. In some quarters the wind resources at our operating wind power plants, while within the range of our long-term estimates, have varied from the averages we expected. If the wind or solar resources at a facility are below the average level we expect, our rate of return for the facility would be below our expectations and we would be adversely affected. Projections of wind resources also rely upon assumptions about turbine placement, interference between turbines and the effects of vegetation, land use and terrain, which involve uncertainty and require us to exercise considerable judgment. Projections of solar resources depend on assumptions about weather patterns (including snow), shading, and other assumptions which involve uncertainty and also require us to exercise considerable judgment. We or our consultants may make mistakes in conducting these wind, irradiance and other meteorological studies. Any of these factors could cause our sites to have less wind or solar potential than we expected, may cause us to pay more for wind and solar power plants in connection with acquisitions than we otherwise would have paid had


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such mistakes not been made, which could cause the return on our investment in these wind and solar power plants to be lower than expected.

If our wind and solar energy assessments turn out to be wrong, our business could suffer a number of material adverse consequences, including:

our energy production and sales may be significantly lower than we predict;
our hedging arrangements may be ineffective or more costly;
we may not produce sufficient energy to meet our commitments to sell electricity or RECs and, as a result, we may have to buy electricity or RECs on the open market to cover our obligations or pay damages; and
our wind and solar power plants may not generate sufficient cash flow to make payments of principal and interest as they become due on the notes and our non-recourse debt, and we may have difficulty obtaining financing for future wind power plants.

If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete strategic acquisitions or affect combinations.

If we are deemed to be an investment company under the Investment Company Act of 1940 (the “Investment Company Act”) our business would be subject to applicable restrictions under the Investment Company Act, which could make it impractical for us to continue our business as contemplated.

We believe our company is not an investment company under Section 3(b)(1) of the Investment Company Act because we are primarily engaged in a non-investment company business, and we intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the Investment Company Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated.

Risks Inherent in an Investment in TerraForm Power, Inc.

We may not be able to pay comparable or growing cash dividends to holders of our Class A common stock in the future.

The amount of our cash available for distribution principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:

the impact of the Merger and the Sponsorship Transaction on our business and results of operations;
the adverse consequences of the SunEdison Bankruptcy;
the timing of our ability to complete our Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017 and audited project-level financial statements;
defaults or potential defaults arising under our Revolver, the indentures governing our Senior Notes due 2023 and Senior Notes due 2025 and in our project-level financing agreements; and the resulting impact on our projects;
risks related to our failure to satisfy the requirements of the NASDAQ Global Select Market, which could result in a delisting of our common stock;
our ability to integrate acquired assets and realize the anticipated benefits of these acquired assets;
counterparties’ to our offtake agreements willingness and ability to fulfill their obligations under such agreements;
price fluctuations, termination provisions and buyout provisions related to our offtake agreements;
our ability to enter into contracts to sell power on acceptable terms as our offtake agreements expire;
delays or unexpected costs during the completion of construction of certain renewable energy facilities we intend to acquire;
our ability to successfully identify, evaluate and consummate acquisitions;
government regulation, including compliance with regulatory and permit requirements and changes in market rules, rates, tariffs and environmental laws;
operating and financial restrictions placed on us and our subsidiaries related to agreements governing our indebtedness and other agreements of certain of our subsidiaries and project-level subsidiaries generally and in our Revolver;
our ability to borrow additional funds and access capital markets, as well as our substantial indebtedness and the possibility that we may incur additional indebtedness going forward;
our ability to compete against traditional and renewable energy companies;
hazards customary to the power production industry and power generation operations such as unusual weather conditions, catastrophic weather-related or other damage to facilities, unscheduled generation outages, maintenance or


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repairs, interconnection problems or other developments, environmental incidents, or electric transmission constraints and the possibility that we may not have adequate insurance to cover losses as a result of such hazards;
restrictions contained in our debt agreements (including our project level financing, the indentures governing our Senior Notes and our Revolver);
our ability to expand into new business segments or new geographies;
seasonal variations in the amount of electricity our wind and solar plants produce, and fluctuations in wind and solar resource conditions; and
our ability to operate our businesses efficiently, manage capital expenditures and costs tightly, manage litigation, manage risks related to international operations and generate earnings and cash flow from our asset-based businesses in relation to our debt and other obligations.

As a result of all these factors, we cannot guarantee that we will have sufficient cash generated from operations to pay a specific level of cash dividends to holders of our Class A common stock. Furthermore, holders of our Class A common stock should be aware that the amount of cash available for distribution depends primarily on our cash flow, and is not solely a function of profitability, which is affected by non-cash items. We may incur other expenses or liabilities during a period that could significantly reduce or eliminate our cash available for distribution and, in turn, impair our ability to pay dividends to holders of our Class A common stock during the period. We are a holding company and our ability to pay dividends on our Class A common stock is limited by restrictions on the ability of our subsidiaries to pay dividends or make other distributions to us, including restrictions under the terms of the agreements governing project-level financing. Our project-level financing agreements prohibit distributions to us unless certain specific conditions are met, including the satisfaction of financial ratios. Our Revolver also restricts our ability to declare and pay dividends if an event of default has occurred and is continuing or if the payment of the dividend would result in an event of default.

To the extent we issue additional equity securities in connection with any acquisitions or growth capital expenditures, the payment of dividends on these additional equity securities may increase the risk that we will be unable to maintain or increase our per share dividend. There are no limitations in our amended and restated certificate of incorporation (other than a specified number of authorized shares) on our ability to issue equity securities, including securities ranking senior to our common stock. The incurrence of bank borrowings or other debt by Terra Operating, LLC or by our project-level subsidiaries to finance our growth strategy will result in increased interest expense and the imposition of additional or more restrictive covenants which, in turn, may impact the cash distributions we distribute to holders of our Class A common stock.

Terra LLC’s cash available for distribution will likely fluctuate from quarter to quarter, in some cases significantly, due to seasonality or wind and solar resource conditions. As a result, we may cause Terra LLC to reduce the amount of cash it distributes to its members in a particular quarter to establish reserves to fund distributions to its members in future periods for which the cash distributions we would normally receive from Terra LLC would otherwise be insufficient to fund our quarterly dividend. If we fail to cause Terra LLC to establish sufficient reserves, we may not be able to maintain our quarterly dividend with respect to a quarter adversely affected by seasonality.

Finally, dividends to holders of our Class A common stock will be paid at the discretion of our Board. Our Board may decrease the level of or entirely discontinue payment of dividends.

We are a holding company and our only material asset is our interest in Terra LLC, and we are accordingly dependent upon distributions from Terra LLC and its subsidiaries to pay dividends and taxes and other expenses.

TerraForm Power is a holding company and has no material assets other than its ownership of membership interests in Terra LLC, a holding company that will have no material assets other than its interest in Terra Operating LLC, whose sole material assets are the renewable energy facilities that comprise our portfolio and the renewable energy facilities that we subsequently acquire. TerraForm Power, Terra LLC and Terra Operating LLC have no independent means of generating revenue. We intend to cause Terra Operating LLC’s subsidiaries to make distributions to Terra Operating LLC and, in turn, make distributions to Terra LLC, and, Terra LLC, in turn, to make distributions to TerraForm Power in an amount sufficient to cover all applicable taxes payable and dividends, if any, declared by us. To the extent that we need funds to pay a quarterly cash dividend to holders of our Class A common stock or otherwise, and Terra Operating LLC or Terra LLC is restricted from making such distributions under applicable law or regulation or is otherwise unable to provide such funds (including as a result of Terra Operating LLC’s operating subsidiaries being unable to make distributions, such as due to defaults in project-level financing agreements), it could materially adversely affect our liquidity and financial condition and limit our ability to pay dividends to holders of our Class A common stock.

Market interest rates may have an effect on the value of our Class A common stock.



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One of the factors that influences the price of shares of our Class A common stock will be the effective dividend yield of such shares (i.e., the yield as a percentage of the then market price of our shares) relative to market interest rates. An increase in market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of shares of our Class A common stock to expect a higher dividend yield. If market interest rates increase and we are unable to increase our dividend in response, including due to an increase in borrowing costs, insufficient cash available for distribution or otherwise, investors may seek alternative investments with higher yield, which would result in selling pressure on, and a decrease in the market price of, our Class A common stock. As a result, the price of our Class A common stock may decrease as market interest rates increase.

The market price and marketability of our shares may from time to time be significantly affected by numerous factors beyond our control, which may adversely affect our ability to raise capital through future equity financings.

The market price of our shares may fluctuate significantly. Many factors may significantly affect the market price and marketability of our shares and may adversely affect our ability to raise capital through equity financings and otherwise materially adversely impact our business. These factors include, but are not limited to, the following:

price and volume fluctuations in the stock markets generally;
significant volatility in the market price and trading volume of securities of registered investment companies, business development companies or companies in our sectors, which may not be related to the operating performance of these companies;
changes in our earnings or variations in operating results;
changes in regulatory policies or tax law;
operating performance of companies comparable to us; and
loss of funding sources or the ability to finance or refinance our obligations as they come due.

Certain of our shareholders have accumulated large concentrations of holdings of our Class A shares.

Certain of our shareholders, including entities affiliated with Brookfield and Appaloosa Investment Limited Partnership I, have accumulated large positions in our Class A shares. These concentrated holdings may impact the liquidity of shares of our Class A shares and these entities may possess the ability to significantly impact the outcome of the requisite majority of the minority approval in connection with the Merger and the Sponsorship Transaction with Brookfield and its affiliates. While the Board has adopted a Stockholder Protection Rights Agreement which limits the ability of our shareholders to accumulate additional holdings of our Class A shares in certain circumstances, these concentrated holdings may impact our execution of strategic alternatives in the event that we are unable to consummate the Merger and the Sponsorship Transaction, including any shareholder vote we are required or elect to obtain in connection with any strategic alternative. Additionally, the interests of these shareholders may conflict with our interests and the interests of holders of our Class A common stock to the extent these shareholders are also creditors in the SunEdison Bankruptcy.

Provisions of our charter documents or Delaware law could delay or prevent an acquisition of us, even if the acquisition would be beneficial to holders of our Class A common stock, and could make it more difficult for investors to change management.

In the event that we are unable to consummate the Merger and the Sponsorship Transaction, provisions of our amended and restated certificate of incorporation and bylaws may discourage, delay or prevent a merger, acquisition or other change in control that holders of our Class A common stock may consider favorable, including transactions in which such stockholders might otherwise receive a premium for their shares. This is because these provisions may prevent or frustrate attempts by stockholders to replace or remove members of our management. These provisions include:

a prohibition on stockholder action through written consent once SunEdison ceases to hold a majority of the combined voting power of our common stock;
a requirement that special meetings of stockholders be called upon a resolution approved by a majority of our directors then in office;
the right of SunEdison as the holder of our Class B common stock, to appoint up to two additional directors to our Board;
advance notice requirements for stockholder proposals and nominations; and
the authority of the Board to issue preferred stock with such terms as the Board may determine.

Section 203 of the Delaware General Corporation Law, prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder (generally a person that together with its affiliates owns or within the


65


last three years has owned 15% of voting stock), for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. As a result of these provisions in our charter documents and Delaware law, the price investors may be willing to pay in the future for shares of our Class A common stock may be limited.

Additionally, in order to ensure compliance with Section 203 of the FPA, our amended and restated certificate of incorporation prohibits any person from acquiring, without prior FERC authorization or the written consent of our Board, in purchases other than secondary market transactions (i) an amount of our Class A or Class B1 common stock that, after giving effect to such acquisition, would allow such purchaser together with its affiliates (as understood for purposes of FPA Section 203) to exercise 10% or more of the total voting power of the outstanding shares of our Class A, Class B and Class B1 common stock in the aggregate, or (ii) an amount of our Class A common stock or Class B1 common stock as otherwise determined by our Board sufficient to allow such purchaser together with its affiliates to exercise control over our company. Any acquisition of our Class A common stock or Class B1 common stock in violation of this prohibition shall not be effective to transfer record, beneficial, legal or any other ownership of such common stock, and the transferee shall not be entitled to any rights as a stockholder with respect to such common stock (including, without limitation, the right to vote or to receive dividends with respect thereto). Any acquisition of 10% or greater voting power or a change of control with respect to us or any of our solar and wind generation project companies could require prior authorization from FERC under Section 203 the FPA. Furthermore, a “holding company” (as defined in PUHCA) and its “affiliates” (as defined in PUHCA) may be subject to restrictions on the acquisition of our Class A common stock or Class B1 common stock in secondary market transactions to which other acquirers are not subject. A purchaser of our securities which is a “holding company” or an “affiliate” or “associate company” of such a “holding company” (as defined in PUHCA) should seek their own legal counsel to determine whether a given purchase of our securities may require prior FERC approval.

Investors may experience dilution of their ownership interest due to the future issuance of additional shares of our Class A common stock.

We are in a capital intensive business, and may not have sufficient funds to finance the growth of our business, future acquisitions or to support our projected capital expenditures. As a result, we have engaged in, and may require additional funds from further, equity or debt financings, including tax equity financing transactions or sales of preferred shares or convertible debt to complete future acquisitions, expansions and capital expenditures and pay the general and administrative costs of our business. In the future, we may issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of purchasers of our Class A common stock offered hereby. Under our amended and restated certificate of incorporation, we are authorized to issue 850,000,000 shares of Class A common stock, 140,000,000 shares of Class B common stock, 260,000,000 shares of Class B1 common stock and 50,000,000 shares of preferred stock with preferences and rights as determined by our Board. The potential issuance of additional shares of common stock or preferred stock or convertible debt may create downward pressure on the trading price of our Class A common stock. We may also issue additional shares of our Class A common stock or other securities that are convertible into or exercisable for our Class A common stock in future public offerings or private placements for capital raising purposes or for other business purposes, potentially at an offering price, conversion price or exercise price that is below the trading price of our Class A common stock.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our Class A common stock adversely, the stock price and trading volume of our Class A common stock could decline.

The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our Class A common stock adversely, or provide more favorable relative recommendations about our competitors, the price of our Class A common stock would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the stock price or trading volume of our Class A common stock to decline.

Future sales of our common stock or disposals or transfers by SunEdison and Brookfield of Class A common stock, may cause the price of our Class A common stock to fall.

The market price of our Class A common stock could decline as a result of sales by investors, who hold restricted shares, into the market, or the perception that these sales could occur. Certain investors in our Class A common stock hold restricted shares due to securities law restrictions and/or contractual restrictions. These holders have exercised certain registration rights with respect to the shares that we hold and would be able to sell these shares into the market once any contractual restrictions on such shares expire. The presence of additional shares of our Class A common stock trading in the


66


public market may have a material adverse effect on the market price of our securities. The market price of our Class A common stock may also decline as a result of SunEdison disposing or transferring some or all of the outstanding Class A common stock it will own following the consummation of the Sponsorship Transaction. These dispositions might also make it more difficult for us to sell equity securities at a time and price that we deem appropriate.

Risks Related to Taxation

Tax provisions and policies supporting renewable energy could change at any time, and such changes may result in a material increase in our estimated future income tax liability and may limit the current benefits of solar and wind energy investment.

We face risks related to potential changes in tax laws that may limit the current benefits of solar and wind energy investment. Renewable energy facilities currently benefit from, or are affected by, various federal, state and local governmental incentives and regulatory policies. As discussed in "Government Incentives" within Item 1. Business, government incentives provide significant support for renewable energy sources such as solar and wind energy, and a decrease in these tax benefits could increase the costs of investment in solar and wind energy. For example, in 2013 the Czech Republic and Spain announced retroactive taxes for solar energy producers. If these types of changes are enacted in other countries as well, the costs of solar energy may increase.

In the United States, these policies include federal ITCs, PTCs, and trade import tariff policies, as well as state RPS and IRP programs, state and local sales and property taxes, siting policies, grid access policies, rate design, net energy metering, and modified accelerated cost-recovery system of depreciation. For example, the IRS Code provides an ITC of 30% of the cost-basis of an eligible resource, including solar generation facilities having commenced construction prior to the end of 2019, for which the percentage is currently scheduled to gradually be reduced to 10% for solar generation facilities commencing construction before December 31, 2022 with permanence thereafter. The U.S. Congress could reduce the ITC to below 30% prior to the end of 2019, reduce the ITC to below 10% for periods after 2022 or replace the expected 10% ITC with an untested production tax credit of an unknown amount. PTCs, which are federal income tax credits related to the quantity of renewable energy produced and sold during a taxable year, or ITCs in lieu of PTCs, are available only for wind power plants that began construction on or prior to December 31, 2019. The Wind PTC and ITC are extended to 2019 but reduced 20% in 2017, 40% in 2018, and 60% in 2019 before expiring in 2020. PTCs and accelerated tax depreciation benefits generated by operating renewable energy facilities can be monetized by entering into tax equity financing agreements with investors that can utilize the tax benefits, which have been a key financing tool for wind power plants.

The growth of our wind energy business may be dependent on the U.S. Congress further extending the expiration date of, renewing or replacing wind ITC and PTCs, without which the market for tax equity financing for wind power plants would likely cease to exist. Congress could decide to overturn the new ITC and PTC decisions in future years, which would materially affect our business. Additionally, we may be required to repay a Section 1603 Grant, with interest, if the U.S. Treasury were to successfully challenge a solar generation facility and wind power plant for which such a Section 1603 Grant has been made as not complying with the requirements of Section 1603.

Any reduction in our ITCs, PTCs or depreciation deductions as a result of a change in law, or any elimination or modification of the accelerated tax depreciation schedule, may result in a material increase in our estimated future income tax liability and may negatively impact our business, financial condition and results of operations. Additionally, in prior years we received grant payments for specified energy property from the U.S. Department of the Treasury in lieu of tax credits pursuant to Section 1603 Grant. As a condition to claiming these Section 1603 Grants, we are required to maintain compliance with the terms of the Section 1603 program for a period of five years beginning on the date the eligible solar and wind energy facility was placed in service. Failure to maintain compliance with the requirements of Section 1603 could result in recapture of all or a part of the amounts received under a Section 1603 Grant, plus interest.

In addition, the IRS or the Treasury Department, as applicable, may also challenge eligible tax basis in the relevant renewable energy property that was used to determine the amount of ITC, Section 1603 Grant or accelerated depreciation deductions claimed or applied for, as applicable, by subsidiaries of the Company or our tax equity partners with respect to our renewable energy projects. In some situations where SunEdison or other third parties made representations with regard to the fair market value or eligible basis of a renewable energy facility, the cash flows of that facility that would otherwise be distributed to our subsidiaries may be diverted to cover losses sustained by our tax equity financing parties in the event the ITC, Section 1603 Cash Grant or accelerated depreciation deductions, as applicable, are recaptured, reduced or disallowed by the IRS or Treasury Department, as applicable. In other situations, we may be directly responsible for making such tax indemnity payments. In addition, we have provided guarantees to our tax investors and other financing parties related to the recapture of these tax benefits as a result of transfers of our interests in our renewable energy projects to non-U.S. federal income tax payers


67


who qualify as “disqualified persons” under Section 1603 Grant rules and provisions of the Internal Revenue Code. While such transfers are generally within our control, and we would seek to avoid such transfers, there is some risk that we inadvertently structure a sale of our interests in our facilities in a way that results in such a transfer. Moreover, this risk could arise in connection with the sale or transfer of the B units in Terra LLC in connection with the SunEdison Bankruptcy or any potential transaction that we undertake if the Merger failed to close.

Congress and the Trump Administration have also expressed substantial interest in reducing corporate tax rates and making other changes to the Internal Revenue Code, including, among other potential proposals, permitting the immediate expensing of capital expenditures and no longer allowing the deduction of interest expense on indebtedness. These tax law changes may have an economic impact on our existing portfolio of renewable energy facilities. To date, however, no legislation has been passed by either the U.S. House of Representatives or the U.S. Senate, and so it is difficult to predict with any certainty whether these changes will have a positive or negative impact on our business, financial condition or results of operations as it relates to our existing portfolio. In light of this uncertainty, we cannot give any assurances that the combined impact of these changes will not have a negative impact on our business, financial condition or results of operations. Moreover, any reduction in the corporate tax rates would be expected to reduce the value of certain of the tax benefits currently available for renewable energy facilities. Assuming those benefits are not also changed, the reduction of corporate tax rates may, all other things being equal, reduce the amount of new renewable energy generation that is constructed, which may increase competition to acquire the facilities that are completed.

Changes in foreign withholding taxes could adversely affect our results of operations.

We conduct a portion of our operations in Canada, the United Kingdom and Chile, and may in the future expand our business into other foreign countries. We are subject to risks that foreign countries may impose additional withholding taxes or otherwise tax our foreign income. Currently, distributions of earnings and other payments, including interest, to us from our foreign facilities could constitute ordinary dividend income taxable to the extent of our earnings and profits, which may be subject to withholding taxes imposed by the jurisdiction in which such entities are formed or operating. Any such withholding taxes will reduce the amount of after-tax cash we can receive. If those withholding taxes are increased, the amount of after-tax cash we receive will be further reduced.

Our future tax liability may be greater than expected if we do not generate Net Operating Losses, or “NOLs,” sufficient to offset taxable income.

We expect to generate NOLs and NOL carryforwards that we can utilize to offset future taxable income. Based on our portfolio of assets that we expect will benefit from an accelerated tax depreciation schedule, and subject to tax obligations resulting from potential tax audits, we do not expect to pay significant United States federal income tax in the near term. However, in the event these losses are not generated as expected (including if our accelerated tax depreciation schedule for our eligible renewable energy facilities is eliminated or adversely modified), are successfully challenged by the IRS (in a tax audit or otherwise), or are subject to future limitations as a result of an “ownership change” as discussed below, our ability to realize these future tax benefits may be limited. Any such reduction, limitation, or challenge may result in a material increase in our estimated future income tax liabilities and may negatively impact our business, financial condition and operating results.

Our ability to use NOLs to offset future income may be limited.

Our ability to use existing NOL carryforwards and NOLs generated in the future could be substantially limited if we were to experience an “ownership change” as defined under Section 382 of the Internal Revenue Code. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders (generally 5% stockholders, applying certain look-through and aggregation rules) increases by more than 50% over such stockholders’ lowest percentage ownership over a rolling three-year period. If a corporation experiences an ownership change, its ability to use its pre-change NOL carryforwards and other pre-change deferred tax attributes to offset its post-change income and taxes may be limited. Future sales of our Class B common stock by SunEdison, as well as future issuances by us or trades of stock amount our other 5% stockholders, could contribute to a potential ownership change. During 2015, we believe that an ownership change occurred at a point when the trading price of our stock was at a level that would not impact the ability to use our tax attributes. During 2016, we believe a second ownership change occurred when the stock price had lowered. Our initial analysis suggests that the limitation under the Section 382 rules, including the associated built-in gain rules, would not limit our ability to utilize our tax attributes at the time of the change. Should another ownership change occur in the future, it is possible that we may be in a position such that the ability to utilize tax attributes could be limited due to the incremental NOL generated in 2016. Additional ownership changes may occur as a result of shareholder activity and/or in connection with the closing of the Merger.



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A valuation allowance may be required for our deferred tax assets.

Our expected NOLs will be reflected as a deferred tax asset as they are generated until used to offset income. Valuation allowances may need to be maintained for deferred tax assets that we estimate are more likely than not to be unrealizable, based on available evidence at the time the estimate is made. Valuation allowances related to deferred tax assets can be affected by changes to tax laws, statutory tax rates and future taxable income levels and based on input from our auditors, tax advisers or regulatory authorities. In the event that we were to determine that we would not be able to realize all or a portion of our net deferred tax assets in the future, we would reduce such amounts through a charge to income tax expense in the period in which that determination was made, which could have a material adverse impact on our financial condition and results of operations and our ability to maintain profitability.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our current portfolio consists of distributed generation solar facilities and utility-scale power plants that are located in the United States (including Puerto Rico), Canada, Chile and the United Kingdom with a combined nameplate capacity of 2,606.7 MW as of June 30, 2017. We typically finance our assets through project specific debt secured by the renewable energy facility's assets (mainly the renewable energy facility) or equity interests in such renewable energy facilities with no recourse to Terra LLC or Terra Operating LLC. See the table of our properties in Item 1. Business - Our Portfolio.
    
Distributed generation solar facilities
 
Distributed generation facilities provide customers with an alternative to traditional utility energy suppliers. Distributed resources are typically smaller in unit size and can be installed at a customer’s site, removing the need for lengthy transmission and distribution lines. By bypassing the traditional utility suppliers, distributed energy systems delink the customer’s price of power from external factors such as volatile commodity prices, costs of the incumbent energy supplier and some transmission and distribution charges. This makes it possible for distributed energy purchasers to buy energy at a predictable and stable price over a long period of time.

The PPAs for certain of our distributed generation solar facilities located in the United States allow the offtake purchaser to elect to purchase the facility from us at a price equal to the greater of a specified amount in the PPA or fair market value. In addition, certain of our PPAs allow the offtake purchaser to terminate the PPA if we do not meet certain prescribed operating thresholds or performance measures or otherwise by the payment of an early termination fee, which would require us to remove the renewable energy facility from the offtaker’s site. These operating thresholds and performance measures are readily achievable in the normal operation of the renewable energy facilities.

Utility-scale power plants

Our utility-scale solar generation facilities and wind facilities are power plants where either the purchaser of the electricity is an electric utility entity or where power is delivered directly to the grid.

Item 3. Legal Proceedings.

See Note 19 to our consolidated financial statements included in this Annual Report on Form 10-K for disclosures concerning our legal proceedings, which disclosures are incorporated herein by reference.    
    
Item 4. Mine Safety Disclosures.

Not applicable.



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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Class A Common Stock

The Company's Class A common stock began trading on the NASDAQ Global Select Market under the symbol “TERP” on July 18, 2014. Prior to that, there was no public market for our Class A common stock. The Company's Class B common stock is not publicly traded.

As of June 30, 2017, there were 25 holders of record of the Company’s Class A common stock and two holders of record of the Company’s Class B common stock and the closing sale price per share of our Class A common stock on the NASDAQ Global Select Market was $12.00.

The table below sets forth, for the periods indicated, the high and low sale prices per share of our Class A common stock on the NASDAQ Global Select Market for the periods indicated below:
 
 
High
 
Low
July 18, 2014 to September 30, 2014
 
$
33.65

 
$
28.53

Quarter ended December 31, 2014
 
33.64

 
22.83

Quarter ended March 31, 2015
 
36.51

 
29.01

Quarter ended June 30, 2015
 
42.15

 
36.34

Quarter ended September 30, 2015
 
39.61

 
14.16

Quarter ended December 31, 2015
 
20.01

 
6.90

Quarter ended March 31, 2016
 
12.61

 
7.64

Quarter ended June 30, 2016
 
11.00

 
7.44

Quarter ended September 30, 2016
 
14.59

 
10.94

Quarter ended December 31, 2016
 
14.38

 
11.40


Dividends

On October 27, 2014, the Company declared a quarterly dividend of $0.1717 per share on the Company's Class A common stock, which was paid on December 15, 2014 to holders of record on December 1, 2014. This amount represented a quarterly dividend of $0.2257 per share, or $0.9028 per share on an annualized basis, prorated to adjust for a partial quarter as the Company consummated its IPO on July 23, 2014.

On December 22, 2014, the Company declared a quarterly dividend for the fourth quarter of 2014 on the Company's Class A common stock of $0.27 per share, or $1.08 per share on an annualized basis. The fourth quarter dividend was paid on March 16, 2015 to shareholders of record as of March 2, 2015.
    
On May 7, 2015, the Company declared a quarterly dividend for the first quarter of 2015 on the Company's Class A common stock of $0.325 per share, or $1.30 per share on an annualized basis. The first quarter dividend was paid on June 15, 2015 to shareholders of record as of June 1, 2015.

On August 6, 2015, the Company declared a quarterly dividend for the second quarter of 2015 on the Company's Class A common stock of $0.335 per share, or $1.34 per share on an annualized basis. The second quarter dividend was paid on September 15, 2015 to shareholders of record as of September 1, 2015.

On November 9, 2015, the Company declared a quarterly dividend for the third quarter of 2015 on the Company's Class A common stock of $0.35 per share, or $1.40 per share on an annualized basis. The third quarter dividend was paid on December 15, 2015 to shareholders of record as of December 1, 2015.

TerraForm Power has not declared or paid a dividend since the quarterly dividend for the third quarter of 2015. As a result of the SunEdison Bankruptcy, the limitations on the Company's ability to access the capital markets for its corporate debt


70


and equity securities and other risks that the Company faced as detailed in this report, the Company's management believed it was prudent to defer any decisions on paying dividends to its shareholders.

Stock Performance Graph

This performance graph below shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

The performance graph below compares the Company's cumulative total stockholder return on the Company's Class A common stock from July 18, 2014 through December 31, 2016, with the cumulative total return of the Standard & Poor's 500 Composite Price Index, or the "S&P 500," the NASDAQ Composite Index, as well as our peer group consisting of Atlantica Yield PLC; NextEra Energy Partners, LP; NRG Yield, Inc.; Pattern Energy Group Inc; and 8point3 Energy Partners LP.

The performance graph below compares each period assuming that $100 was invested on the initial public offering date in each of the Class A common stock of the Company, the stocks in the S&P 500, the NASDAQ Composite Index, our peer group, and that all dividends were reinvested.


71


Comparison of Cumulative Total Return
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11706338&doc=30

Stock
July 18, 2014
September 30, 2014
December 31, 2014
March 31, 2015
June 30, 2015
September 30, 2015
December 31, 2015
March 31, 2016
June 30, 2016
September 30, 2016
December 31, 2016
TerraForm Power, Inc.
$
100.00

$
87.22

$
93.85

$
111.78

$
117.28

$
44.94

$
40.86

$
28.10

$
35.41

$
45.19

$
41.62

S&P 500
100.00

99.70

104.08

104.54

104.30

97.06

103.32

104.12

106.10

109.61

113.17

NASDAQ Composite Index
100.00

101.38

106.85

110.57

112.50

104.23

112.96

109.85

109.23

119.81

121.42

Peer Group
100.00

93.75

84.09

98.49

81.29

46.36

58.98

55.25

61.63

62.59

59.15



72


Item 6. Selected Financial Data.

The Company's historical selected financial data is presented in the following table. For all periods prior to the IPO, the amounts shown in the table below represent the combination of TerraForm Power and Terra LLC, the accounting predecessor, and were prepared using SunEdison's historical basis in assets and liabilities. For all periods subsequent to the IPO, the amounts shown in the table below represent the results of TerraForm Power, which consolidates Terra LLC through its controlling interest. This historical data should be read in conjunction with the Consolidated Financial Statements and the related notes thereto in Item 15. Exhibits, Financial Statements and Schedules.

Our consolidated financial statements were prepared assuming we would continue as a going concern (which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business). Our ability to continue as a going concern is dependent on many factors, including among other things, the resolution of the SunEdison Bankruptcy absent claims from interested parties that the assets and liabilities of the Company be substantively consolidated with SunEdison and that the Company and/or its assets and liabilities be included in the SunEdison Bankruptcy as well as our ability to comply with or modify our existing debt covenant requirements. Management’s plans with respect to these conditions are further described in Note 1 to our consolidated financial statements included in this annual report on Form 10-K. The following Selected Financial Data taken from our accompanying financial statements have been prepared assuming that we will continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
Year Ended December 31,
(in thousands, except per share data)
 
2016
 
2015
 
2014
 
2013
 
2012
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
 
Operating revenues, net
 
$
654,556

 
$
469,506

 
$
127,156

 
$
18,716

 
$
16,992

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
 
Cost of operations
 
113,302

 
70,468

 
10,630

 
1,112

 
917

Cost of operations - affiliate
 
26,683

 
19,915

 
8,063

 
1,068

 
834

General and administrative expenses
 
89,995

 
55,811

 
20,984

 
289

 
177

General and administrative expenses - affiliate
 
14,666

 
55,330

 
19,144

 
5,158

 
4,425

Acquisition and related costs
 
2,743

 
49,932

 
10,177

 

 

Acquisition and related costs - affiliate
 

 
5,846

 
5,049

 

 

Loss on prepaid warranty - affiliate