odyd

Pattern Energy Group Inc. (PEGI)

204 posts in this topic

Thanks for the writeup odyd--although what I read did not convince me to invest in any yieldco at this point.  Maybe I will take another look a couple days after fed raises rates...

I was not suggesting, one I feel strong is NEP, but it acts as a leaf in storm anyway. I would not recommend PEGI as I have unresolved questions about it myself.

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I think I begin to understand investment in developer for PEGI,

I quote from M Garland during cc:
"The economics are simple. We can acquire projects at a lower cost in the range of a 6x to 8x cash available for distribution multiple for a development project compared to market price of 10x to 13x cash available for distribution multiple. In essence, it is that two to four turns uptick in CAFD multiple that we would be acquiring by making an investment in Pattern Development."

PEGI wants to buy an investment in a developer like the three parties did in Jinko a few years back. By doing so, they will be buying projects without the gross margin on their investment portion, and pay margin only to percentile own by the developer.

When I looked at the Armow's total value at $325M, with the cash cost being $133M, the dynamic above makes it go down to $82M. I can imagine that Armow was 25% gross margin. With the developer contributing some $51M or 21% equity and rest being a debt of $192M. In this case, the 15% in 25% margin would be eliminated, it does not sound like minority interest, but I guess that would be a concept and so its the math.

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I noticed how well PEGI is moving today. Financially the company needs to do the offering. They are back to about $89M in cash, and about $411M in the revolver (borrowed $60M for Broadview and I think pulled about $155M from cash for it.)

They are at this point at 89% of $165M CAFD expected. Now it is a waiting game when they will sell.

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I do wonder how the share price will react if they offer shares for an equity raise, I would imagine it would be combined with an announcement of a development investmebt plan. I hold PEGI and I am thinking to hold through an equity raise if it is coming. I think there is a chance shares appreciate if they announce development investment. Of course it could go exactly the opposite, but if it did, PEGI would have a big hole ti dig out of.

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Yieldcos seem to be very constrained by concept to only be able to issue shares if they grow future dividend per share. Therefore a share issue would normally be a positive. The problem is they cannot issue shares to grow until PPS gets high and in the catch 22 that the sector fell into the PPS won't get high if there is no growth. It is like a construct where growth fuels growth until a fuel leak and new fuel can't found.

Therefore any share issue by a yieldco should be viewed as very positive given that it is an appropiate issue, i.e. accretive, i.e increases future dividend per share.

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In theory that is the case, however, the market has reacted in the same to issue of shares in yieldcos as they were any other organization. PEGI will show strength to wait for its shares to appreciate a bit. I suspect issuance would happen in a range of $23 to $25, I would welcome it. PEGI is actively traded, there are a lot of investors following this stock.

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From Credit Suisse's renewable weekly newsletter.

  1. NOAA is predicting a 45% chance for El Nino conditions in summer and fall 2017, down from 50% earlier this year. Conversely, Columbia University's International Research Institute for Climate and Society pegs the probability at 65%, up slightly from its April report. One of the more powerful El Nino events on record ended in 2016 after having driven US wind production to levels below long-term averages.

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