TerraForm Global Inc. (NASDAQ: GLBL) has been a surprise winner on the stock market in 2017, rising 27% compared to a decline of 6% for its sister yieldco, TerraForm Power Inc. (NASDAQ:TERP). The sharp rise in TerraForm Global's shares is even a bit surprising given the fact that there was very real concern that the yieldco would be brought into bankruptcy along with its sponsor, SunEdison.
There was one move that likely led to the yieldco's recovery. It tied itself to TerraForm Power and pushed for a buyout for two companies rather than one.
Linking its fate to TerraForm Power
When Brookfield Asset Management (NYSE:BAM) was circling TerraForm Global and TerraForm Power in early 2017, it became clear that it had looked at the companies as one big transaction. If SunEdison and its creditors were going to make a deal to sell the yieldcos, they would have to be pushed into one transaction and that meant TerraForm Global riding TerraForm Power's coattails.
In January, Brookfield offered $11.50 per share for TerraForm Power but said it would sweeten the offer to $12 per share if it got at least a 50% stake in TerraForm Global. And Brookfield was ready to pay $4.35 per share for TerraForm Global in a full buyout. As it turns out, Brookfield bought all of TerraForm Global for $5.10 per share and 51% of TerraForm Power for $11.46 per share. TerraForm Global looks like it got the better end of the negotiation.
Make the deal happen
What ended up happening, and the brilliance of tying its fortune to TerraForm Power, is that SunEdison's creditors thought it was better to sell a little over half of its stake in TerraForm Power rather than let the entire deal die. TerraForm Global was in more financial distress, having defaulted on some loans and project contracts, so unloading the entire stake was desirable.
Under this scenario, creditors could have upside if TerraForm Power ever recovered. And with shares trading over $12 today, it looks like betting on TerraForm Power's upside was a better move than holding onto TerraForm Global.
Closing the deal is next
There's an agreement in place for Brookfield to buy TerraForm Global and take control of TerraForm Power, but the deal isn't closed yet. That's the next step and TerraForm Global says it has work to do to meet its end of the bargain. The hurdles remaining include "settlement of certain remaining litigation, receipt of certain regulatory approvals and shareholder approval of the transaction."
If the sale goes off without a hitch, TerraForm Global shareholders will be a big winner in the yieldco space in 2017. That's a big surprise given the company's near-death experience in 2016. The recovery was arguably driven by TerraForm Global's ability to tie itself to its sister yieldco and push for a sale of both yieldcos. And the strategy has worked better than investors hoped.