SEC Filing | TerraForm Power Operating, LLC

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terp-20200331

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 March 31, 2020


☐			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.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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 April 30, 2020, there were 226,521,289 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	9
	Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61
Item 4.	Controls and Procedures	63

Part II. Other Information

Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults Upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	66
	Signatures	67

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 TerraForm Power, Inc. (“TerraForm Power” and, together with its subsidiaries, 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, 2019:

•risks related to the proposed acquisition of all our outstanding Class A common stock by an affiliate of Brookfield Asset Management Inc. (“Brookfield”) including whether it will be approved by shareholders and ultimately consummated;

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

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

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

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

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

•pending and future litigation;

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

•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;

•equipment failure;

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

•risks related to the COVID-19 pandemic, including its impact on personnel, contract counterparties, power prices and financial markets;

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

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

•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;

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

•fraud, bribery, corruption or other illegal acts;

•health, safety, security and environmental risk;

•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;

•risks related to our relationship with Brookfield, including our ability to realize the expected benefits of sponsorship; and

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

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, 2019 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 March 31,
	2020		2019
Operating revenues, net	$	246,762	$	225,332
Operating costs and expenses:
Cost of operations	57,864		60,751
General and administrative expenses	26,217		23,162
General and administrative expenses - affiliate	9,777		5,164
Acquisition costs	355		182
Acquisition costs - affiliate	654		—

Depreciation, accretion and amortization expense	122,391		106,969
Total operating costs and expenses	217,258		196,228
Operating income	29,504		29,104
Other expenses (income):
Interest expense, net	77,959		86,287
Loss (gain) on modification and extinguishment of debt, net	3,593		(5,543)
Gain on foreign currency exchange, net	(4,871)		(8,752)
Other income, net	(4,392)		(2,680)
Total other expenses, net	72,289		69,312
Loss before income tax expense	(42,785)		(40,208)
Income tax expense (benefit)	24,461		(4,151)
Net loss	(67,246)		(36,057)
Less: Net income (loss) attributable to redeemable non-controlling interests	12		(9,381)
Less: Net loss attributable to non-controlling interests	(12,187)		(18,049)
Net loss attributable to Class A common stockholders	$	(55,071)	$	(8,627)


Weighted average number of shares:
Class A common stock - Basic and diluted	226,513		209,142


Loss per share:
Class A common stock - Basic and diluted	$	(0.24)	$	(0.04)

Distributions declared per share:
Class A common stock	$	0.2014	$	0.2014

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 March 31,
	2020		2019
Net loss	$	(67,246)	$	(36,057)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments:
Net unrealized gain arising during the period	10,264		4,822
Hedging activities:
Net unrealized loss arising during the period	(36,977)		(9,160)
Reclassification of net realized gain into earnings	(1,842)		(2,911)
Other comprehensive loss, net of tax	(28,555)		(7,249)
Total comprehensive loss	(95,801)		(43,306)
Less comprehensive income (loss) attributable to non-controlling interests:
Net income (loss) attributable to redeemable non-controlling interests	12		(9,381)
Net loss attributable to non-controlling interests	(12,187)		(18,049)
Hedging activities	(246)		676
Comprehensive loss attributable to non-controlling interests	(12,421)		(26,754)
Comprehensive loss attributable to Class A common stockholders	$	(83,380)	$	(16,552)

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)


	March 31, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	249,220	$	237,480
Restricted cash, current	42,907		35,657
Accounts receivable, net	190,745		167,865
Due from affiliates	1,729		499
Derivative assets, current	23,260		15,819
Deposit on acquisitions	12,985		24,831
Prepaid expenses	16,728		13,514
Other current assets	56,863		57,682
Total current assets	594,437		553,347

Renewable energy facilities, net, including consolidated variable interest entities of $3,156,511 and $3,188,508 in 2020 and 2019, respectively	7,759,853		7,405,461
Intangible assets, net, including consolidated variable interest entities of $678,894 and $690,594 in 2020 and 2019, respectively	1,921,229		1,793,292
Goodwill	167,989		127,952
Restricted cash	98,374		76,363
Derivative assets	50,217		57,717
Other assets	43,030		44,504
Total assets	$	10,635,129	$	10,058,636

Liabilities, Redeemable Non-controlling Interests and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt, including consolidated variable interest entities of $65,959 and $55,089 in 2020 and 2019, respectively	$	475,662	$	441,951
Accounts payable, accrued expenses and other current liabilities	188,612		178,796
Due to affiliates	13,073		11,510
Derivative liabilities, current portion	63,515		33,969
Total current liabilities	740,862		666,226

Long-term debt, less current portion, including consolidated variable interest entities of $1,162,180 and $932,862 in 2020 and 2019, respectively	6,287,131		5,793,431
Operating lease obligations, less current portion, including consolidated variable interest entities of $138,486 and $138,816 in 2020 and 2019, respectively	286,620		272,894
Asset retirement obligations, including consolidated variable interest entities of $118,961 and $116,159 in 2020 and 2019, respectively	315,146		287,288
Derivative liabilities	242,494		101,394
Deferred income taxes	197,850		194,539
Other liabilities	103,191		112,072
Total liabilities	8,173,294		7,427,844

Redeemable non-controlling interests	8,010		22,884
Stockholders’ equity:
Class A common stock, $0.01 par value per share, 1,200,000,000 shares authorized, 227,585,636 and 227,552,105 shares issued in 2020 and 2019, respectively	2,277		2,276
Additional paid-in capital	2,480,684		2,512,891
Accumulated deficit	(563,358)		(508,287)
Accumulated other comprehensive (loss) income	(16,664)		11,645
Treasury stock, 1,064,347 and 1,051,298 shares in 2020 and 2019, respectively	(15,412)		(15,168)
Total TerraForm Power, Inc. stockholders’ equity	1,887,527		2,003,357
Non-controlling interests	566,298		604,551
Total stockholders’ equity	2,453,825		2,607,908
Total liabilities, redeemable non-controlling interests and stockholders’ equity	$	10,635,129	$	10,058,636

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											Shares			Amount			Total			Capital							Total
Balance as of December 31, 2018	209,642	$	2,096	$	2,391,435	$	(359,603)	$	40,238	(500)	$	(6,712)		$	2,067,454		$	1,040,771		$	(373,420)		$	117	$	667,468	$	2,734,922
Stock-based compensation	—	—		160		—		—		—	—			160			—			—			—		—		160
Net loss	—	—		—		(8,627)		—		—	—			(8,627)			—			(18,049)			—		(18,049)		(26,676)
Distributions to Class A common stockholders	—	—		(41,987)		—		—		—	—			(41,987)			—			—			—		—		(41,987)
Other comprehensive (loss) income	—	—		—		—		(7,925)		—	—			(7,925)			—			—			676		676		(7,249)
Contributions from non-controlling interests	—	—		—		—		—		—	—			—			5,562			—			—		5,562		5,562
Distributions to non-controlling interests	—	—		—		—		—		—	—			—			(5,023)			—			—		(5,023)		(5,023)
Purchase of non-controlling interests	—	—		(687)		—		—		—	—			(687)			(393)			—			—		(393)		(1,080)
Non-cash redemption of redeemable non-controlling interests	—	—		(7,345)		—		—		—	—			(7,345)			—			—			—		—		(7,345)
Balance as of March 31, 2019	209,642	$	2,096	$	2,341,576	$	(368,230)	$	32,313	(500)	$	(6,712)		$	2,001,043		$	1,040,917		$	(391,469)		$	793	$	650,241	$	2,651,284


																	Non-controlling Interests
	Class A Common Stock Issued					Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)	Common Stock Held in Treasury														Accumulated Deficit		Accumulated Other Comprehensive Income			Total Equity
	Shares	Amount											Shares			Amount			Total			Capital							Total
Balance as of December 31, 2019	227,552	$	2,276	$	2,512,891	$	(508,287)	$	11,645	(1,051)	$	(15,168)		$	2,003,357		$	1,024,396		$	(419,338)		$	(507)	$	604,551	$	2,607,908
Stock-based compensation	34	1		329		—		—		(13)	(244)			86			—			—			—		—		86
Net loss	—	—		—		(55,071)		—		—	—			(55,071)			—			(12,187)			—		(12,187)		(67,258)
Distributions to Class A common stockholders	—	—		(45,488)		—		—		—	—			(45,488)			—			—			—		—		(45,488)
Other comprehensive loss	—	—		—		—		(28,309)		—	—			(28,309)			—			—			(246)		(246)		(28,555)
Contributions from non-controlling interests	—	—		—		—		—		—	—			—			3,008			—			—		3,008		3,008
Distributions to non-controlling interests	—	—		—		—		—		—	—			—			(28,828)			—			—		(28,828)		(28,828)
Purchase of redeemable non-controlling interests	—	—		12,952		—		—		—	—			12,952			—			—			—		—		12,952

Balance as of March 31, 2020	227,586	$	2,277	$	2,480,684	$	(563,358)	$	(16,664)	(1,064)	$	(15,412)		$	1,887,527		$	998,576		$	(431,525)		$	(753)	$	566,298	$	2,453,825

See accompanying notes to unaudited condensed consolidated financial statements.

TERRAFORM POWER, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Three Months Ended March 31,
			2020			2019
Cash flows from operating activities:
Net loss	$	(67,246)		$	(36,057)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, accretion and amortization expense	122,391			106,969
Amortization of favorable and unfavorable rate revenue contracts, net	9,903			9,138


Amortization of deferred financing costs, debt premiums and discounts, net	3,464			2,453
Unrealized loss on interest rate swaps	3,131			13,925
Unrealized loss (gain) on commodity contract derivatives, net	1,300			(804)

Stock-based compensation expense	329			160
Loss (gain) on modification and extinguishment of debt, net	3,593			(5,543)
Loss on disposal of renewable energy facilities	889			1,933
Gain on foreign currency exchange, net	(1,753)			(6,718)
Deferred taxes	24,281			(4,318)
Charges to allowance for doubtful accounts	540			166
Other, net	207			(62)
Changes in assets and liabilities, excluding the effect of acquisitions:
Accounts receivable	8,454			(9,058)
Prepaid expenses and other current assets	(3,847)			10,345