What You Need to Know About the TerraForm Power IPO

TerraForm's IPO is hot but is it right for you?

Jul 18, 2014 at 3:35PM

SunEdison (NYSE:SUNE) has finally spunoff its YieldCo, TerraForm Power (NASDAQ:TERP), which hit the market on Friday sharply higher than its $25 per share initial public offering price. The company is just the latest YieldCo to hit the market, intended to own renewable energy projects and give investors a chance to generate yield without taking the risk they normally take with solar manufacturers.

What TerraForm Power does that previous YieldCos haven't done is give investors a way to invest in only solar projects. Most other YieldCos also include some wind, energy efficiency, and even fossil fuel assets.

Sune Chile Project Image

TerraForm Power will own SunEdison projects like this one in Chile. Source: SunEdison.

What investors are getting in TerraForm Power
The first thing to understand is the share of the company investors are getting. Once shares are issued they'll be used to purchase Class B units of Terra LLC and if all 23.1 million shares are issued, including the underwriter's overallotment, shareholders will own 26.1% of the outstanding membership units in Terra LLC.

At the end of the day, 30.8% of Terra LLC's membership units will be in TerraForm Power's Class A units, 61.9% will be Class B units owned by SunEdison, and the rest will be owned by Silver Ridge Power LLC. 

The company will then own a number of solar projects and their corresponding cash flows. For simplicity sake, I've listed the projects from the S-1 below.

Screen Shot

Per TerraForm Power S-1. Source: SEC.

Once the IPO is completed and TerraForm Power enters normal operations the plan is to pay a quarterly dividend and grow assets and corresponding cash flow with returns from existing assets. Management intends to grow cash flow 15% for the first three years of operations.

The dividend is initially planned to be $0.2257 per share per quarter, which equates to a 2.7% dividend yield with the stock at $33.71 per share as I'm writing. That's similar to other YieldCos on the market.

Should you buy this YieldCo?
What's important to understand is that like many MLPs investors have little control of what happens in the YieldCo and are really just hoping for a steadily increasing yield. SunEdison holds almost all of the voting power and as the company pushing assets down to the YieldCo they also have an incentive to get the best price for those projects.

I think YieldCos in general will be a good asset class for investors looking for cash flow but owning a basket is probably better than betting on just one.

More cash money making energy stocks
YieldCos are an emerging energy yield play but they don't have the tax advantage of others in energy. We've found a tax break energy companies are taking advantage of and you can find out more about it in our brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers