TerraForm Power, Inc. (TERP)

[lepv123 1]

Explo and Odyd, Now that SUNE isn't going BK in the time being, does that mean Moody's assessment of possible BK for TERP and GLBL out the door?

What are you expectations on earnings? Assuming worst case scenario, if dividends are not announced, will TERP sink hard in your opinion? Thanks.

[odyd 1,293]

3 hours ago, lepv123 said:

What are you expectations on earnings? Assuming worst case scenario, if dividends are not announced, will TERP sink hard in your opinion? Thanks.

Lepv, not announcing or changing dividend for any of the yieldcos would be a catastrophic event to the share price of any yieldcos. It is like not paying interest on a bond, not a default but a signal of internal issue. Those stocks are designed to be dividend stocks. I argued in my article that renewable yieldcos are revenue fixed and have no reason to eliminate dividend and further should increase them with acquisitions. They may not equally increase as they opt to buy outstanding shares perhaps, like discussion on price on GLBL, or add to pay debt principal, which makes a lot sense.

Elimination of dividend in TERP would hurt SunEdison as they collect that payment already.

One can say, ok however SunEdison needs money and they manage yieldcos. Do not they get money somehow if dividend is not paid? There is no economic value to a parent to stop dividend. SUNE can and may renegotiate its IPAs with each, there is few dollars to be saved. Extract its investment loans and get costs paid back, affecting cash level of each. It renegotiated Invenergy buy, and TERP is holding $300M financing on its own books instead of SUNE warehouse being responsible for it by SUNE.

In 2016 TERP is set to earn $56M net profit without Invenergy and Vivint. For Q4 my math says they are going to have a loss as this is winter generation, at least that is what I calculated from visibility offered.

For me net income is not a critical matter per quarter, seasonality to earn money plays huge role in generation of solar and 50% assets are those today, but for Q4 was different. Adding Invenergy should improve revenues and efficiency factors, but adds interest payments, debt etc. My eyes will be on dividend growth predictions, Invenergy included for Q1 result and what Vivint assets adapted have for Q1 acquisition. Cash levels prior Vivint, what is available to borrow from revolvers and is there change in tactics for drop downs in 2017 as I suspect 2016 will have very little as discussion had. I think the overall commitment of SUNE to TERP is in area of $500M in projects so that is not as extensive and the model of selling projects third party, which seems a bit unclear on SUNE, will become priority model for the complex.

[disdaniel 54]

Both TERP and GLBL should announce a minimum quarterly dividend going forward (minimum = we will pay at least X/qtr for the next 1-2 or 3 years).  Stability for dividend right now is what is needed.  I know the plan of the yieldcos is to constantly grow dividends, and maybe they can/will do that, but right now I would take a rock solid we will pay at least x/qtr, even if x were a slight haircut over what we all currently expect. 

That said, there is/should be no reason to cut dividend, especially for TERP. 

If SUNE cannot pay GLBL "interest support" right now, they should make up support in the future.  Since GLBL is cash rich and SUNE is cash poor right now, I would understand changing from paying 40,20 10 (or whatever the payments are supposed to be) to 25, 25, 25 (just as an example).  It should be structured so long term GLBL is no worse off even if there is a bit of short term hurt.  In that case there is even less reason for GLBL to cut dividend. 

[odyd 1,293]

As per above, can one say why dividend would be changed reduced or eliminated? Some say based on the stock price dividend would be cut, but I argue that cutting dividend to reduce yield is a premise based on where money for dividend comes from and it is superficial relationship to the stock price. Sure PPS is dictated by earnings power reflected by PE and if EPS falls so does the price and the dividend follows. Dividend cuts for companies losing EPS is to secure that money for the company use. Some companies may not cut dividend at all despite lower EPS as they may have cash reserves. There are no math to say when price of stock goes down yield must drop to adjust.

Any points to above?

 

 

[lepv123 1]

1 hour ago, odyd said:

Lepv, not announcing or changing dividend for any of the yieldcos would be a catastrophic event to the share price of any yieldcos. It is like not paying interest on a bond, not a default but a signal of internal issue. Those stocks are designed to be dividend stocks. I argued in my article that renewable yieldcos are revenue fixed and have no reason to eliminate dividend and further should increase them with acquisitions. They may not equally increase as they opt to buy outstanding shares perhaps, like discussion on price on GLBL, or add to pay debt principal, which makes a lot sense.

Elimination of dividend in TERP would hurt SunEdison as they collect that payment already.

One can say, ok however SunEdison needs money and they manage yieldcos. Do not they get money somehow if dividend is not paid? There is no economic value to a parent to stop dividend. SUNE can and may renegotiate its IPAs with each, there is few dollars to be saved. Extract its investment loans and get costs paid back, affecting cash level of each. It renegotiated Invenergy buy, and TERP is holding $300M financing on its own books instead of SUNE warehouse being responsible for it by SUNE.

In 2016 TERP is set to earn $56M net profit without Invenergy and Vivint. For Q4 my math says they are going to have a loss as this is winter generation, at least that is what I calculated from visibility offered.

For me net income is not a critical matter per quarter, seasonality to earn money plays huge role in generation of solar and 50% assets are those today, but for Q4 was different. Adding Invenergy should improve revenues and efficiency factors, but adds interest payments, debt etc. My eyes will be on dividend growth predictions, Invenergy included for Q1 result and what Vivint assets adapted have for Q1 acquisition. Cash levels prior Vivint, what is available to borrow from revolvers and is there change in tactics for drop downs in 2017 as I suspect 2016 will have very little as discussion had. I think the overall commitment of SUNE to TERP is in area of $500M in projects so that is not as extensive and the model of selling projects third party, which seems a bit unclear on SUNE, will become priority model for the complex.

Thanks Odyd! 

[disdaniel 54]

I agree odyd.  Dividend must be maintained to prove yieldco model.

Everyone (and I find myself in this camp part of the time) assumes a high-dividend stock which is falling in price must be about to cut dividend since that is what 99.9% of past cases have done.  Before this week, I don't think I have ever seen a stock yielding over 40% (and probably not over 20%--yieldcos excepted) that was not in severe financial distress. 

Then this week GLBL hit 50% yield!  That is over 25 times the 10 year US treasury yield, and at least double the junkiest grade of junk bonds available.  I really was questioning my own sanity seeing this.  A bit like seeing a bum on the street corner giving away crisp $10 bills...meanwhile people are circling wide to avoid him.

Trouble is yieldcos are "new" and everyday investor does not understand solar power plants or PPAs--so better just to steer clear of something that looks like it is 99.9% likely to cut dividend (based solely on past high dividend yield stocks).

In the bigger picture though, I agree that TERP/GLBL will make or break the yieldco model this week (presumably) when they announce dividend.  Since there is no need to cut dividend, I don't expect them to. 

I do think the yieldco model is/has been rather aggressive in "growth" aspects.  It would be okay with me if they take this opportunity to take a little pressure off this aggressive growth going forward.  (It is okay if they grow according to plan, just don't need to tell the street, or promise higher dividend now.)

[explo 617]

5 hours ago, lepv123 said:

Explo and Odyd, Now that SUNE isn't going BK in the time being, does that mean Moody's assessment of possible BK for TERP and GLBL out the door?

What are you expectations on earnings? Assuming worst case scenario, if dividends are not announced, will TERP sink hard in your opinion? Thanks.

I'm not sure I understand the questions. Was SUNE going BK and is not anymore? Is there a reason TERP and GLBL would change the size of their dividend? Only short-term reason I can see is a positive, i.e. that they buy back shares for some of the dividend money instead. Long-term if the share price stays low they might need to reduce dividend to maintain cash flow from new asset acquisitions.

 

[odyd 1,293]

2 minutes ago, explo said:

Long-term if the share price stays low they might need to reduce dividend to maintain cash flow from new asset acquisitions.

Not sure if I am getting this. What is the share price to do with cash flow? Are you saying they will buy assets with dividend money instead? As they do so new assets have lower returns hence the CAFD is lower?

 

[odyd 1,293]

35 minutes ago, disdaniel said:

I do think the yieldco model is/has been rather aggressive in "growth" aspects.  It would be okay with me if they take this opportunity to take a little pressure off this aggressive growth going forward.  (It is okay if they grow according to plan, just don't need to tell the street, or promise higher dividend now.)

I agree with you, but the fact that TERP is so big so quick buys time for the stock to come back to strong equity levels. we are talking about certainly 3GW with Vivint. I was attracted to the size and now think they can slow down for couple of years and wait for the better equity. At the same time cutting dividend for any reason from management perspective would be a mistake.

 

 

[explo 617]

32 minutes ago, odyd said:

Not sure if I am getting this. What is the share price to do with cash flow? Are you saying they will buy assets with dividend money instead? As they do so new assets have lower returns hence the CAFD is lower?

 

If share price remains low its not yield accretive to issue shares (conversely it is yield accretive to buy back shares), so reducing dividend to retain more equity (from hopefully future profits) becomes an alternative to raising equity as equity funding source for new project acquisitions if they want the yield to "go on" past current asset base expiration. But they could just let the CAFD shrink as current assets degrades and expires and investors get their return from dividends before the "yieldco" is tapped out. Regardless it is still a good deal to buy at 50% yield that GLBL offered last week, since ROI purely on dividends is only two years and you get remaining 18 years or so of dividend as bonus. Since expiration dates are around 20 years away there's no reason to rush to a new model.

[disdaniel 54]

33 minutes ago, explo said:

Was SUNE going BK and is not anymore?

I would say there was a very real fear that losing the TERP injunction would have placed them in a very precarious position (i.e. much higher than zero chance of SUNE in BK).  Removing the threat of injunction, caused SUNE shares to roughly double.  I have always assumed the threat of BK was overblown and I'm hoping SUNE earnings report will put those worries to bed and stock can begin the climb back out of the hole it dug itself.

[explo 617]

I hope SUNE gets on its feet too, but the stock is dead to me as I think shareholders will be diluted to oblivion in the process.

The PPS jump we saw is similar to the "I'm still breathing" euphoria we see in other financially distressed names like YGE when they find a bubble of air.

Almost dead looks infinetely better than certainly dead and thus cause violent PPS moves as the peception fluctuates between the two. Financial restructuring at the expense of shareholdes is the only way out of such hell once you've slipped down there.

 

[slowtrader 1]

18 minutes ago, explo said:

If share price remains low its not yield accretive to issue shares (conversely it is yield accretive to buy back shares), so reducing dividend to retain more equity (from hopefully future profits) becomes an alternative to raising equity as equity funding source for new project acquisitions if they want the yield to "go on" past current asset base expiration. But they could just let the CAFD shrink as current assets degrades and expires and investors get their return from dividends before the "yieldco" is tapped out. Regardless it is still a good deal to buy at 50% yield that GLBL offered last week, since ROI purely on dividends is only two years and you get remaining 18 years or so of dividend as bonus. Since expiration dates are around 20 years away there's no reason to rush to a new model.

After about 20 years, assets should not be worth nothing, they should still deliver about 85-90% their initial poweroutput and electtricity should not be for free by than, probably even cost more than today. Also aren't yieldcos also keeping about 10% of cafd for new investments, so they could continue to increase cafd without issuing new shares?

[odyd 1,293]

1 hour ago, explo said:

If share price remains low its not yield accretive to issue shares (conversely it is yield accretive to buy back shares), so reducing dividend to retain more equity (from hopefully future profits) becomes an alternative to raising equity as equity funding source for new project acquisitions if they want the yield to "go on" past current asset base expiration. But they could just let the CAFD shrink as current assets degrades and expires and investors get their return from dividends before the "yieldco" is tapped out. Regardless it is still a good deal to buy at 50% yield that GLBL offered last week, since ROI purely on dividends is only two years and you get remaining 18 years or so of dividend as bonus. Since expiration dates are around 20 years away there's no reason to rush to a new model.

Sometimes I have hard time to understand some statements. "Acretive" means increasing I assume ?

So does sale of equity at low value per share decreases dividend yield. Say TERP sold 20M shares at $9 or $180M, this means B class shares would be eliminated by the same count. However purchase of $120MW produced $15M in CAFD. As long as SUNE owns B class they would have to eliminate them.

Does the buying share increase yield? Not really unless assumption is that total amount for dividend remains constant. I think buying shares has impact on equity hence reduces yield. Nobody buys shares out to pay more dividend.

The view of yieldco you have Eplo conflicts in my mind with view I have. I look at utility companies building plants. The only difference is PPA. PPA can be resigned and plants refurbished at a lot lower prices in 20 years while location remains. Or even better at residual value sell electricity at no cost.

[slowtrader 1]

30 minutes ago, slowtrader said:

After about 20 years, assets should not be worth nothing, they should still deliver about 85-90% their initial poweroutput and electtricity should not be for free by than, probably even cost more than today. Also aren't yieldcos also keeping about 10% of cafd for new investments, so they could continue to increase cafd without issuing new shares?

From the last TERP-10-Q: "During the first nine months of the year, we generated CAFD of $175 million, and retained $42 million for reinvestment, after distributions to our shareholders."

This is 24% retained for reinvestment and with some leverage end the last aquisitions could be enough to fund the 500million/year of VSLR-projects going forward.

Or maybe used to buy back some shares, or pay down some dept, each would increase cafd/share.

[odyd 1,293]

Guys, I think that buying shares does not intent to increase dividend, but to increase CAFD which in turn can pay debt or buy more projects.

My example for GLBL was perfect. At $2.20 buying say 15M shares would produce immediate cost of $33M. Average length of dividend of 19 years is about $20.9 per share. Savings of $313M-33M so $290M. this can pay a debt or buy more plants etc.

Immediate impact on buying shares is more value to equity, with constant dividend payment yield is down.

[explo 617]

13 minutes ago, slowtrader said:

From the last TERP-10-Q: "During the first nine months of the year, we generated CAFD of $175 million, and retained $42 million for reinvestment, after distributions to our shareholders."

This is 24% retained for reinvestment and with some leverage end the last aquitions could be enough to fund the 500million/year of VSLR-projects going forward.

Slowtrader, I thought i read somewhere in their prospectus that the strategy was not to fund acquisitions from retained earnings, but from raised equity.

odyd, the expiration model was kept oversimplified as that's not the focus of the discussion. I think the general view is that a yieldco can't buy projects with equity raised funds at lower IRR (higher price) than their current yield in order for the acquisition to be yield accretive and sponsor can't sell projects at such high IRRs without loss, thus with current yields it is hard for yieldcos to grow assets and thus for sponsors to drop down developed projects. This doesn't make the case to buy the yieldco stock worse (since you get high yield instead of high growth), but it certainly makes the case to buy the sponsor worse than when they had a yieldco vehicle with low single digit yield.

 

[slowtrader 1]

3 minutes ago, explo said:

Slowtrader, I thought i read somewhere in their prospectus that the strategy was not to fund acquisitions from retained earnings, but from raised equity.

What else should they reinvest in, but upgrades of existing, or acquisition of new projects? For TERP this would be a good and for SUNE the best usage, i think. Maybe they'll change their strategy on cash-usage, now equity-markets are closed for accretive share issuance.

[explo 617]

21 minutes ago, slowtrader said:

What else should they reinvest in, but upgrades of existing, or acquisition of new projects? For TERP this would be a good and for SUNE the best usage, i think. Maybe they'll change their strategy on cash-usage, now equity-markets are closed for accretive share issuance.

Operating cash flow can be used for maintenance investments and debt amortization before growth for example to avoid early end of life with just the debt remaining for existing assets. I think that in the prospectus they would reserve funds for this from cash flow before paying dividend, but not for growth, for that they would rely on raising capital, which would be more effective as long as yield was low. Pardon top of mind writing on mobile device. At a computer i would guess less.

Remember that buying back shares while share price is in basement saves them a lot of dividend payments in future at unchanged DPS. This saving could be a future source of growth without sacrifizing DPS even if yield remains high. What is the best investment? A solar plant yielding 7% or their own stock yielding 20%? 

[slowtrader 1]

7 minutes ago, explo said:

Operating cash flow can used for maintenance investments and debt amortization before growth for example to avoid early end of life with just the debt remaining for existing assets. I think in prospect they would reserv funds for this from cash flow before paying dividend, but not for growth, for that the would rely on raising capital, which would be more effective as long as yield was low.

Remember that buying back shares while share price is in basement saves them a lot of dividend payments in future at unchanged DPS. This saving could be a future source of growth without sacrifizing DPS even if yield remains high. What is the best investment? A solar plant yielding 7% or their own stock yielding 20%? 

Either way, cafd, or assets per share, should increase, or dept/asset decrase. The next year (or weeks) should clear the situation up, and with fear gone, shareprice should increase over time, hopefully till yield gets below 10%, so new equity could be raised again.

[explo 617]

Yes without getting into details, the stable assets, super high yield, very low PB, it is good investment even if there's no growth and no profits. I feel comfortable that TERP and GLBL must be bargains here, even if i've only taken a cursory look and not done the deep DD i used to do on cn4.

 

[zendoc1love 45]

Tepper to press on with litigation:

http://finance.yahoo.com/news/appaloosa-seek-expedited-trial-prevent-190500116.html;_ylt=A0LEVjA4mtRWwPsAMmInnIlQ;_ylu=X3oDMTEycG9qMDEwBGNvbG8DYmYxBHBvcwMyBHZ0aWQDQjE3NDdfMQRzZWMDc3I-

I think he will win this one.

[pg6solar 85]

That's why speculation is that both SUNE and VSLR  are re-negotiating still as both were "ready" for this possibility and the language in VSLR's vote last week was hinting to. Saga is on-going.

[disdaniel 54]

Predictable, but I'm not sure how "smart" it is--seems to have halted TERPs climb.

[pg6solar 85]

31 minutes ago, disdaniel said:

Predictable, but I'm not sure how "smart" it is--seems to have halted TERPs climb.

He's "trying" to force SUNE to sell VSLR to someone else other than TERP. if he's successful (SUNE sells VSLR to a third party, then lawsuit is dropped), all three "win": SUNE still avoids BK(for now), Appoloosa may get a TERP BOD seat, and GLBL should be able to pay full minimum dividend.