TerraForm Power and Brookfield ink sponsor deal with SunEdison support

By Caroline Salls

Pittsburgh, March 7 – TerraForm Power, Inc. and Brookfield Asset Management Inc. entered into a definitive agreement under which Brookfield will assume the role of TerraForm Power’s sponsor and Brookfield will become the controlling shareholder as part of TerraForm Power’s separation from SunEdison Inc., according to a news release.

“With the successful completion of the board’s strategic alternatives process, the TerraForm Power board and management team are confident that Brookfield’s sponsorship will enable our company to deliver cash to shareholders while strengthening our operations for future value creation,” TerraForm Power chairman and interim chief executive officer Peter Blackmore said in the release.

“This agreement with Brookfield is the culmination of our efforts to separate our operations from SunEdison and to position TerraForm Power for future success.

“With the support of Brookfield as TerraForm Power’s sponsor, we will gain additional resources to continue to expand our portfolio and increase cash flow on a per share basis.”

SunEdison CEO and chief restructuring officer John Dubel said in the release “SunEdison is supporting this transaction, which it believes maximizes potential proceeds for the estate and aligns Brookfield with the interests of TerraForm Power in the future to create value.”

The transaction has been approved by the boards of directors of TerraForm Power and Brookfield.

Agreement terms

Key terms of the agreement include 51% Brookfield ownership in TerraForm Power post-closing, an $11.46 price per class A share, derived from a pre-SunEdison settlement price of $12.00 per share, with option for shareholders to elect to receive shares, and a right-of-first-offer portfolio provided to TerraForm Power by Brookfield.

In addition, the key terms include a $500 million sponsor equity line offered by Brookfield to support future growth for TerraForm Power, $1.7 billion implied total equity value and $6.6 billion implied total enterprise value.

For each class A share, TerraForm Power shareholders, excluding Brookfield, will be entitled to $1.94 per share in the form of a special dividend and either $9.52 per share in additional cash or one share in TerraForm Power post-closing, $11.46 per share cash consideration and zero shares or $1.94 per share in cash and one share.

The companies said this structure is subject to proration, meaning that shareholders that elect cash may still retain a portion of their shares, and conversely, shareholders that elect to retain their shares may still receive a portion of their consideration in cash.

Assuming full proration, class A shareholders would be entitled to $1.94 per share in the form of a special dividend, $4.50 per share in additional cash consideration for class A shareholders excluding Brookfield and $6.44 per share total cash consideration and 0.53 of a share in TerraForm Power post-closing.

After the closing, non-Brookfield shareholders will hold 49% ownership in TerraForm Power.

As part of the transaction, Brookfield and TerraForm Power said they will enter into a master services agreement under which Brookfield will provide strategic services and long-term investment advisory services. In return, Brookfield will receive an annual management fee and a management incentive fee and incentive distribution rights aligning Brookfield’s incentives with TerraForm Power’s public shareholders.

The merger agreement entitles Brookfield to receive additional class A shares from TerraForm Power based upon the costs to TerraForm Power of resolving pending litigation.

As TerraForm Power’s new sponsor, Brookfield said it expects to deleverage TerraForm Power with the goal of achieving investment-grade credit ratings in the medium to long term.

SunEdison settlement

As part of its strategic alternatives process, TerraForm Power said it also entered into a settlement agreement with SunEdison, subject to the approval of the court overseeing the SunEdison bankruptcy.

The settlement resolves the legal relationship between TerraForm Power and SunEdison and includes an allocation of ownership in TerraForm Power before the transaction and, with some exceptions, the full mutual release of all claims of SunEdison, the release said.

All class B shares of TerraForm Power and class B units of TerraForm Power LLC held by SunEdison will be exchanged for class A shares immediately before completion of the transaction, increasing SunEdison’s ownership of TerraForm Power to 36.9% by issuing 6.6 million incremental shares to SunEdison.

In addition, SunEdison will have the option in specified circumstances following a termination of the merger agreement, to convert its class B shares into an amount of class A shares representing 36.9% of the total class A shares.

The transaction is expected to be completed in the second half of 2017 and is subject to approval by a majority of class A shareholders, regulatory approvals, and the approval of the court overseeing the SunEdison Chapter 11 case.

Morgan Stanley, Centerview Partners and AlixPartners acted as financial advisers to TerraForm Power on this transaction. Sullivan & Cromwell LLP and Sidley Austin LLP acted as legal counsel for TerraForm Power. Greenberg Traurig LLP and Hughes Hubbard & Reed LLP acted as legal counsel for the independent directors.

Cravath, Swaine & Moore LLP acted as legal advisers to Brookfield.

Rothschild and Ankura Consulting acted as financial advisers to SunEdison. Skadden Arps acted as legal counsel for SunEdison.

Based in Maryland Heights, Mo., SunEdison operates renewable power plants. It filed for bankruptcy on April 21, 2016 in the U.S. Bankruptcy Court for the Southern District of New York under Chapter 11 case number 16-10992.

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