SunEdison Uses Yieldco to Acquire First Wind for $2.4 Billion

SunEdison Inc.'s yieldco subsidiary's announcement on Tuesday, Nov. 18, to acquire First Wind in a transaction valued at $2.4 billion was a negotiated deal, said a source familiar with the matter. The deal provides SunEdison, a solar developer based in St. Peters, Mo., with an entrance into the wind market and significantly increases SunEdison's installations to 2.1 to 2.3 gigawatts of capacity from 1.6 to 1.8 GW. Included in the transaction is an additional 6.4 GW of project development opportunities. Under the agreement, the yieldco, named TerraForm Power Inc. , will acquire 521 megawatts of contracted wind generation assets from First Wind and add 1.6 GW to its list of call right projects scheduled for drop down in 2016 to 2017. The acquisition increases the generation capacity of TerraForm Power's operating portfolio by more than 50% and provides further geographic diversity in Maine, New York, Hawaii, Vermont and Massachusetts. The transaction will accelerate the timing and enhance the visibility of SunEdison's receipt of incentive distribution rights from TerraForm Power, and increase the value of SunEdison's yieldco platform. The yieldco is a corporate entity designed to mimic the economics of MLPs and REITs, with their tax benefits and their ability to attract additional investors because of their guaranteed distributions to unitholders. The yieldco grows by either dropping down assets — meaning that projects are put into the yieldco from the parent — or acquisitions, with some yieldcos growing through a combination of drop-downs and acquisitions. Total consideration for the deal includes an upfront payment of $1.9 billion and a $510 million earn-out once First Wind completes certain projects in its pipeline backlog. The deal is being funded with $2.4 billion in bridge financing and $1.5 billion of non-recourse capital secured from six global banks and First Reserve Infrastructure. As part of the deal, SunEdison is putting a $1.5 billion non-recourse warehouse financing facility in place for projects expected to be dropped down into TerraForm. The transaction will be immediately accretive to TerraForm Power and is expected to deliver $72.5 million in unlevered cash available for distribution in 2015. Pro forma for the transaction, TerraForm Power raises its 2015 CAFD guidance to $214 million and 2015 dividend guidance to $1.30 per share, a 44% increase over its current $0.90 dividend rate. It is expected to close during the first quarter of 2015, subject to usual customary conditions and regulatory approvals, including the Federal Energy Regulatory Commission. SunEdison debuted its yieldco, TerraForm Power Inc., on July 18 at $25 per share, which was the high end of an already raised price range. Morgan Stanley's Todd Giardinelli acted as lead financial adviser and provided a fairness opinion to SunEdison. Barclays' Todd Giardinelli acted as co-adviser to SunEdison and lead structuring agent on the financing. Terraform turned to Ray Wood Jeff Kulik and John Griffith at Bank of America Merrill Lynch acted as lead financial adviser and lead structuring agent on the drop down warehouse credit facility. Jugjeev Duggal at Citigroup acted as co-adviser to TerraForm. George Bilicic and Jonathan Mir at Lazard provided a fairness opinion to the corporate governance committee of Terraform's board. First Wind tapped Goldman Sachs' Brian Bolster acted as its exclusive financial adviser while Marathon Capital advised First Wind's board. Christopher Moore at Orrick acted as M&A counsel to SunEdison and TerraForm. Cleary Gottlieb acted as counsel to the corporate governance committee of the TerraForm board, with a team consisting of Ethan Klingsberg, Chantal Kordula, Manoj Nair and Charles Allen. Davis Polk was counsel to First Wind with a team that included Joseph Rinaldi, Kathleen Ferrell, John Brandow, Joseph Hadley, Gregory Hannibal, John Wright, Daniel Brass, Darren Schweiger, Nina Assouline and Barry Gewolb. — David Marcus contributed to this report

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