TerraForm Power, Inc. (NASDAQ: TERP), an owner and operator of clean energy power plants, today announced the acquisition of 521 MW (net) of operating wind power plants from Atlantic Power, an independent power producer with a well-diversified fleet of power generation assets throughout the United States and Canada.
These five wind farms are located in high wind areas of Oklahoma and Idaho. The assets are contracted under long term power purchase agreements (PPAs) with investment grade utilities with a weighted-average credit rating of A3. The PPAs have a weighted-average remaining life of 18 years.
The portfolio is expected to generate average annual adjusted EBITDA of $56 million and average annual CAFD of $44 million over the next 10 years. This represents a 9%1 unlevered cash-on-cash return.
Equity consideration for the portfolio will be $350 million, subject to working capital and other customary adjustments. The power plants have $165 million of project debt that the company intends to retire, and approximately $110 million proportional share of project debt that will remain outstanding.
TerraForm has secured fully committed bridge financing of up to $515 million to support the transaction. The company intends to fund the acquisition with a drop down warehouse facility in partnership with third party equity investors and its sponsor SunEdison (NYSE: SUNE). This transaction would provide TerraForm with increased visibility to long-term dividend growth from contracted operating assets. Concurrent with the acquisition closing, these 521 MW of projects would be added to the TerraForm Call Right Projects list, increasing the total from 3.4 GW to 4 GW, and increasing the contracted call right projects from 2.5 GW to 3 GW.
"We are grateful for the opportunity to work with Atlantic Power. This landmark transaction illustrates the strength and agility of the combined TerraForm-SunEdison platform as well as the robustness of our proprietary deal pipeline," said Carlos Domenech, Chief Executive Officer of TerraForm Power. "We expect the warehouse facility to be an innovative financing structure that provides repeatable and scalable funding to secure future growth; we expect the drop down returns to be at parity with the acquisition yields."
The transaction is expected to close in the second quarter of 2015, subject to regulatory approvals and customary closing conditions.
Morgan Stanley acted as the exclusive financial advisor to TerraForm Power.
1) 9% return is based on CAFD of $44M and aggregate consideration of $515M. The CAFD of $44M is after debt payments on the ~$110M of project debt attributable to acquired minority interests