DBRS Comments on Impact to Brookfield Renewable from TerraForm Power’s Acquisition of Saeta Yield

DBRS Limited (DBRS) notes that TerraForm Power (TerraForm, 51% owned by Brookfield Asset Management Inc. (BAM; rated A (low) with a Stable trend by DBRS)) has initiated a takeover bid for Saeta Yield (Saeta or the Acquisition). BAM’s ownership of TerraForm is held through a 16% interest owned by Brookfield Renewable Partners L.P. (BEP; rated BBB (high) with a Stable trend by DBRS) and a 35% interest owned by Brookfield Private Fund Infrastructure. Over 50% of Saeta’s shareholders have agreed to sell, including Spanish construction company ACS and U.S. fund Global Infrastructure Partners. The Acquisition — of 100% of Saeta shares — is expected to cost $1.2 billion and is expected to close in the second quarter of 2018, subject to certain conditions, including regulatory approvals. Based on DBRS’s initial review of the proposed Acquisition and its planned financing, it is DBRS’s opinion that the Acquisition will have no effect on the credit profile of BEP.

ACQUISITION ASSETS
Saeta has 778 megawatts (MW) of wind and 250 MW of thermal solar projects. The assets are primarily located in Spain (789 MW) with additional assets located in Portugal (144 MW) and Uruguay (95 MW). The assets in Spain earn regulated revenues, which includes a market payment component and regulated payment component that significantly support the stability of the cash flow. In Portugal and Uruguay, most capacity is under long-term power purchase agreements with an average remaining life of 14 years.

FINANCING
TerraForm is planning to finance the Acquisition through $400 million of equity (which will be backstopped by BAM) with the remaining balance to be funded from available corporate liquidity at TerraForm ($600 million under a corporate facility and $500 million sponsor line with BAM). The use of TerraForm’s liquidity will be subsequently refinanced with a combination of TerraForm refinancing unencumbered projects and cash of approximately $200 million released from the Acquisition.

CREDIT OPINION
DBRS notes that BEP as a 16% owner of TerraForm could be expected to contribute up to $65 million toward the Acquisition, which DBRS does not consider to be material to its current credit quality.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating Companies in the Independent Power Producer Industry, which can be found on dbrs.com under Methodologies.

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