SEC Filing | TerraForm Power Operating, LLC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________________________________________

FORM 10-Q

_____________________________________________________________________________

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019



☐	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

______________________________________________________________

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.)
200 Liberty Street,	14th Floor	New York,	New York	10281
(Address of principal executive offices)				(Zip Code)

646-992-2400

(Registrant’s telephone number, including area code)

_________________________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, Class A, par value $0.01	TERP	Nasdaq Global Select Market

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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.

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 31, 2019, there were 227,044,072 shares of Class A common stock outstanding.

TerraForm Power, Inc. and Subsidiaries

Table of Contents

Form 10-Q



		Page
Cautionary Statement Concerning Forward-Looking Statements
Part I. Financial Information

Item 1.	Financial Statements
	Unaudited Condensed Consolidated Statements of Operations	5
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Unaudited Condensed Consolidated Balance Sheets	7
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity	8
	Unaudited Condensed Consolidated Statements of Cash Flows	10
	Notes to Unaudited Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	67
Item 4.	Controls and Procedures	69

Part II. Other Information

Item 1.	Legal Proceedings	70
Item 1A.	Risk Factors	70
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	71
	Signatures	72

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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,” “opportunities,” “goal,” “guidance,” “outlook,” “initiatives,” “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, distributions growth, earnings, revenues, income, loss, capital expenditures, liquidity, capital structure, margin enhancements, cost savings, future growth, financing arrangements and other financial performance items (including future distributions 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 in this Quarterly Report and in

our Annual Report on Form 10-K for the year ended December 31, 2018:


•	risks related to weather conditions at our wind and solar assets;


•	our ability to enter into contracts to sell power on acceptable prices and terms, including as our offtake agreements expire;


•	government regulation, including compliance with regulatory and permit requirements and changes in tax laws, market rules, rates, tariffs, environmental laws and policies affecting renewable energy;


•	our ability to compete against traditional utilities and renewable energy companies;


•	pending and future litigation;


•	our ability to successfully close the acquisitions of, and integrate the projects that we expect to acquire from, third parties, including our ability to successfully integrate our recently acquired portfolio of distributed generation assets;


•	our ability to successfully achieve expected synergies and to successfully execute on the funding plan for our recently acquired portfolio of distributed generation assets, including our ability to successfully close any contemplated capital recycling initiatives;


•	our ability to realize the anticipated benefits from acquisitions;


•	our ability to close, implement and realize the benefit of our cost and performance enhancement initiatives, including long-term service agreements and our ability to realize the anticipated benefits from such initiatives;


•	the willingness and ability of counterparties to fulfill their obligations under offtake agreements;


•	price fluctuations, termination provisions and buyout provisions in offtake agreements;


•	risks related to the ability of our hedging activities to adequately manage our exposure to commodity and financial risk;


•	risks related to our operations being located internationally, including our exposure to foreign currency exchange rate fluctuations and political and economic uncertainties;


•	the regulated rate of return of renewable energy facilities in our Regulated Solar and Wind segment, a reduction of which could have a material negative impact on our results of operations;


•	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 in the future;


•	operating and financial restrictions placed on us and our subsidiaries related to agreements governing indebtedness;


•	our ability to identify or consummate any future acquisitions, including those identified by Brookfield Asset Management Inc.;


•	our ability to grow and make acquisitions with cash on hand, which may be limited by our cash distribution policy;


•	risks related to the effectiveness of our internal control over financial reporting; and


•	risks related to our relationship with Brookfield Asset Management Inc., including our ability to realize the expected benefits of the sponsorship.

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 our Annual Report on Form 10-K for the year ended December 31, 2018 and in subsequent Quarterly Reports, as well as additional factors we may describe from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). We operate in a competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and 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.

PART I - Financial Information

Item 1. Financial Statements.

TERRAFORM POWER, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Operating revenues, net	$	253,808		$	246,042		$	734,506		$	553,477
Operating costs and expenses:
Cost of operations	75,037			59,027			207,363			146,155
General and administrative expenses	15,397			21,334			60,616			65,483
General and administrative expenses - affiliate	7,764			3,432			19,087			10,929
Acquisition costs	963			1,655			1,438			7,612
Acquisition costs - affiliate	—			335			—			6,965
Impairment of renewable energy facilities	—			—			—			15,240
Depreciation, accretion and amortization expense	114,282			103,593			321,605			239,177
Total operating costs and expenses	213,443			189,376			610,109			491,561
Operating income	40,365			56,666			124,397			61,916
Other expenses (income):
Interest expense, net	89,393			72,416			246,721			176,862
Loss (gain) on extinguishment of debt, net	1,355			—			(4,188		)	1,480
Loss (gain) on foreign currency exchange, net	10,975			(3,070		)	(4,217		)	(4,257		)
Other (income) expenses, net	(557		)	358			(1,752		)	1,390
Total other expenses, net	101,166			69,704			236,564			175,475
Loss before income tax expense	(60,801		)	(13,038		)	(112,167		)	(113,559		)
Income tax expense	1,512			6,013			3,030			9,417
Net loss	(62,313		)	(19,051		)	(115,197		)	(122,976		)
Less: Net (loss) income attributable to redeemable non-controlling interests	(7,341		)	12,443			(14,241		)	15,101
Less: Net (loss) income attributable to non-controlling interests	(135		)	2,096			(33,897		)	(165,946		)
Net (loss) income attributable to Class A common stockholders	$	(54,837	)	$	(33,590	)	$	(67,059	)	$	27,869

Weighted average number of shares:
Class A common stock - Basic	209,155			209,142			209,149			173,173
Class A common stock - Diluted	209,155			209,142			209,149			173,186

(Loss) earnings per share:
Class A common stock - Basic and diluted	$	(0.26	)	$	(0.16	)	$	(0.32	)	$	0.16

Distributions declared per share:
Class A common stock	$	0.2014		$	0.19		$	0.6042		$	0.57

See accompanying notes to unaudited condensed consolidated financial statements.

TERRAFORM POWER, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net loss	$	(62,313	)	$	(19,051	)	$	(115,197	)	$	(122,976	)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments:
Net unrealized gain (loss) arising during the period	6,934			446			15,806			(8,229		)
Hedging activities:
Net unrealized (loss) gain arising during the period	(16,653		)	10,621			(43,941		)	12,528
Reclassification of net realized loss (gain) into earnings	3,389			(5,832		)	(2,439		)	(6,755		)
Other comprehensive (loss) income, net of tax	(6,330		)	5,235			(30,574		)	(2,456		)
Total comprehensive loss	(68,643		)	(13,816		)	(145,771		)	(125,432		)
Less comprehensive (loss) income attributable to non-controlling interests:
Net (loss) income attributable to redeemable non-controlling interests	(7,341		)	12,443			(14,241		)	15,101
Net (loss) income attributable to non-controlling interests	(135		)	2,096			(33,897		)	(165,946		)
Hedging activities	188			(1,801		)	920			(3,038		)
Comprehensive (loss) income attributable to non-controlling interests	(7,288		)	12,738			(47,218		)	(153,883		)
Comprehensive (loss) income attributable to Class A common stockholders	$	(61,355	)	$	(26,554	)	$	(98,553	)	$	28,451

See accompanying notes to unaudited condensed consolidated financial statements.

TERRAFORM POWER, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



	September 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	239,297		$	248,524
Restricted cash, current	31,140			27,784
Accounts receivable, net	176,883			145,161
Derivative assets, current	28,908			14,371
Prepaid expenses and other current assets	61,642			65,149
Due from affiliates	265			196
Deposit on acquisitions	114,195			—
Total current assets	652,330			501,185

Renewable energy facilities, net, including consolidated variable interest entities of $3,238,298 and $3,064,675 in 2019 and 2018, respectively	6,967,149			6,470,026
Intangible assets, net, including consolidated variable interest entities of $697,744 and $751,377 in 2019 and 2018, respectively	1,957,146			1,996,404
Goodwill	145,616			120,553
Restricted cash	73,794			116,501
Derivative assets	97,096			90,984
Other assets	36,060			34,701
Total assets	$	9,929,191		$	9,330,354

Liabilities, Redeemable Non-controlling Interests and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt, including consolidated variable interest entities of $266,423 and $64,251 in 2019 and 2018, respectively	$	635,929		$	464,332
Accounts payable, accrued expenses and other current liabilities	186,170			181,400
Due to affiliates	8,878			6,991
Derivative liabilities, current portion	38,729			35,559
Total current liabilities	869,706			688,282

Long-term debt, less current portion, including consolidated variable interest entities of $640,050 and $885,760 in 2019 and 2018, respectively	5,624,514			5,297,513
Operating lease obligations, less current portion, including consolidated variable interest entities of $141,683 in 2019	255,507			—
Asset retirement obligations, including consolidated variable interest entities of $118,406 and $86,456 in 2019 and 2018, respectively	286,282			212,657
Derivative liabilities	141,155			93,848
Deferred income taxes	152,948			178,849
Other liabilities	110,651			90,788
Total liabilities	7,440,763			6,561,937

Redeemable non-controlling interests	20,994			33,495
Stockholders’ equity:
Class A common stock, $0.01 par value per share, 1,200,000,000 shares authorized, 209,663,018 and 209,642,140 shares issued in 2019 and 2018, respectively	2,097			2,096
Additional paid-in capital	2,259,812			2,391,435
Accumulated deficit	(426,662		)	(359,603		)
Accumulated other comprehensive income	8,744			40,238
Treasury stock, 508,033 and 500,420 shares in 2019 and 2018, respectively	(6,815		)	(6,712		)
Total TerraForm Power, Inc. stockholders’ equity	1,837,176			2,067,454
Non-controlling interests	630,258			667,468
Total stockholders’ equity	2,467,434			2,734,922
Total liabilities, redeemable non-controlling interests and stockholders’ equity	$	9,929,191		$	9,330,354

See accompanying notes to unaudited condensed consolidated financial statements.

TERRAFORM POWER, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)



																					Non-controlling Interests
	Class A Common Stock Issued			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Common Stock Held in Treasury											Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)						Total Equity
	Shares	Amount		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Shares		Amount			Total			Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total			Total Equity
Balance as of December 31, 2017	148,586	$	1,486	$	1,872,125		$	(387,204	)	$	48,018		(500	)	$	(6,712	)	$	1,527,713		$	1,057,301		$	(198,196	)	$	894		$	859,999		$	2,387,712
Cumulative-effect adjustment	—	—		—			24,578			(4,164		)	—		—			20,414			—			(308		)	—			(308		)	20,106
Net income (loss)	—	—		—			82,796			—			—		—			82,796			—			(157,087		)	—			(157,087		)	(74,291		)
Distributions to Class A common stockholders	—	—		(28,008		)	—			—			—		—			(28,008		)	—			—			—			—			(28,008		)
Other comprehensive loss	—	—		—			—			(13,494		)	—		—			(13,494		)	—			—			(1,243		)	(1,243		)	(14,737		)
Contributions from non-controlling interests in renewable energy facilities	—	—		—			—			—			—		—			—			7,685			—			—			7,685			7,685
Distributions to non-controlling interests in renewable energy facilities	—	—		—			—			—			—		—			—			(5,204		)	—			—			(5,204		)	(5,204		)
Other	—	—		3,494			—			—			—		—			3,494			—			(500		)	—			(500		)	2,994
Balance as of March 31, 2018	148,586	1,486		1,847,611			(279,830		)	30,360			(500	)	(6,712		)	1,592,915			1,059,782			(356,091		)	(349		)	703,342			2,296,257
Issuance of Class A common stock to affiliates	60,976	610		649,390			—			—			—		—			650,000			—			—			—			—			650,000
Stock-based compensation	—	—		73			—			—			—		—			73			—			—			—			—			73
Net loss	—	—		—			(21,337		)	—			—		—			(21,337		)	—			(10,955		)	—			(10,955		)	(32,292		)
Distributions to Class A common stockholders	—	—		(28,008		)	—			—			—		—			(28,008		)	—			—			—			—			(28,008		)
Other comprehensive income	—	—		—			—			7,040			—		—			7,040			—			—			6			6			7,046
Distributions to non-controlling interests in renewable energy facilities	—	—		—			—			—			—		—			—			(6,185		)	—			—			(6,185		)	(6,185		)
Other	—	—		(295		)	—			—			—		—			(295		)	102			—			—			102			(193		)
Balance as of June 30, 2018	209,562	2,096		2,468,771			(301,167		)	37,400			(500	)	(6,712		)	2,200,388			1,053,699			(367,046		)	(343		)	686,310			2,886,698
Issuances of Class A common stock to affiliates	80	—		881			—			—			—		—			881			—			—			—			—			881
Stock-based compensation	—	—		88			—			—			—		—			88			—			—			—			—			88
Net income (loss)	—	—		—			(33,590		)	—			—		—			(33,590		)	—			2,096			—			2,096			(31,494		)
Distributions to Class A common stockholders	—	—		(39,609		)	—			—			—		—			(39,609		)	—			—			—			—			(39,609		)
Other comprehensive income (loss)	—	—		—			—