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TerraForm Power Eyes Spain for Growth

By Travis Hoium - Feb 9, 2018 at 6:47AM

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Brookfield Asset Management is backing TerraForm Power's first big acquisition since restructuring the company.

Less than four months after Brookfield Asset Management (BAM 1.24%) closed its acquisition of a controlling interest in TerraForm Power Inc (TERP), the yieldco is starting to buy renewable energy projects. 

TerraForm announced a tender offer to acquire 100% of Saeta's outstanding shares, a deal that could add 1,028 MW of solar and wind assets to the portfolio. If it closes, the potential $1.2 billion acquisition could transform TerraForm Power into a growth yieldco once again

Solar farm with a wind turbine in the background.

Image source: Getty Images.

Buying a Spanish renewables giant

Saeta is a renewable energy project owner that primarily owns assets in Spain, where its assets are rate-regulated or contracted with utilities. The offer for the company is for 12.20 Euros per share, which would amount to a $1.2 billion purchase price. Over 50% of the buyout is an "irrevocable commitment," so TerraForm Power is on the hook for $600 million already.

To pay for the deal, TerraForm Power has proposed a $400 million share offering with backstopping by Brookfield Asset Management. Brookfield has agreed to back a minimum issuance price of any new stock at the 5-day volume weighted average price immediately prior to the transaction, or $10.66 per share. Another $800 million in liquidity will come from the balance sheet, project financing, and cash to be released from Saeta's assets. 

TerraForm Power didn't disclose exact cash available for distribution from the transaction, but did say the deal would have "CAFD accretion of 24% on a pro forma basis" and equity returns higher than the company's target. 

TerraForm Power's dividend is already looking good

One big vote of confidence from management was TerraForm Power increasing its 2018 dividend target to $0.76 per share. That's a $0.04 increase from the old target, and would be driven by the increased cash coming from Saeta's assets. 

The goal of any yieldco is to grow its dividend by buying enough accretive assets to fund dividend growth. But that's been difficult in the last year because dividend yields have been so high that projects haven't been very accretive. 

Brookfield blazes a path for TerraForm Power

I think we may be seeing how Brookfield Asset Management will operate TerraForm Power going forward. It'll look for growth assets when they become available, but when it needs to issue stock to fund those acquisitions it'll give the market confidence by backstopping the equity raise. That'll give assurance that equity raises won't be too dilutive and will drive accretive acquisitions. 

TerraForm Power looks like it's in good hands with Brookfield Asset Management, and that may make it one of the industry's leading yieldcos once again. 

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