SEC Filing | TerraForm Power Operating, LLC

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terp-20200630

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 June 30, 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 NY Holdings, Inc.

(As successor by merger to TerraForm Power, Inc.)

(Exact name of registrant as specified in its charter)

_____________________________________________________________________________

New York

84-5729672

(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)

TerraForm Power, Inc.

(Former name, if changed since last report)

_________________________________________________

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 June 30, 2020, there were 226,531,665 shares of Class A common stock outstanding. As of July 31, 2020, there were no shares of Class A common stock outstanding.

TerraForm Power, Inc. and Subsidiaries

Table of Contents

Form 10-Q


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

Item 1.	Financial Statements
	Unaudited Condensed Consolidated Statements of Operations	6
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	7
	Unaudited Condensed Consolidated Balance Sheets	8
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity	10
	Unaudited Condensed Consolidated Statements of Cash Flows	12
	Notes to Unaudited Condensed Consolidated Financial Statements	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	51
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	70
Item 4.	Controls and Procedures	72

Part II. Other Information

Item 1.	Legal Proceedings	73
Item 1A.	Risk Factors	73
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults Upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	73
Item 6.	Exhibits	74
	Signatures	75

EXPLANATORY NOTE

On July 31, 2020, TerraForm Power, Inc. (“TerraForm Power” or the “Company”) completed the previously announced reincorporation merger and share exchange contemplated by the (i) Agreement and Plan of Reorganization, dated as of March 16, 2020 (the “Reorganization Agreement”), among the Company, TerraForm Power NY Holdings, Inc. (“TERP NY”), Brookfield Renewable Partners L.P. (“BEP”), Brookfield Renewable Corporation (“BEPC”), and 2252876 Alberta ULC, a wholly owned subsidiary of BEP (“Acquisition Sub”), and (ii) Plan of Merger, dated as of March 16, 2020 (the “Plan of Merger”), by and between TerraForm Power and Terra Form New York. As a result, on July 31, 2020, TerraForm Power merged with and into TERP NY, with TERP NY as the surviving corporation of the merger (the “reincorporation merger”), and (i) BBHC Orion Holdco L.P. and Orion U.S. Holdings 1 L.P. (collectively, the “Brookfield stockholders”), each an affiliate of BEP, received shares of TERP NY Class A common stock, par value $0.01, (ii) holders of public TerraForm Power shares who did not make an election to receive non-voting limited partnership units of BEP (the “BEP units”) received shares of TerraForm TERP NY Class B common stock, par value $0.01, and (iii) holders of Class A common stock of TerraForm Power who made an election to receive BEP units received shares of TERP NY Class C common stock, par value $0.01. Immediately thereafter, (i) pursuant to a binding share exchange, BEPC acquired each share of TERP NY Class B common stock that was issued and outstanding after the reincorporation merger effective time in exchange for BEPC Class A exchangeable subordinate voting shares, no par value (the “BEPC exchangeable shares”) and cash in lieu of fractional BEPC exchangeable shares and (ii) pursuant to a binding share exchange, Acquisition Sub acquired each share of TERP NY Class C common stock that was issued and outstanding after the reincorporation merger effective time in exchange for BEP units and cash in lieu of fractional BEP units (such exchanges collectively, the “share exchange” and, together with the reincorporation merger, the “Merger Transaction”).

This Quarterly Report on Form 10-Q (the “Quarterly Report”) of the Company for the period ended June 30, 2020, is being filed by its successor company, TERP NY. The financial information in this Quarterly Report and the accompanying management’s discussion and analysis reflect the corporate status of the reporting entity as it was at June 30, 2020.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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, in our Annual Report on Form 10-K for the year ended December 31, 2019 and in subsequent fillings with the Securities and Exchange Commission (“SEC”):

•risks related to our acquisition by Brookfield Renewable Partners L.P. (“Brookfield Renewable”), including our ability to realize the expected benefits of this transaction;

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

•the willingness and ability of contract counterparties to fulfill their obligations under offtake agreements amd other contracts;

•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;

•risks related to the COVID-19 pandemic, including its impact on personnel, contract counterparties, power prices and financial markets, as well as its impact on our business, results of operations, financial condition and/or cash flows;

•our ability to successfully close the acquisitions of, integrate or realize the anticipated benefits from the projects that we acquire from third parties;

•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 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; 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 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 June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Operating revenues, net	$	277,329	$	255,366	$	524,091	$	480,698
Operating costs and expenses:
Cost of operations	61,926		71,575		119,790		132,326
General and administrative expenses	18,351		22,057		44,568		45,219
General and administrative expenses - affiliate	10,717		6,159		20,494		11,323
Acquisition costs	114		293		469		475
Acquisition costs - affiliate	10		—		664		—

Depreciation, accretion and amortization expense	127,908		100,354		250,299		207,323
Total operating costs and expenses	219,026		200,438		436,284		396,666
Operating income	58,303		54,928		87,807		84,032
Other expenses (income):
Interest expense, net	85,332		71,041		163,291		157,328
Loss (gain) on modification and extinguishment of debt, net	—		—		3,593		(5,543)
Gain on foreign currency exchange, net	(116)		(6,440)		(4,987)		(15,192)
Other (income) expenses, net	(2,747)		1,485		(7,139)		(1,195)
Total other expenses, net	82,469		66,086		154,758		135,398
Loss before income tax expense	(24,166)		(11,158)		(66,951)		(51,366)
Income tax (benefit) expense	(10,832)		5,669		13,629		1,518
Net loss	(13,334)		(16,827)		(80,580)		(52,884)
Less: Net income (loss) attributable to redeemable non-controlling interests	9		2,481		21		(6,900)
Less: Net loss attributable to non-controlling interests	(13,282)		(15,713)		(25,469)		(33,762)
Net loss attributable to Class A common stockholders	$	(61)	$	(3,595)	$	(55,132)	$	(12,222)


Weighted average number of shares:
Class A common stock - Basic and diluted	226,528		209,142		226,520		209,142


Loss per share:
Class A common stock - Basic and diluted	$	—	$	(0.02)	$	(0.24)	$	(0.06)

Distributions declared per share:
Class A common stock	$	0.2014	$	0.2014	$	0.4028	$	0.4028

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 June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net loss	$	(13,334)	$	(16,827)	$	(80,580)	$	(52,884)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Net unrealized gain arising during the period	8,545		4,050		18,809		8,872
Hedging activities:
Net unrealized loss arising during the period	(3,159)		(18,128)		(40,136)		(27,288)
Reclassification of net realized gain into earnings	(1,255)		(2,917)		(3,097)		(5,828)
Other comprehensive income (loss), net of tax	4,131		(16,995)		(24,424)		(24,244)
Total comprehensive loss	(9,203)		(33,822)		(105,004)		(77,128)
Less comprehensive income (loss) attributable to non-controlling interests:
Net income (loss) attributable to redeemable non-controlling interests	9		2,481		21		(6,900)
Net loss attributable to non-controlling interests	(13,282)		(15,713)		(25,469)		(33,762)
Hedging activities	(187)		56		(433)		732
Comprehensive loss attributable to non-controlling interests	(13,460)		(13,176)		(25,881)		(39,930)
Comprehensive income (loss) attributable to Class A common stockholders	$	4,257	$	(20,646)	$	(79,123)	$	(37,198)

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)


	June 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	259,753	$	237,480
Restricted cash, current	37,886		35,657
Accounts receivable, net	206,955		167,865
Due from affiliates	2,704		499
Derivative assets, current	7,688		15,819
Deposit on acquisitions	2,648		24,831
Prepaid expenses	19,724		13,514
Other current assets	44,714		57,682
Total current assets	582,072		553,347

Renewable energy facilities, net, including consolidated variable interest entities of $3,121,220 and $3,188,508 in 2020 and 2019, respectively	7,734,185		7,405,461
Intangible assets, net, including consolidated variable interest entities of $666,109 and $690,594 in 2020 and 2019, respectively	1,904,582		1,793,292
Goodwill	172,181		127,952
Restricted cash	60,156		76,363
Derivative assets	45,161		57,717
Other assets	41,602		44,504
Total assets	$	10,539,939	$	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 $70,175 and $55,089 in 2020 and 2019, respectively	$	484,570	$	441,951
Accounts payable, accrued expenses and other current liabilities	192,023		178,796
Due to affiliates	12,794		11,510
Derivative liabilities, current portion	63,596		33,969
Total current liabilities	752,983		666,226

Long-term debt, less current portion, including consolidated variable interest entities of $1,137,671 and $932,862 in 2020 and 2019, respectively	6,262,346		5,793,431
Operating lease obligations, less current portion, including consolidated variable interest entities of $137,307 and $138,816 in 2020 and 2019, respectively	286,142		272,894
Asset retirement obligations, including consolidated variable interest entities of $120,525 and $116,159 in 2020 and 2019, respectively	321,183		287,288
Derivative liabilities	237,017		101,394
Deferred income taxes	185,127		194,539
Other liabilities	93,283		112,072
Total liabilities	8,138,081		7,427,844

Redeemable non-controlling interests	7,990		22,884
Stockholders’ equity:
Class A common stock, $0.01 par value per share, 1,200,000,000 shares authorized, 227,601,982 and 227,552,105 shares issued in 2020 and 2019, respectively	2,278		2,276
Additional paid-in capital	2,435,521		2,512,891
Accumulated deficit	(563,419)		(508,287)
Accumulated other comprehensive (loss) income	(12,346)		11,645
Treasury stock, 1,070,317 and 1,051,298 shares in 2020 and 2019, respectively	(15,516)		(15,168)
Total TerraForm Power, Inc. stockholders’ equity	1,846,518		2,003,357
Non-controlling interests	547,350		604,551
Total stockholders’ equity	2,393,868		2,607,908
Total liabilities, redeemable non-controlling interests and stockholders’ equity	$	10,539,939	$	10,058,636

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)

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			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
Stock-based compensation	—	—		43		—		—		—	—			43			—			—			—		—		43
Net loss	—	—		—		(3,595)		—		—	—			(3,595)			—			(15,713)			—		(15,713)		(19,308)
Distributions to Class A common stockholders	—	—		(41,991)		—		—		—	—			(41,991)			—			—			—		—		(41,991)
Other comprehensive (loss) income	—	—		—		—		(