In April, when First Solar (NASDAQ:FSLR) announced that it was considering selling its stake in 8point3 Energy Partners (NASDAQ: CAFD) in 2017, and when co-sponsor SunPower (NASDAQ:SPWR) announced similar plans a few months later, it seemed like a sale may be imminent.
More than seven months later, 8point3 Energy Partners is still public, and all we know is that both sponsors are looking to sell their stakes. But who will take control of 8point3 Energy Partners is uncertain at this point.
3 options for 8point3 Energy Partners sale
After the process of selling part of 8point3 Energy Partners started, SunPower announced that buyers weren't interested in only replacing First Solar, they wanted to buy both companies' stakes in the company or the entire yieldco. But that doesn't mean there aren't a few options.
A full buyout would be simple enough. A utility, pension fund, or private equity group could come in and buy the company, looking to own the 20 years of contracted cash flows and any residual value in projects after that.
I think a more likely scenario is that one of those buyers takes over First Solar and SunPower's stakes in the company and their sponsorship role (including incentive distribution rights) and keeps the company public. This would be a less expensive way to buy out the yieldco but would allow a buyer to use shares sold to the public to grow long-term. A similar strategy played out earlier this year when Brookfield Asset Management (NYSE:BAM) acquired a controlling stake in TerraForm Power Inc (NASDAQ:TERP), a yieldco with similar challenges growing as 8point3 Energy Partners due to a high yield. A high yield makes it nearly impossible to buy growth projects, but as Brookfield has proven a new sponsor can bring stability back to a stock.
The third option is that nothing happens and First Solar and SunPower keep their stakes. I don't view this as likely given the fact that they no longer need a yieldco to buy their large solar projects, but it's possible if a buyer doesn't come in at the right price. On top of the fact there isn't a strategic need to keep the yieldco, SunPower would need to refinance $300 million of debt coming due in June of 2018 and would prefer to pay down that debt with proceeds from the sale of 8point3 Energy Partners.
Who might be interested?
The list of potential buyers of 8point3 Energy Partners is enormous, but there are a few that make a lot of sense.
NextEra Energy (NYSE:NEE), AES (NYSE:AES), Southern Company (NYSE:SO), and AEP (NYSE:AEP) all have the scale to buy 8point3 Energy Partners, the desire to grow their renewable businesses, and previous relationships with both sponsors. NextEra Energy already has a yieldco in NextEra Energy Partners but could have a separate solar-focused yieldco or even fold 8point3 Energy Partners and its high-yield projects into NextEra Energy Partners.
AES, Southern Company, and AEP are all growing their renewables businesses and could use a yieldco to fund further acquisitions. And buying a yieldco with a 7.2% dividend yield would be a low-risk way to enter the space.
Time is of the essence for one seller
Investors can speculate on price and timing, but we really don't know where bids are coming in or when a deal will be announced. What we do know is that SunPower has an incentive to get a deal done soon. It has $300 million of convertible debt due June 1, 2018, and the closing of an acquisition could take months, so there's starting to be a time crunch to get a deal closed.
There's a lot of uncertainty facing investors in 8point3 Energy Partners today as sponsors look to sell their stakes. But there's an incentive to get a sale done and a number of buyers who make sense. Over the long term, I think there's significant upside for those who hold on to the yieldco, but it may be a while until a buyer emerges, so a quick profit may not be around the corner.