UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

 

FORM 20-F/A

(AMENDMENT NO. 1)

 

 

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-35530

 

 

BROOKFIELD RENEWABLE PARTNERS L.P.

(Exact name of Registrant as specified in its charter)

 

 

Bermuda

(Jurisdiction of incorporation or organization)

73 Front Street, 5th Floor, Hamilton HM 12, Bermuda

(Address of principal executive offices)

Jane Sheere

73 Front Street, 5th Floor, Hamilton HM 12, Bermuda

Telephone: 441-294-3304

Facsimile: 441-296-4475

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Class

 

Trading
Symbol(s)

 

Name of each exchange
on which registered

Limited Partnership Units   BEP, BEP.UN   New York Stock Exchange, Toronto Stock Exchange
Class A Preferred Limited Partnership Units, Series 17   BEP PR A.   New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

178,977,800 Limited Partnership Units as of December 31, 2019

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐    

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes      No   

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definitions of “accelerated filer”, “large accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer      Accelerated filer     Non-accelerated filer  
         Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

☐  U.S. GAAP     International Financial Reporting Standards as issued           Other
         by the International Accounting Standards Board        

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ☐    Item 18  

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

 

 


EXPLANATORY NOTE

Brookfield Renewable Partners L.P. (the “Partnership”) is filing this Amendment No. 1 (this “Amendment”) to its Annual Report on Form 20-F for the year ended December 31, 2019 (the “Form 20-F”) solely to supplement Item 18 of the Form 20-F with the inclusion of the financial statements of TerraForm Power, Inc. (“TerraForm Power”) as of and for the three-year period ended December 31, 2019 (the “ TerraForm Power Financial Statements”) pursuant to Rule 3-09 of Regulation S-X.

In addition, the Partnership is including in this Amendment currently dated certifications from its Chief Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 12.1 and 12.2 and Exhibits 13.1 and 13.2, respectively. This Amendment also includes the Report of Independent Registered Public Accounting Firm of TERP Spanish HoldCo, S.L. and Subsidiaries as Exhibit 99.1, as well as Exhibits 15.4, 15.5 and 15.6, which contain the consents of (i) KPMG LLP, with respect to the TerraForm Power Financial Statements as of and for the year ended December 31, 2017, (ii) Ernst & Young LLP, with respect to the TerraForm Power Financial Statements as of and for the years ended December 31, 2019 and 2018, and (iii) Deloitte, S.L., with respect to TERP Spanish HoldCo, S.L. as of December 31, 2018 and for the period from June 12, 2018 to December 31, 2018 (not presented separately herein), respectively.

Except as described above, this Amendment does not modify or update disclosures presented in the Form 20-F to reflect events occurring after the filing of the Form 20-F. Accordingly, this Amendment should be read in conjunction with the Form 20-F and the Partnership’s filings with the U.S. Securities and Exchange Commission subsequent to the filing of the Form 20-F.


ITEM 18.

FINANCIAL STATEMENTS

The consolidated financial statements of TerraForm Power, Inc. are included in this Amendment No. 1 on Form 20-F/A pursuant to Rule 3-09 of Regulation S-X, beginning on page F-82.

 

ITEM 19.

EXHIBITS

 

Number

  

Description

1.1    Certificate of Registration of Brookfield Renewable Energy Partners L.P., dated June 29, 2011.(1)
1.2    Certificate of Deposit of Supplementary Certificate of Brookfield Renewable Energy Partners L.P., dated August 29, 2011.(1)
1.3    Certificate of Deposit of Supplementary Certificate of Brookfield Renewable Energy Partners L.P., dated December 21, 2011.(15)
1.4    Certificate of Deposit of Supplementary Certificate of Brookfield Renewable Energy Partners L.P., dated May 11, 2012.(1)
1.5    Certificate of Deposit of Supplementary Certificate of Brookfield Renewable Partners L.P., dated May 4, 2016.(6)
1.6    Certificate of Deposit of Memorandum of Increase of Share Capital, dated November 23, 2011.(15)
1.7    Fourth Amended and Restated Limited Partnership Agreement of Brookfield Renewable Partners L.P., dated May 3, 2016.(7)
1.8    First Amendment to the Fourth Amended and Restated Limited Partnership Agreement of Brookfield Renewable Partners L.P., dated May  25, 2016.(8)
1.9    Second Amendment to the Fourth Amended and Restated Limited Partnership Agreement of Brookfield Renewable Partners L.P., dated February 14, 2017.(9)
1.10    Third Amendment to the Fourth Amended and Restated Limited Partnership Agreement of Brookfield Renewable Partners L.P., dated January 16, 2018.(10)
1.11    Fourth Amendment to the Fourth Amended and Restated Limited Partnership Agreement of Brookfield Renewable Partners L.P., dated February  28, 2019.(11)
1.12    Fifth Amendment to the Fourth Amended and Restated Limited Partnership Agreement of Brookfield Renewable Partners L.P., dated March 11, 2019.(12)
1.13    Sixth Amendment to the Fourth Amended and Restated Limited Partnership Agreement of Brookfield Renewable Partners L.P., dated February  24, 2020.(14)
1.14    Articles of Incorporation of Brookfield Renewable Partners Limited.(1)
1.15    Form 13 Amending the Registered Office of Brookfield Renewable Partners Limited.(1)
1.16    Bye-laws of Brookfield Renewable Partners Limited.(5)
2.1    Description of Securities(17)

 

1


4.1    Third Amended and Restated Limited Partnership Agreement of Brookfield Renewable Energy L.P., dated February 11, 2016.(4)
4.2    First Amendment to the Third Amended and Restated Limited Partnership Agreement of Brookfield Renewable Energy L.P., dated May  25, 2016.(8)
4.3    Second Amendment to the Third Amended and Restated Limited Partnership Agreement of Brookfield Renewable Energy L.P., dated February 14, 2017.(9)
4.4    Third Amendment to the Third Amended and Restated Limited Partnership Agreement of Brookfield Renewable Energy L.P., dated January  16, 2018.(10)
4.5    Fourth Amendment to the Third Amended and Restated Limited Partnership Agreement of Brookfield Renewable Energy L.P., dated February  28, 2019.(11)
4.6    Fifth Amendment to the Third Amended and Restated Limited Partnership Agreement of Brookfield Renewable Energy L.P., dated March  11, 2019.(12)
4.7    Sixth Amendment to the Third Amended and Restated Limited Partnership Agreement of Brookfield Renewable Energy L.P., dated February  24, 2020.(14)
4.8    Amended and Restated Master Services Agreement, dated February  26, 2015, by and among Brookfield Asset Management Inc., Brookfield Renewable Energy Partners L.P., Brookfield Renewable Energy L.P., and others.(2)
4.9    Relationship Agreement, dated November  28, 2011, by and among Brookfield Renewable Energy Partners L.P., Brookfield Renewable Energy L.P., the Service Provider, Brookfield Asset Management Inc., and others.(1)
4.10    Registration Rights Agreement, dated November  28, 2011, between Brookfield Renewable Energy Partners L.P. and Brookfield Renewable Power Inc.(1)
4.11    Combination Agreement, dated September  12, 2011, by and among Brookfield Renewable Power Inc., Brookfield Renewable Power Fund, Brookfield Renewable Power Trust and Brookfield Renewable Energy Partners L.P.(1)
4.12    Amended and Restated Indenture, dated as of November  23, 2011, among Brookfield Renewable Energy Partners ULC (formerly BRP Finance ULC), BNY Trust Company of Canada and The Bank of New York Mellon.(1)
4.13    Guarantee, dated November 23, 2011, by Brookfield Renewable Energy L.P. and BNY Trust Company of Canada.(1)
4.14    Guarantee, dated November 23, 2011, by Brookfield Renewable Energy Partners L.P. and BNY Trust Company of Canada.(1)
4.15    Guarantee, dated November 23, 2011, by BRP Bermuda Holdings I Limited and BNY Trust Company of Canada.(1)
4.16    Guarantee, dated November 23, 2011, by Brookfield BRP Holdings (Canada) Inc. and BNY Trust Company of Canada.(1)
4.17    Energy Revenue Agreement, dated November 23, 2011, between Brookfield Energy Marketing LP and Brookfield Power US Holding America Co.(1)
4.18    Amended and Restated Guarantee Indenture, dated November  25, 2011, by and among the Preference Share Guarantors from time to time party thereto, Brookfield Renewable Power Preferred Equity Inc. and Computershare Trust Company of Canada (Class A Preference Shares, Series 1).(1)
4.19    Amended and Restated Guarantee Indenture, dated November  25, 2011, by and among the Preference Share Guarantors from time to time party thereto, Brookfield Renewable Power Preferred Equity Inc. and Computershare Trust Company of Canada (Class A Preference Shares, Series 2).(1)
4.20    Guarantee Indenture, dated October  11, 2012, by and among the Preference Share Guarantors from time to time party thereto, Brookfield Renewable Power Preferred Equity Inc. and Computershare Trust Company of Canada (Class A Preference Shares, Series 3).(1)

 

2


4.21    Guarantee Indenture, dated October  11, 2012, by and among the Preference Share Guarantors from time to time party thereto, Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 4).(1)
4.22    Guarantee Indenture, dated January  29, 2013, by and among the Preference Share Guarantors from time to time party thereto, Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 5).(1)
4.23    Guarantee Indenture, dated May  1, 2013, by and among the Preference Share Guarantors from time to time party thereto, Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 6).(1)
4.24    Guarantee, dated October 7, 2014, by Brookfield BRP Europe Holdings (Bermuda) Limited and BNY Trust Company of Canada.(2)
4.25    Guarantee, dated February 26, 2015, by Brookfield Renewable Investments Limited and BNY Trust Company of Canada.(2)
4.26    Guarantee Indenture, dated November  25, 2015, by and among the Preferred Unit Guarantors from time to time party thereto, Brookfield Renewable Energy Partners L.P., and Computershare Trust Company of Canada (Series 7 Preferred Units).(3)
4.27    Guarantee Indenture, dated November  25, 2015, by and among the Preferred Unit Guarantors from time to time party thereto, Brookfield Renewable Energy Partners L.P., and Computershare Trust Company of Canada (Series 8 Preferred Units).(3)
4.28    Guarantee Indenture, dated February  11, 2016, by and among the Preferred Unit Guarantors from time to time party thereto, Brookfield Renewable Energy Partners L.P., and Computershare Trust Company of Canada (Series 5 Preferred Units).(4)
4.29    Guarantee Indenture, dated May  25, 2016, by and among the Preferred Unit Guarantors from time to time party thereto, Brookfield Renewable Partners L.P., and Computershare Trust Company of Canada (Series 9 Preferred Units).(8)
4.30    Guarantee Indenture, dated May  25, 2016, by and among the Preferred Unit Guarantors from time to time party thereto, Brookfield Renewable Partners L.P., and Computershare Trust Company of Canada (Series 10 Preferred Units).(8)
4.31    Guarantee Indenture, dated February  14, 2017, by and among the Preferred Unit Guarantors from time to time party thereto, Brookfield Renewable Partners L.P., and Computershare Trust Company of Canada (Series 11 Preferred Units).(9)
4.32    Guarantee Indenture, dated February  14, 2017, by and among the Preferred Unit Guarantors from time to time party thereto, Brookfield Renewable Partners L.P., and Computershare Trust Company of Canada (Series 12 Preferred Units).(9)
4.33    Guarantee Indenture, dated January  16, 2018, by and among the Preferred Unit Guarantors from time to time party thereto, Brookfield Renewable Partners L.P., and Computershare Trust Company of Canada (Series 13 Preferred Units).(10)
4.34    Guarantee Indenture, dated January  16, 2018, by and among the Preferred Unit Guarantors from time to time party thereto, Brookfield Renewable Partners L.P., and Computershare Trust Company of Canada (Series 14 Preferred Units).(10)
4.35    Guarantee Indenture, dated March  11, 2019, by and among the Preferred Unit Guarantors from time to time party thereto, Brookfield Renewable Partners L.P., and Computershare Trust Company of Canada (Series 15 Preferred Units).(12)
4.36    Guarantee Indenture, dated March  11, 2019, by and among the Preferred Unit Guarantors from time to time party thereto, Brookfield Renewable Partners L.P., and Computershare Trust Company of Canada (Series 16 Preferred Units).(12)

 

3


8.1    Significant subsidiaries (as defined in §210-1.02(w) of Regulation S-X) of Brookfield Renewable Partners L.P. (incorporated by reference to Item 4.C “Organizational Structure” in the Form 20-F).
11.1    Code of Business Conduct and Ethics.(13)
12.1    Certification of Sachin Shah, Chief Executive Officer of BRP Energy Group L.P., the Service Provider of Brookfield Renewable Partners L.P., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(16)
12.2    Certification of Wyatt Hartley, Chief Financial Officer of BRP Energy Group L.P., the Service Provider of Brookfield Renewable Partners L.P., pursuant to Section  302 of the Sarbanes-Oxley Act of 2002.(16)
13.1    Certification of Sachin Shah, Chief Executive Officer of BRP Energy Group L.P., the Service Provider of Brookfield Renewable Partners L.P., pursuant to 18 U.S.C. Section  1350, as adopted to Section 906 of the Sarbanes Oxley Act of 2002.(16)
13.2    Certification of Wyatt Hartley, Chief Financial Officer of BRP Energy Group L.P., the Service Provider of Brookfield Renewable Partners L.P., pursuant to 18 U.S.C. Section  1350, as adopted to Section 906 of the Sarbanes Oxley Act of 2002.(16)
15.1    Board of Directors Charter of the Managing General Partner of Brookfield Renewable Partners L.P.(17)
15.2    Audit Committee Charter of the Managing General Partner of Brookfield Renewable Partners L.P.(17)
15.3    Consent of Ernst & Young LLP.(17)
15.4    Consent of KPMG LLP, with respect to the TerraForm Power Financial Statements as of and for the year ended December 31, 2017. (16)
15.5    Consent of Ernst & Young LLP, with respect to the TerraForm Power Financial Statements as of and for the two years ended December 31, 2019 and 2018. (16)
15.6    Consent of Deloitte, S.L., with respect to TERP Spanish HoldCo, S.L. as of December 31, 2018 and for the period from June 12, 2018 to December 31, 2018 (not presented separately herein). (16)
99.1    Report of Independent Registered Public Accounting Firm of TERP Spanish HoldCo, S.L. and Subsidiaries. (15)
101    The following materials from Brookfield Renewable Partners L.P.’s annual report on Form 20-F for the year ended December 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Financial Statements of Brookfield Renewable Partners L.P. and (ii) Notes to the Consolidated Financial Statements of Brookfield Renewable Partners L.P., tagged as blocks of text and in detail.(17)

 

(1)

Filed as an exhibit to Registration Statement on Form 20-F including all amendments thereto, with the last such amendment having been made on May 16, 2013, and incorporated herein by reference.

(2)

Filed as an exhibit to our 2014 Form 20-F as filed on February 27, 2015 and incorporated herein by reference.

(3)

Filed as an exhibit to Form 6-K on November 27, 2015, and incorporated herein by reference.

(4)

Filed as an exhibit to Form 6-K on February 11, 2016, and incorporated herein by reference.

(5)

Filed as an exhibit to our 2015 Form 20-F as filed on February 26, 2016, and incorporated herein by reference.

(6)

Filed as an exhibit to Form 6-K on May 4, 2016, and incorporated herein by reference.

(7)

Filed as an exhibit to Form 6-K on May 6, 2016, and incorporated herein by reference.

(8)

Filed as an exhibit to Form 6-K on May 26, 2016, and incorporated herein by reference.

(9)

Filed as an exhibit to Form 6-K on February 14, 2017, and incorporated herein by reference.

(10)

Filed as an exhibit to Form 6-K on January 17, 2018, and incorporated herein by reference.

(11)

Filed as an exhibit to Form 6-K on February 28, 2019, and incorporated herein by reference.

(12)

Filed as an exhibit to Form 6-K on March 11, 2019, and incorporated herein by reference.

 

4


(13)

Filed as an exhibit to Form 6-K on June 7, 2019, and incorporated herein by reference.

(14)

Filed as an exhibit to Form 6-K on February 24, 2020, and incorporated herein by reference.

(15) 

Filed as an exhibit to our 2018 Form 20-F/A as filed on March 22, 2019 and incorporated herein by reference.

(16)

Filed herewith.

(17)

Previously filed.

 

5


SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and authorized the undersigned to sign this Amendment No. 1 to its Form 20-F on its behalf.

Dated: March 18, 2020

 

BROOKFIELD RENEWABLE PARTNERS L.P. by its general partner,
Brookfield Renewable Partners Limited
By:  

/s/ Wyatt Hartley

  Name: Wyatt Hartley
  Title: Chief Financial Officer of the Service Provider, BRP Energy Group L.P.


TERRAFORM POWER, INC.

INDEX TO FINANCIAL STATEMENTS

 

     Page

Report of Independent Registered Public Accounting Firm—Internal Control Over Financial Reporting

   F-83

Report of Independent Registered Public Accounting Firm—Consolidated Financial Statements

   F-85

Predecessor Report of Independent Registered Public Accounting Firm—Consolidated Financial Statements

   F-89

Consolidated Statements of Operations

   F-90

Consolidated Statements of Comprehensive Loss

   F-91

Consolidated Balance Sheets

   F-92

Consolidated Statements of Stockholders’ Equity

   F-93

Consolidated Statements of Cash Flows

   F-95

Notes to Consolidated Financial Statements

   F-98

1. Nature of Operations and Organization

   F-98

2. Summary of Significant Accounting Policies

   F-99

3. Acquisitions and Divestitures

   F-111

4. Revenue

   F-117

5. Cash and Cash Equivalents

   F-118

6. Renewable Energy Facilities

   F-119

7. Intangible Assets, Net and Goodwill

   F-120

8. Leases

   F-122

9. Asset Retirement Obligations

   F-124

10. Long-term Debt

   F-124

11. Income Taxes

   F-131

12. Derivatives

   F-134

13. Fair Value of Financial Instruments

   F-138

14. Other Financial Information

   F-141

15. Variable Interest Entities

   F-141

16. Stockholders’ Equity

   F-142

17. Stock-Based Compensation

   F-146

18. Non-Controlling Interests

   F-148

19. Accumulated Other Comprehensive Income

   F-149

20. Commitments and Contingencies

   F-150

21. Related Parties

   F-154

22. (Loss) Earnings Per Share

   F-161

23. Segment Reporting

   F-161

24. Concentration of Credit Risk

   F-164

25. Quarterly Financial Information (Unaudited)

   F-166

26. Subsequent Events

   F-168

 

F-82


Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of TerraForm Power, Inc.

Opinion on Internal Control over Financial Reporting

We have audited TerraForm Power, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, TerraForm Power, Inc. and subsidiaries (the Company) has not maintained effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the 320 MW distributed generation portfolio acquired on September 26, 2019, which is included in the 2019 consolidated financial statements of the Company and constituted approximately 8% of consolidated total assets as of December 31, 2019 and approximately 1% of consolidated total operating revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of the 320 MW distributed generation portfolio acquired on September 26, 2019.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment:

 

   

The Company’s risk assessment process failed to identify certain risks of material misstatement of the financial statements and as a result the Company did not have effective review controls to address those risks of material misstatement of significant accounts, including risks related to the completeness and accuracy of information derived from IT systems and end-user computing spreadsheets used in the performance of those controls.

 

   

The Company did not have sufficient resources to have effective controls over the application of GAAP and accounting measurements related to certain significant accounts, transactions and related financial statement disclosures.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2019 consolidated financial statements of the Company. These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and this report does not affect our report dated March 17, 2020, which expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

F-83


Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

  /s/ Ernst & Young LLP
  New York, New York
  March 17, 2020

 

F-84


Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of TerraForm Power, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of TerraForm Power, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, based on our audits and the report of other auditors, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We did not audit the 2018 financial statements of TERP Spanish Holdco, S.L., a wholly-owned subsidiary, which reflect total assets constituting 36% at December 31, 2018, and total revenues constituting 29% in 2018, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for TERP Spanish Holdco, S.L., is based solely on the report of the other auditors.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 17, 2020 expressed an adverse opinion thereon.

Adoption of New Accounting Standards

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for recognizing revenue as a result of the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the amendments in ASUs 2015-14, 2016-08, 2016-10 and 2016-12 effective January 1, 2018.

As discussed in Note 2 to the consolidated financial statements, the Company changed its accounting for leases in 2019 due to the adoption of the Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the amendments in ASU No. 2018-11 effective January 1, 2019.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits and the report of other auditors during 2018 provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

F-85


  Accounting for Acquisitions
Description of the Matter  

As described in Note 3 to the consolidated financial statements, TerraForm Power acquired several domestic distributed generation portfolios of renewable energy facilities from WGL Energy Systems, Inc. and WGSW, Inc. for a purchase price of $735 million and acquired several solar photovoltaic renewable energy facilities from subsidiaries of X-Elio Energy, S.L., a Spanish corporation, for a total purchase price of approximately $71 million (collectively, the “2019 Acquisitions”). The Company also completed the acquisition accounting and recorded measurement period adjustments in connection with the 2018 acquisition of Saeta Yield, S.A. (the “2018 Acquisition”) during the year ended December 31, 2019.

 

Auditing the Company’s accounting for the 2019 Acquisitions was complex due to the significant estimation required by management to determine the fair values of renewable energy facilities and identified intangible assets. Auditing the Company’s accounting for the measurement period adjustments for the 2018 Acquisition was complex due to the significant estimation required by management to determine the fair value of debt in international jurisdictions. The assumptions used to estimate the fair value of the renewable energy facilities and intangible assets included the replacement cost per megawatt, discount rate, and certain assumptions that form the basis of the prospective financial information (“PFI”) (e.g., current and future power pricing agreement rates and operational data). Further, determining the interest rates used in calculating the fair value of debt in international jurisdictions required a significant level of subjectivity as the resultant values were highly sensitive to the selected rates. These assumptions are forward looking and could be affected by future economic and market conditions.

How We Addressed the

Matter in Our Audit

 

To test the fair value of the renewable energy facilities and intangible assets, our audit procedures included, among others, assessing the significant assumptions described above and testing the completeness and accuracy of the underlying data. For example, we evaluated the estimated cash flows based on future generation volume by comparing the estimated future generation volume to historical generation volume and comparing the forward power pricing to long term power purchase agreements or Spanish government regulated rates, as applicable. We involved our valuation specialists to assist in evaluating the significant assumptions, including replacement cost assumptions used to estimate the fair value of renewable energy facilities, discount rates, and valuation methodologies used in the Company’s models.

 

To test the measurement period adjustments related to the fair value of debt in international jurisdictions, we performed audit procedures that included evaluating the Company’s valuation methodology and significant assumptions. For example, with the assistance of our valuation specialists, we compared the estimated credit spreads used in the valuation of the assumed debt instruments to market information, including corporate debt indices, and evaluated the effects of prepayment provisions within the debt arrangements on the calculated fair values.

  Level 3 Derivative Financial Instruments Fair Value Measurement
Description of the Matter  

As described in Note 13 to the consolidated financial statements, as of December 31, 2019, the aggregate fair value of Level 3 derivative instruments was $59.3 million. The Company’s long-term physically-settled commodity contracts are considered Level 3 fair value measurements as they contain significant unobservable inputs. The Company uses a discounted cash flow valuation technique and an option model, when applicable to determine the fair value of its derivative assets.

 

Auditing the fair value measurement of Level 3 derivative financial instruments was complex given the complexity of the model used to value the option component of the derivative instruments and the judgmental nature of the assumptions used as inputs into the valuation model. In particular, the Company used significant unobservable inputs such as the forward commodity prices based on forward commodity curves and implied volatilities for the option component.

 

F-86


How We Addressed the
Matter in Our Audit
  To test the valuation of Level 3 derivative financial instruments, our audit procedures included, among others, evaluating the valuation methodologies used by the Company and testing significant inputs, estimates and the mathematical accuracy of the calculations. In certain instances, with the assistance of our valuation specialists, we independently determined the significant assumptions (including long-dated forward pricing and implied volatilities), calculated the resultant fair values and compared them to the Company’s estimates. We obtained forward prices from independent sources, including broker quotes and counterparty fair values, and evaluated the Company’s assumptions related to their forward curves and confirmed key inputs with counterparties. We also performed sensitivity analyses using independent sources of market data to evaluate the change in fair value of Level 3 derivative financial instruments that would result from changes in underlying assumptions.
  Impairment of Long-lived Assets
Description of the Matter  

As described in Note 2 to the consolidated financial statements, the Company reviews long-lived assets that are held and used for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable (“impairment indicators”). When impairment indicators are identified, the Company is required to perform a recoverability test using an estimate of future undiscounted cash flows for the long-lived asset group to compare to the respective carrying amount to determine whether the asset group is recoverable.

 

Auditing the Company’s identification of impairment indicators involved significant auditor judgment due to the many geographic, regulatory and economic environments in which the Company operates, which requires an evaluation of a wide variety of factors in the evaluation of potential impairment indicators. Additionally, when impairment indicators were present, auditing the Company’s recoverability test involved a high degree of subjectivity as the estimates underlying the determination of undiscounted cash flows of the asset group were based on entity-specific assumptions about future performance and industry conditions. Significant assumptions used in the Company’s undiscounted cash flow estimates included energy generation forecasts and unobservable forward energy market prices. Further, the identified material weakness relating to the Company not having effective review controls over the completeness and accuracy of information derived from IT systems and end-user computing spreadsheets used in the performance of those controls affected our audit procedures in this area.

How We Addressed the
Matter in Our Audit
 

To test the Company’s identification of impairment indicators, our audit procedures included, among others, making inquiries of management to understand changes in the businesses, reading industry journals or publications to independently identify adverse changes in the regulatory environments or the geographic areas and evaluating the completeness of management’s assessment and analysis of the identified changes and whether they represented impairment indicators.

 

To test the Company’s recoverability tests, our audit procedures included, among others, evaluating the significant assumptions and operating data used to estimate future undiscounted cash flows. For example, we compared the significant assumptions to power curves, current industry trends, historical generation volumes, and power purchase agreements. We also performed sensitivity analyses of the significant assumptions to evaluate the change in the undiscounted cash flow estimate that would result from changes in the assumptions. We also recalculated management’s estimated undiscounted cash flows and compared them to the carrying value of the respective long-lived asset groups.

 

To respond to the material weakness, we performed incremental audit procedures to assess the completeness and accuracy of data used in the recoverability tests. For example, we agreed energy prices used in the recoverability tests to power purchase agreements and evaluated the future undiscounted cash flows of the long-lived asset group by comparing them to historical revenue and expense trends.

 

F-87


  Measurement of non-controlling interests
Description of the Matter  

As described in Note 2 to the consolidated financial statements, non-controlling interests represent the portion of net assets in consolidated entities that are not owned by the Company and are reported in the consolidated balance sheets. As of December 31, 2019, non-controlling interests totaled $605 million, redeemable non-controlling interests totaled $23 million, and net loss attributable to non-controlling interests and redeemable non-controlling interests (collectively, “non-controlling interests”) for the year ended December 31, 2019 was $46 million and $12 million, respectively.

 

Auditing non-controlling interests was complex due to the number of unique substantive profit-sharing arrangements and the complexity involved in developing and maintaining the Hypothetical Liquidation at Book Value (“HLBV”) model for each partnership or similar agreement that is used to allocate the current period net income or loss between the Company and the non-controlling interest holders. Further, the earnings allocated to the non-controlling interest holders was sensitive to certain income tax-related inputs to the tax capital accounts that are used in the HLBV models. Further, the identified material weakness relating to the Company not having sufficient resources to have effective internal controls over the application of U.S. GAAP and accounting measurements related to significant accounts, transactions and related financial statement disclosures affected our audit procedures in this area.

How We Addressed the
Matter in Our Audit
  To test the measurement of non-controlling interests, our audit procedures included, among others, testing the measurement of the tax capital accounts used in the HLBV models, including verifying capital contributions and distributions to supporting documentation, evaluating the calculation and allocation of taxable income, and examining the HLBV models for compliance with the contractual provisions in the partnership or similar agreement. We tested the completeness and accuracy of the underlying data used in the HLBV models, including U.S. GAAP and income tax-related inputs. To respond to the material weakness, we involved tax subject matter professionals to assist in evaluating the calculation of the tax capital accounts in accordance with the Internal Revenue Code, as well as compliance with the contractual provisions in the partnership or similar agreement.
  Realizability of Deferred Tax Assets
Description of the Matter  

As described in Note 11 to the consolidated financial statements, at December 31, 2019 the Company recorded gross deferred tax assets of $768 million, which were reduced by a valuation allowance of $414 million. Deferred tax assets are reduced by a valuation allowance if, based on the weight of all available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

 

Auditing management’s assessment of realizability of deferred tax assets involved complex auditor judgment because determining whether the future taxable income expected to be generated from the reversal of existing taxable temporary differences is more likely than not to result in the realization of existing deferred tax assets required management to make interpretations of the tax law and assumptions about reversal patterns that may be affected by future events.

How We Addressed the
Matter in Our Audit
  To test the realizability of deferred tax assets, our audit procedures included, among others, testing the Company’s analysis of the reversal of existing taxable temporary differences. For example, we tested the completeness and accuracy of the underlying data and the appropriateness of significant inputs and assumptions including the estimated reversal patterns for the existing taxable temporary differences. We tested the completeness and measurement of the Company’s tax attributes related to net operating losses and interest deduction limitation carryforwards generated in the US and foreign jurisdictions. With the assistance of our tax professionals, we evaluated the net operating loss carryforward periods as well as the amount of future taxable income that can be reduced by net operating loss carryforwards after an ownership change under Section 382 of the Internal Revenue Code.

 

/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2018.
New York, New York
March 17, 2020

 

F-88


Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors TerraForm Power, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows of TerraForm Power, Inc. and subsidiaries (the Company) for the year ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for year ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We served as the Company’s auditor from 2014 to 2017.

McLean, Virginia

March 7, 2018, except for the fourth paragraph in

Note 18, as to which the date is March 15, 2019

 

F-89


TERRAFORM POWER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

     Year Ended December 31,  
     2019     2018     2017  

Operating revenues, net

   $ 941,240   $ 766,570   $ 610,471

Operating costs and expenses:

      

Cost of operations

     279,896     220,907     150,733

Cost of operations—affiliate

     —         —         17,601

General and administrative expenses

     81,063     87,722     139,874

General and administrative expenses—affiliate

     28,070     16,239     13,391

Acquisition costs

     3,751     7,721     —    

Acquisition costs—affiliate

     920     6,925     —    

Impairment of renewable energy facilities

     —         15,240     1,429

Depreciation, accretion and amortization expense

     434,110     341,837     246,720
  

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

     827,810     696,591     569,748
  

 

 

   

 

 

   

 

 

 

Operating income

     113,430     69,979     40,723

Other expenses (income):

      

Interest expense, net

     298,142     249,211     262,003

Loss on modification and extinguishment of debt, net

     26,953     1,480     81,099

Gain on foreign currency exchange, net

     (12,726     (10,993     (6,061

Gain on sale of renewable energy facilities

     (2,252     —         (37,116

Other income, net

     (2,000     (4,102     (3,258
  

 

 

   

 

 

   

 

 

 

Total other expenses, net

     308,117     235,596     296,667
  

 

 

   

 

 

   

 

 

 

Loss before income tax expense (benefit)

     (194,687     (165,617     (255,944

Income tax expense (benefit)

     11,898     (12,290     (19,641
  

 

 

   

 

 

   

 

 

 

Net loss

     (206,585     (153,327     (236,303

Less: Net (loss) income attributable to redeemable non-controlling interests

     (11,983     9,209     1,596

Less: Net loss attributable to non-controlling interests

     (45,918     (174,916     (77,745
  

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to Class A common stockholders

   $ (148,684   $ 12,380   $ (160,154
  

 

 

   

 

 

   

 

 

 

Weighted average number of shares:

      

Class A common stock—Basic and diluted

     213,275     182,239     103,866

(Loss) earnings per share:

      

Class A common stock—Basic and diluted

   $ (0.70   $ 0.07   $ (1.61

Distribution declared per share:

      

Class A common stock

   $ 0.8056   $ 0.7600   $ 1.9400

 

F-90


TERRAFORM POWER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

 

     Year Ended December 31,  
     2019     2018     2017  

Net loss

   $ (206,585   $ (153,327   $ (236,303

Other comprehensive (loss) income, net of tax:

      

Foreign currency translation adjustments:

      

Net unrealized gain (loss) arising during the period

     15,652     (9,517     10,300

Reclassification of net realized loss into earnings1

     —         —         14,741

Hedging activities:

      

Net unrealized (loss) gain arising during the period

     (42,290     198     17,612

Reclassification of net realized (gain) loss into earnings

     (2,579     (4,442     (2,247
  

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

     (29,217     (13,761     40,406
  

 

 

   

 

 

   

 

 

 

Total comprehensive loss

     (235,802     (167,088     (195,897

Less comprehensive (loss) income attributable to non-controlling interests:

      

Net (loss) income attributable to redeemable non-controlling interests

     (11,983     9,209     1,596

Net loss attributable to non-controlling interests

     (45,918     (174,916     (77,745

Foreign currency translation adjustments

     —         —         8,665

Hedging activities

     (624     (777     5,992
  

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to non-controlling interests

     (58,525     (166,484     (61,492
  

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to Class A common stockholders

   $ (177,277   $ (604   $ (134,405
  

 

 

   

 

 

   

 

 

 

 

(1)

Represents the reclassification of the accumulated foreign currency translation loss for almost the Company’s entire portfolio of solar power plants located in the United Kingdom, as the Company’s sale of these facilities was completed in the second quarter of 2017 as discussed in Note 3. Acquisitions and Divestitures. The pre-tax amount of $23.6 million was recognized within Gain on sale of renewable energy facilities in the consolidated statements of operations for the year ended December 31, 2017.

 

F-91


TERRAFORM POWER, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

     As of December 31,  
     2019     2018  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 237,480   $ 248,524

Restricted cash

     35,657     27,784

Accounts receivable, net

     167,865     145,161

Due from affiliates

     499     196

Prepaid expenses

     13,514     13,116

Derivative assets, current

     15,819     14,371

Deposit on acquisitions

     24,831     —    

Other current assets

     57,682     52,033
  

 

 

   

 

 

 

Total current assets

     553,347     501,185

Renewable energy facilities, net, including consolidated variable interest entities of $3,188,508 and $3,064,675 in 2019 and 2018, respectively

     7,405,461     6,470,026

Intangible assets, net, including consolidated variable interest entities of $690,594 and $751,377 in 2019 and 2018, respectively

     1,793,292     1,996,404

Goodwill

     127,952     120,553

Restricted cash

     76,363     116,501

Derivative assets

     57,717     90,984

Other assets

     44,504     34,701
  

 

 

   

 

 

 

Total assets

   $ 10,058,636   $ 9,330,354
  

 

 

   

 

 

 

Liabilities, Redeemable Non-controlling Interests and Stockholders’ Equity

    

Current liabilities:

    

Current portion of long-term debt and financing lease obligations, including consolidated variable interest entities of $55,089 and $64,251 in 2019 and 2018, respectively

   $ 441,951   $ 464,332

Accounts payable, accrued expenses and other current liabilities

     178,796     181,400

Due to affiliates

     11,510     6,991

Derivative liabilities, current

     33,969     35,559
  

 

 

   

 

 

 

Total current liabilities

     666,226     688,282

Long-term debt and financing lease obligations, less current portion, including consolidated variable interest entities of $932,862 and $885,760 in 2019 and 2018, respectively

     5,793,431     5,297,513

Operating lease obligations, less current portion, including consolidated variable interest entities of $138,816 in 2019

     272,894     —    

Asset retirement obligations, including consolidated variable interest entities of $116,159 and $86,457 in 2019 and 2018, respectively

     287,288     212,657

Derivative liabilities

     101,394     93,848

Deferred income taxes

     194,539     178,849

Other liabilities

     112,072     90,788
  

 

 

   

 

 

 

Total liabilities

     7,427,844     6,561,937
  

 

 

   

 

 

 

Redeemable non-controlling interests

     22,884     33,495

Stockholders’ equity:

    

Class A common stock, $0.01 par value per share, 1,200,000,000 shares authorized, 227,552,105 and 209,642,140 shares issued in 2019, and 2018, respectively

     2,276     2,096

Additional paid-in capital

     2,512,891     2,391,435

Accumulated deficit

     (508,287     (359,603

Accumulated other comprehensive income

     11,645     40,238

Treasury stock, 1,051,298 and 500,420 shares in 2019 and 2018

     (15,168     (6,712
  

 

 

   

 

 

 

Total TerraForm Power, Inc. stockholders’ equity

     2,003,357     2,067,454

Non-controlling interests

     604,551     667,468
  

 

 

   

 

 

 

Total stockholders’ equity

     2,607,908     2,734,922
  

 

 

   

 

 

 

Total liabilities, redeemable non-controlling interests and stockholders’ equity

   $ 10,058,636   $ 9,330,354
  

 

 

   

 

 

 

 

F-92


TERRAFORM POWER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

 

                                                                   Non-controlling Interests        
     Class A
Common Stock
Issued
     Class B
Common Stock
Issued
    Additional
Paid-in
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income
    Common Stock
Held in Treasury
                Accumulated
Deficit
    Accumulated
Other
Comprehensive
(Loss) Income
          Total
Equity
 
     Shares      Amount      Shares     Amount     Shares     Amount     Total     Capital     Total  

Balance as of December 31, 2016

     92,477    $ 920      48,202   $ 482   $ 1,467,108   $ (227,050   $ 22,912     (254   $ (4,025   $ 1,260,347   $ 1,792,295   $ (308,742   $ (14,406   $ 1,469,147   $ 2,729,494

Net SunEdison investment

     —          —          —            —         7,019     —         —         —         —         7,019     2,749     —         —         2,749     9,768

Equity reallocation

     —          —          —         —         8,780     —         —         —         —         8,780     (8,780     —         —         (8,780     —    

SunEdison exchange

     48,202      482      (48,202     (482     641,452     —         (643     —         —         640,809     (835,662     194,210     643     (640,809     —    

Issuance of Class A common stock to SunEdison

     6,493      65      —         —         (65     —         —         —         —         —         —         —         —         —         —    

Write-off of payables to SunEdison

     —          —          —         —         15,677     —         —         —         —         15,677     —         —         —         —         15,677

Stock-based compensation

     1,414      19      —         —         14,689     —         —         (246     (2,687     12,021     —         —         —         —         12,021

Net loss

     —          —          —         —         —         (160,154     —         —         —         (160,154     —         (77,745     —         (77,745     (237,899

Special Distribution payment

     —          —          —         —         (285,497     —         —         —         —         (285,497     —         —         —         —         (285,497

Other comprehensive income

     —          —          —         —         —         —         25,749     —         —         25,749     —         —         14,657     14,657     40,406

Sale of membership interests and contributions from non-controlling interests

     —          —          —         —         —         —         —         —         —         —         6,935     —         —         6,935     6,935

Distributions to non-controlling interests

     —          —          —         —         —         —         —         —         —         —         (23,345     —         —         (23,345     (23,345

Deconsolidation of non-controlling interest

     —          —          —         —         —         —         —         —         —         —         (8,713     —         —         (8,713     (8,713

Accretion of redeemable non-controlling interest

     —          —          —         —         (6,729     —         —         —         —         (6,729     —         —         —         —         (6,729

Reclassification of Invenergy Wind Interest from redeemable non-controlling interests to non-controlling interests

     —          —          —         —         —         —         —         —         —         —         131,822     —         —         131,822     131,822

Other

     —          —          —         —         9,691     —         —         —         —         9,691     —         (5,919     —         (5,919     3,772
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2017

     148,586    $ 1,486      —       $ —       $ 1,872,125   $ (387,204   $ 48,018     (500   $ (6,712   $ 1,527,713   $ 1,057,301   $ (198,196   $ 894   $ 859,999   $ 2,387,712

Cumulative-effect adjustment1

     —          —          —         —         —         15,221     5,193     —         —         20,414     —         (308     —         (308     20,106

Issuances of Class A common stock to affiliates

     61,056      610      —         —         650,271     —         —         —         —         650,881     —         —         —         —         650,881

Stock-based compensation

     —          —          —         —         257     —         —         —         —         257     —         —         —         —         257

Net income (loss)

     —          —          —         —         —         12,380     —         —         —         12,380     —         (174,916     —         (174,916     (162,536

Distribution

     —          —          —         —         (135,234     —         —         —         —         (135,234     —         —         —         —         (135,234

Other comprehensive loss

     —          —          —         —         —         —         (12,984     —         —         (12,984     —         —         (777     (777     (13,761

Contributions from non-controlling interests

     —          —          —         —         —         —         —         —         —         —         7,685     —         —         7,685     7,685

Distributions to non-controlling interests

     —          —          —         —         —         —         —         —         —         —         (24,128     —         —         (24,128     (24,128

Purchase of redeemable non-controlling interests

     —          —          —         —         817     —         —         —         —         817     —         —         —         —         817

Other

     —          —          —         —         3,199     —         11     —         —         3,210     (87     —         —         (87     3,123
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2018

     209,642    $ 2,096      —       $ —       $ 2,391,435   $ (359,603   $ 40,238     (500   $ (6,712   $ 2,067,454   $ 1,040,771   $ (373,420   $ 117   $ 667,468   $ 2,734,922
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-93


TERRAFORM POWER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(CONTINUED)

 

                                                                     Non-controlling Interests        
     Class A
Common Stock
Issued
     Class B
Common Stock
Issued
     Additional
Paid-in
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income
    Common Stock
Held in Treasury
                Accumulated
Deficit
    Accumulated
Other
Comprehensive
(Loss) Income
          Total
Equity
 
     Shares      Amount      Shares      Amount     Shares     Amount     Total     Capital     Total  

Balance as of December 31, 2018

     209,642    $ 2,096      —        $ —        $ 2,391,435   $ (359,603   $ 40,238     (500   $ (6,712   $ 2,067,454   $ 1,040,771   $ (373,420   $ 117   $ 667,468   $ 2,734,922

Issuances of Class A common stock, net of issuance costs

     17,889      179      —          —          298,589     —         —         —         —         298,768     —         —         —         —         298,768

Purchase of treasury stock

     —          —          —          —          —         —         —         (543     (8,353     (8,353     —         —         —         —         (8,353

Stock-based compensation

     21      1      —          —          492     —         —         (8     (103     390     —         —         —         —         390

Net loss

     —          —          —          —          —         (148,684     —         —         —         (148,684     —         (45,918     —         (45,918     (194,602

Distributions to Class A common stockholders

     —          —          —          —          (171,503     —         —         —         —         (171,503     —         —         —         —         (171,503

Other comprehensive loss

     —          —          —          —          —         —         (28,593     —         —         (28,593     —         —         (624     (624     (29,217

Contributions from non-controlling interests

     —          —          —          —          —         —         —         —         —         —         6,356     —         —         6,356     6,356

Distributions to non-controlling interests

     —          —          —          —          —         —         —         —         —         —         (25,366     —         —         (25,366     (25,366

Purchase of non-controlling interests

     —          —          —          —          (687     —         —         —         —         (687     (393     —         —         (393     (1,080

Non-cash redemption of redeemable non-controlling interests

     —          —          —          —          (7,345     —         —         —         —         (7,345     —         —         —         —         (7,345

Purchase of redeemable non-controlling interests

     —          —          —          —          1,910     —         —         —         —         1,910     —         —         —         —         1,910

Non-controlling interests acquired in business combination

     —          —          —          —          —         —         —         —         —         —         3,028     —         —         3,028     3,028
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2019

     227,552    $ 2,276      —          —        $ 2,512,891   $ (508,287   $ 11,645     (1,051   $ (15,168   $ 2,003,357   $ 1,024,396   $ (419,338   $ (507   $ 604,551   $ 2,607,908
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Represents the effect of the adoption of Accounting Standards Update (“ASU”) No. 2014-09, ASU No. 2016-08, ASU No. 2017-12 and ASU No. 2018-02 as of January 1, 2018.

 

F-94


TERRAFORM POWER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

     Year Ended December 31,  
     2019     2018     2017  

Cash flows from operating activities:

      

Net loss

   $ (206,585   $ (153,327   $ (236,303

Adjustments to reconcile net loss to net cash provided by operating activities:

      

Depreciation, accretion and amortization expense

     434,110     341,837     246,720

Amortization of favorable and unfavorable rate revenue contracts, net

     39,940     38,767     39,576

Loss on modification and extinguishment of debt, net

     26,953     1,480     81,099

Gain on sale of renewable energy facilities

     (2,252     —         (37,116

Impairment of renewable energy facilities

     —         15,240     1,429

Loss on disposal of renewable energy facilities

     15,483     6,231     5,828

Amortization of deferred financing costs, debt discounts, and premiums

     14,224     11,009     23,729

Unrealized (gain) loss on interest rate swaps

     (4,658     (13,116     2,425

(Reductions) charges to allowance for doubtful accounts, net

     (4,239     4,510     339

Unrealized loss on commodity contract derivatives, net

     14,036     4,497     6,847

Recognition of deferred revenue

     (3,457     (1,320     (18,238

Stock-based compensation expense

     492     257     16,778

Gain on foreign currency exchange, net

     (11,480     (12,899     (5,583

Deferred taxes

     6,983     (14,891     (19,911

Other, net

     231     —         254

Changes in assets and liabilities, excluding the effect of acquisitions and divestitures:

      

Accounts receivable

     (8,310     12,569     (2,939

Prepaid expenses and other current assets

     975     (5,512     803

Accounts payable, accrued expenses and other current liabilities

     (17,000     (18,976     (42,537

Due to affiliates, net

     4,215     3,023     3,968

Other, net

     28,783     33,822     29
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     328,444     253,201     67,197
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

      

Capital expenditures

     (21,184     (22,445     (8,392

Proceeds from the settlement of foreign currency contracts, net

     29,806     47,590     —    

Proceeds from divestiture of renewable energy facilities, net of cash and restricted cash disposed

     10,848     —         183,235

Proceeds from energy rebate and reimbursable interconnection costs

     5,117     8,733     25,679

Payments to acquire businesses, net of cash and restricted cash acquired

     (731,782     (886,104     —    

Payments to acquire renewable energy facilities from third parties, net of cash and restricted cash acquired

     (73,682     (8,315     —    

Proceeds from insurance reimbursement

     —         1,543     —    

Other investing activities

     6,244     —         5,750
  

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (774,633     (858,998     206,272
  

 

 

   

 

 

   

 

 

 

 

F-95


TERRAFORM POWER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(CONTINUED)

 

     Year Ended December 31,  
     2019     2018     2017  

Cash flows from financing activities:

      

Proceeds from issuance of Class A common stock, net of issuance costs

     298,767     650,000     —    

Purchase of treasury stock

     (8,353     —         —    

Proceeds from the Senior Notes due 2030

     700,000     —         —    

Repayment of Senior Notes due 2025

     (300,000     —         —    

Proceeds from the Senior Notes due 2023, net

     —         —         494,985

Repayment of the Old Senior Notes due 2023

     —         —         (950,000

Proceeds from the Senior Notes due 2028, net

     —         —         692,979

Revolver draws

     492,500     679,000     265,000

Revolver repayments

     (869,500     (362,000     (205,000

Old Revolver repayments

     —         —         (552,000

Proceeds from the Term Loan, net

     —         —         344,650

Termination of the Term Loan

     (343,875     —         —    

Term Loan principal repayments

     (2,625     (3,500     —    

Proceeds from borrowings of non-recourse long-term debt

     792,216     236,251     79,835

Principal payments and prepayments on non-recourse long-term debt

     (557,099     (259,017     (569,463

Proceeds from the Bridge Facility

     475,000     —         —    

Proceeds from the Sponsor Line—affiliate

     —         86,000     —    

Repayments of the Sponsor Line—affiliate

     —         (86,000     —    

Senior Notes prepayment penalties

     (18,366     —         (50,712

Debt financing fees paid

     (37,597     (9,318     (29,972

Sale of membership interests and contributions from non-controlling interests

     6,356     7,685     6,935

Purchase of membership interests and distributions to non-controlling interests

     (30,509     (29,163     (31,163

Net SunEdison investment

     —         —         7,694

Due to affiliates, net

     —         4,803     (8,869

Cash distributions to Class A common stockholders

     (171,503     (135,234     (285,497

Payments to terminate interest rate swaps

     (18,600     —         —    

Recovery of related party short-swing profit

     —         2,994     —    

Other financing activities

     —         —         1,085
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     406,812     782,501     (789,513
  

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash, cash equivalents and restricted cash

     (39,377     176,704     (516,044

Net change in cash, cash equivalents and restricted cash classified within assets held for sale

     —         —         54,806

Effect of exchange rate changes on cash, cash equivalents and restricted cash

     (3,932     (8,682     3,188

Cash, cash equivalents and restricted cash at the beginning of the year

     392,809     224,787     682,837
  

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at the end of the year

   $ 349,500   $ 392,809   $ 224,787
  

 

 

   

 

 

   

 

 

 

Supplemental Disclosures:

      

Cash paid for interest, net of amounts capitalized

   $ 294,145   $ 250,734   $ 260,685

Cash paid for income taxes

     2,062     430     —    

 

F-96


TERRAFORM POWER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(CONTINUED)

 

     Year Ended December 31,  
     2019      2018     2017  

Schedule of non-cash activities:

       

Right-of-use assets recognized under Topic 842

   $ 262,142    $  —       $  —    

Right-of-use liabilities recognized under Topic 842

     256,015      —         —    

Additions to renewable energy facilities in accounts payable and accrued expenses

     1,455      4,000     1,622

Adjustment to ARO related to change in accretion period

     27,917      (15,734     —    

ARO assets and obligations from acquisitions

     33,143      68,441     —    

Long-term debt assumed in connection with acquisitions

     151,713      1,932,743     —    

Write-off of payables to SunEdison to additional paid-in capital

     —          —         15,677

Issuance of class A common stock to affiliates for settlement of litigation

     —          881     —    

 

F-97


TERRAFORM POWER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share data, unless otherwise noted)

1. NATURE OF OPERATIONS AND ORGANIZATION

Nature of Operations

TerraForm Power, Inc. (“TerraForm Power” and, together with its subsidiaries, the “Company”) is a holding company and its primary asset is an equity interest in TerraForm Power, LLC (“Terra LLC”). TerraForm Power is the managing member of Terra LLC and operates, controls and consolidates the business affairs of Terra LLC, which through its subsidiaries owns and operates renewable energy facilities that have long-term contractual arrangements to sell the electricity generated by these facilities to third parties. The related green energy certificates, ancillary services and other environmental attributes generated by these facilities are also sold to third parties. The Company is sponsored by Brookfield Asset Management Inc. (“Brookfield”) and its primary business strategy is to acquire operating solar and wind assets in North America and Western Europe. The Company is a controlled affiliate of Brookfield. As of December 31, 2019, affiliates of Brookfield held approximately 62% of the Company’s Common Stock.

Brookfield Renewable Non-Binding Proposal and Signing of Reorganization Agreement

On January 11, 2020, the Company received an unsolicited and non-binding proposal (the “Brookfield Proposal”) from Brookfield Renewable Partners L.P. (“Brookfield Renewable”), an affiliate of Brookfield, to acquire all of the outstanding shares of Common Stock of the Company, other than the approximately 62% shares held by Brookfield and its affiliates. The Brookfield Proposal expressly conditioned the transaction contemplated thereby on the approval of a committee of the Board of Directors of the Company (the “Board”) consisting solely of independent directors and the approval of a majority of the shares held by the Company’s stockholders not affiliated with Brookfield Renewable and its affiliates. Following the Company’s receipt of the Brookfield Proposal, the Board formed a special committee (the “Special Committee”) of non-executive, disinterested and independent directors to, among other things, review, evaluate and consider the Brookfield Proposal and, if the Special Committee deemed appropriate, negotiate a transaction with Brookfield Renewable or explore alternatives thereto. The Board resolutions establishing the Special Committee expressly provided that the Board would not approve the transaction contemplated by the Brookfield Proposal or any alternative thereto without a prior favorable recommendation by the Special Committee. Brookfield Renewable holds an approximately 30% indirect economic interest in TerraForm Power.

On March 16, 2020, pursuant to the Brookfield Proposal, the Company and Brookfield Renewable and certain of their affiliates entered into a definitive agreement (the “Reorganization Agreement”) for Brookfield Renewable to acquire all of the Company’s outstanding shares of Common Stock, other than the approximately 62% currently owned by Brookfield Renewable and its affiliates (the transactions contemplated by the Reorganization Agreement, the “Transactions”). Pursuant to the Reorganization Agreement, each holder of a share of Common Stock that is issued and outstanding immediately prior to the consummation of the Transactions will receive, at each such shareholder’s election, 0.381 of a Brookfield Renewable limited partnership unit or of a Class A exchangeable subordinate voting share of Brookfield Renewable Corporation, a Canadian subsidiary of Brookfield Renewable which is expected to be publicly listed as of the consummation of the Transactions. The Special Committee has unanimously recommended that the Company’s unaffiliated shareholders approve the Transactions. Consummation of the Transactions is subject to the non-waivable approval of a majority of the Company’s shareholders not affiliated with Brookfield Renewable, receipt of required regulatory approvals and other customary closing conditions.

The Consummation of the Brookfield Sponsorship Transaction and the Settlement with SunEdison

Prior to the consummation of the Merger (as defined below) on October 16, 2017, TerraForm Power was a controlled affiliate of SunEdison (together with its consolidated subsidiaries and excluding the Company and TerraForm Global, Inc. (“TerraForm Global”) and their subsidiaries, “SunEdison”). Upon the consummation of the Merger, a change of control of TerraForm Power occurred, and Orion US Holdings 1 L.P. (“Orion Holdings”), an affiliate of Brookfield, held 51% of the voting securities of TerraForm Power. As a result of the Merger, TerraForm Power is no longer a controlled affiliate of SunEdison and became a controlled affiliate of Brookfield. In June 2018, TerraForm Power closed a private placement to certain affiliates of Brookfield such that, as of December 31, 2018, affiliates of Brookfield held approximately 65% of TerraForm Power’s Common Stock. On October 8, 2019, the Company completed a public offering and a simultaneous private placement to certain affiliates of Brookfield of its Common Stock whereby as of December 31, 2019, the combined ownership of affiliates of Brookfield was approximately 62%.

On April 21, 2016, SunEdison and certain of its domestic and international subsidiaries (the “SunEdison Debtors”) voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code (the “SunEdison Bankruptcy”). In response to SunEdison’s financial and operating difficulties, the Company initiated a process for the exploration and evaluation of potential strategic alternatives for the Company, including potential transactions to secure a new sponsor or sell the Company, and a process to settle claims with SunEdison. This process resulted in the Company’s entry into a definitive Merger and Sponsorship Transaction agreement on March 6, 2017 with Orion Holdings and BRE TERP Holdings Inc. (“Merger Sub”), a wholly-owned subsidiary of Orion Holdings, each of which is an affiliate of Brookfield. At the same time, the Company and SunEdison also entered into a settlement agreement (the “Settlement Agreement”) and a voting and support agreement (the “Voting and Support Agreement”), to among other things, facilitate the closing of the Merger and the settlement of claims between the Company and SunEdison.

On October 6, 2017, the Merger Agreement was approved by the holders of a majority of the outstanding Class A shares of TerraForm Power, excluding SunEdison, Orion Holdings, any of their respective affiliates or any person with whom any of them has formed (and not terminated) a “group” (as such term is defined in the Securities Exchange Act of 1934 as amended, the “Exchange Act”) and by the holders of a majority of the total voting power of the outstanding shares of the

 

F-98


Company’s common stock entitled to vote on the transaction. With these votes, all conditions to the merger transaction contemplated by the Merger Agreement were satisfied. On October 16, 2017, Merger Sub merged with and into TerraForm Power (the “Merger”), with TerraForm Power continuing as the surviving corporation in the Merger. Immediately following the consummation of the Merger, there were 148,086,027 Class A shares of TerraForm Power outstanding (which excludes 138,402 Class A shares that were issued and held in treasury to pay applicable employee tax withholdings for restricted stock units (“RSUs”) held by employees that vested upon the consummation of the Merger) and Orion Holdings held 51% of such shares. In addition, pursuant to the Merger Agreement, at or prior to the effective time of the Merger, the Company and Orion Holdings (or one of its affiliates), among other parties, entered into a suite of agreements providing for sponsorship arrangements, including a master services agreement, relationship agreement, governance agreement and a sponsor line of credit (the “Sponsorship Transaction”), as are more fully described in Note 10. Long-term Debt and Note 21. Related Parties.

Immediately prior to the effective time of the Merger, pursuant to the Settlement Agreement, SunEdison exchanged all of the Class B units held by SunEdison or any of its controlled affiliates in Terra LLC for 48,202,310 Class A shares of TerraForm Power, and as a result of this exchange, all shares of Class B common stock of TerraForm Power held by SunEdison or any of its controlled affiliates were automatically redeemed and retired. Pursuant to the Settlement Agreement, immediately following this exchange, the Company issued to SunEdison additional Class A shares such that immediately prior to the effective time of the Merger, SunEdison and certain of its affiliates held an aggregate number of Class A shares equal to 36.9% of the Company’s fully diluted share count (which was subject to proration based on the Merger consideration election results as discussed in Note 16. Stockholders’ Equity). SunEdison and certain of its affiliates also transferred all of the outstanding IDRs of Terra LLC held by SunEdison or certain of its affiliates to Brookfield IDR Holder at the effective time of the Merger. Under the Settlement Agreement, upon the consummation of the Merger, all agreements between the Company and the SunEdison Debtors were deemed rejected, subject to certain limited exceptions, without further liability, claims or damages on the part of the Company. The settlements, mutual release and certain other terms and conditions of the Settlement Agreement also became effective upon the consummation of the Merger, as more fully discussed in Note 21. Related Parties.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements represent the results of TerraForm Power, which consolidates Terra LLC through its controlling interest.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). They include the results of wholly-owned and partially-owned subsidiaries in which the Company has a controlling interest with all significant intercompany accounts and transactions eliminated.

The Company elected not to push-down the application of the acquisition method of accounting to its consolidated financial statements following the consummation of the Merger and the change of control that occurred, as discussed in Note 1. Nature of Operations and Organization.

Reclassifications

Certain prior period amounts that existed within the consolidated balance sheets as of December 31, 2018, have been reclassified to conform to the current period presentation. Specifically, the Company presented the balances of current and non-current derivative assets and liabilities, and prepaid expenses separately on the consolidated balance sheets. Additionally, the Company presented the balances of current and non-current deferred revenue as components of current and non-current other liabilities, as appropriate.

Use of Estimates

In preparing the consolidated financial statements, the Company uses estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements. Such estimates also affect the reported amounts of revenues, expenses, and cash flows during the reporting period. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations would be affected.

Cash and Cash Equivalents

Cash and cash equivalents include all cash balances and money market funds with original maturity periods of three months or less when purchased.

 

F-99


Restricted Cash

Restricted cash consists of cash on deposit in financial institutions that is restricted to satisfy the requirements of certain debt agreements and funds held within the Company’s project companies that are restricted for current debt service payments and other purposes in accordance with the applicable debt agreements. These restrictions include: (i) cash on deposit in collateral accounts, debt service reserve accounts and maintenance reserve accounts; and (ii) cash on deposit in operating accounts but subject to distribution restrictions related to debt defaults existing as of the date of the balance sheet. Restricted cash that is not expected to become unrestricted within twelve months from the date of the balance sheet is presented within non-current assets in the consolidated balance sheets.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are reported on the consolidated balance sheets, including both billed and unbilled amounts, and are adjusted for the allowance for doubtful accounts and any write-offs. The Company establishes an allowance for doubtful accounts to adjust its receivables to amounts considered to be ultimately collectible, and charges to the allowance are recorded within general and administrative expenses or cost of operations, as appropriate, in the consolidated statements of operations. The Company’s allowance for doubtful accounts is based on a variety of factors, including the length of time receivables are past due, significant one-time events, the financial health of its customers, and historical experience. The allowance for doubtful accounts was $1.4 million and $1.6 million as of December 31, 2019, and 2018, respectively, and charges (reductions) to the allowance recorded within general and administrative expenses for the years ended December 31, 2019, 2018 and 2017 were $0.2 million, $0.1 million and $(1.5) million, respectively. Accounts receivable are written off in the period in which the receivable is deemed uncollectible, and collection efforts have been exhausted. There were no write-offs of accounts receivable for the years ended December 31, 2019, 2018, and 2017.

Renewable Energy Facilities

Renewable energy facilities consist of solar generation and storage facilities and wind power plants that are stated at cost. Expenditures for major additions and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. Depreciation of the Company’s solar and storage facilities is recognized using the straight-line composite method over their estimated useful lives which ranged from 12 to 28 years and 23 to 30 years, as of December 31, 2019 and 2018, respectively. Under this method, the Company’s assets with similar characteristics and estimated useful lives are grouped and depreciated as a single unit. Depreciation of the Company’s wind power plant is calculated based on the major components of wind power plants and is recognized over the estimated periods during which these major components remain in service. The Company’s major components of wind power plants had remaining useful lives ranging from 8 to 36 years. As of December 31, 2019 and 2018, they had a weighted average remaining useful life of 19 and 21 years, respectively.

Construction in-progress represents the cumulative construction costs, including the costs incurred for the purchase of major equipment and engineering costs and any capitalized interest. Once the project achieves commercial operation, the Company reclassifies the amounts recorded in construction in progress to renewable energy facilities in service.

Finite-Lived Intangibles

The Company’s finite-lived intangible assets and liabilities represent revenue contracts, consisting of long-term licensing agreements, power purchase contracts (“PPAs”), and renewable energy credits (“RECs”) that were obtained through third-party acquisitions. The revenue contract intangibles comprise favorable and unfavorable rate PPAs and REC agreements and the in-place value of market-rate PPAs. Intangible assets and liabilities that have determinable estimated lives are amortized on a straight-line basis over those estimated lives. Amortization of favorable and unfavorable rate revenue contracts is recorded within operating revenues, net in the consolidated statements of operations. Amortization expense related to the licensing contracts and in-place value of market-rate revenue contracts is recorded within depreciation, accretion and amortization expense in the consolidated statements of operations. The straight-line method of amortization is used because it best reflects the pattern in which the economic benefits of the intangibles are consumed or otherwise used up. The amounts and useful lives assigned to intangible assets acquired and liabilities assumed impact the amount and timing of future amortization.

Impairment of Renewable Energy Facilities and Intangibles

Long-lived assets that are held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recognized when indicators of impairment are present and the total future estimated undiscounted cash flows expected from an asset are less than its carrying value. The Company review our current activities, changes in the conditions of our renewable energy facilities and the market conditions

 

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in which they operate to determine the existence of any indicators requiring an impairment analysis. Indicators of potential impairment for a long-lived asset group, generally this is an individual renewable energy project, include a substantial and sustained decline in the trading price of our Common Stock, severe adverse changes in the financial condition of a customer to our offtake agreements, a significant decline in forecasted operating revenues and earnings of our operating projects, and deterioration in the performance of our renewable energy facilities. An impairment charge is measured as the difference between a long lived asset group’s carrying amount and its fair value. The fair values are determined by a variety of valuation methods, including appraisals, sales prices of similar assets, and present value techniques.

During the year ended December 31, 2018, the Company recognized a $15.2 million non-cash impairment charge within its Solar reporting segment related to an operating project within a distributed generation portfolio due to the bankruptcy of a significant customer. During the year ended December 31, 2017, the Company recognized an impairment charge of $1.4 million, within impairment of renewable energy facilities in the consolidated statements of operations, on its 11.4 MW portfolio of residential rooftop solar assets that was classified as held for sale as of December 31, 2016, and subsequently sold in 2017. See Note 3. Acquisitions and Divestitures and Note 6. Renewable Energy Facilities for further discussion.

Goodwill

The Company evaluates goodwill for impairment at least annually on December 1. The Company performs an impairment test between scheduled annual tests if facts and circumstances indicate that it is more-likely-than-not that the fair value of a reporting unit that has goodwill is less than its carrying value. A reporting unit is either the operating segment level or one level below, which is referred to as a component. The level at which the impairment test is performed requires judgment as to whether the operations below the operating segment constitute a self-sustaining business or whether the operations are similar such that they should be aggregated for purposes of the impairment test. The Company defines its reporting units to be consistent with its operating segments.

The Company may first make a qualitative assessment of whether it is more-likely-than-not that a reporting unit’s fair value is less than its carrying value to determine whether it is necessary to perform the quantitative goodwill impairment test. The qualitative impairment test includes considering various factors, including macroeconomic conditions, industry and market conditions, cost factors, a sustained share price or market capitalization decrease, and any reporting unit specific events. If it is determined through the qualitative assessment that a reporting unit’s fair value is more-likely-than-not greater than its carrying value, the quantitative impairment test is not required. If the qualitative assessment indicates it is more-likely-than-not that a reporting unit’s fair value is not greater than its carrying value, the Company must perform the quantitative impairment test. The Company may also elect to proceed directly to the quantitative impairment test without considering such qualitative factors.

The quantitative impairment test is the comparison of the fair value of a reporting unit with its carrying amount, including goodwill. In accordance with the authoritative guidance over fair value measurements, the Company defines the fair value of a reporting unit as the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. The Company primarily uses the income approach methodology of valuation, which uses the discounted cash flow method to estimate the fair values of the Company’s reporting units. The Company does not believe that a cost approach is relevant to measuring the fair values of its reporting units.

Significant management judgment is required when estimating the fair value of the Company’s reporting units, including the forecasting of future operating results, the discount rates and expected future growth rates that it uses in the discounted cash flow method of valuation, and in the selection of comparable businesses that are used in the market approach. If the estimated fair value of the reporting unit exceeds the carrying value assigned to that unit, goodwill is not impaired. If the carrying value assigned to a reporting unit exceeds its estimated fair value, the Company records an impairment charge based on the excess of the reporting unit’s carrying amount over its fair value. The impairment charge is limited to the amount of goodwill allocated to the reporting unit.

The Company performed a qualitative impairment test for the goodwill balance of $128.0 million, and concluded that the carrying amount of the related reporting units does not exceed its fair value. No goodwill impairment charges were recorded for the years ended December 31, 2019, 2018 and 2017.

Financing Lease Obligations

Certain of the Company’s assets were financed with sale-leaseback arrangements. Proceeds received from a sale-leaseback are treated using the financing method when the sale of the renewable energy facility is not recognizable. A sale is not recognized when the leaseback arrangements include a prohibited form of continuing involvement, such as an option or

 

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obligation to repurchase the assets under the Company’s master lease agreements. Under these arrangements, the Company does not recognize any profit until the sale is recognizable, which the Company expects to recognize at the end of the arrangement when the contract is canceled and the initial deposits received are forfeited by the financing party.

The Company is required to make rental payments throughout the leaseback arrangements. These payments are allocated between principal and interest payments using an effective yield method.

Deferred Financing Costs

Financing costs incurred in connection with obtaining senior notes and term financing are deferred and amortized over the maturities of the respective financing arrangements using the effective interest method and are presented as a direct deduction from the carrying amount of the related debt (see Note 10. Long-term Debt for additional details), except for the costs related to the Company’s revolving credit facilities, which are presented as a non-current asset on the consolidated balance sheets within other assets. As of December 31, 2019, 2018 and 2017, the Company had $10.8 million, $6.7 million, and $9.4 million, respectively, of unamortized deferred financing costs related to its revolving credit facilities.

Inventory

Inventory consists of spare parts and is recorded at the lower of the weighted average cost of purchase or net realizable value within other current assets in the consolidated balance sheets. Spare parts are expensed to cost of operations in the consolidated statements of operations or capitalized to renewable energy facilities when installed or used, as appropriate.

Asset Retirement Obligations

Asset retirement obligations are accounted for in accordance with Accounting Standards Codification (“ASC”) 410-20, Asset Retirement Obligations. Retirement obligations associated with renewable energy facilities included within the scope of ASC 410-20 are those for which a legal obligation exists under enacted laws, statutes, and written or oral contracts, and for which the timing and/or method of settlement may be conditional on a future event. Asset retirement obligations are recognized at fair value in the period in which they are incurred, and a corresponding asset retirement costs are recognized within the related renewable energy facilities. Over time, the asset retirement cost is depreciated over the estimated useful life of the related renewable energy facility, and the asset retirement obligation is accreted to its expected future value.

The Company generally reviews its asset retirement obligations annually, based on its review of updated cost studies, as necessary, and its evaluation of cost escalation factors. The Company evaluates newly assumed costs or substantive changes in previously assumed costs to determine if the cost estimate impacts are sufficiently material to warrant the application of the updated estimates to the asset retirement obligations. Changes resulting from revisions to the timing or amount of the original estimate of cash flows are recognized as an increase or a decrease in the asset retirement cost to the extent applicable.

Revenue from Contracts with Customers

Adoption of Topic 606

On January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers and ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (collectively referred to as “Topic 606”) for all revenue contracts in scope, which primarily included bundled energy and incentive sales through PPAs, individual REC sales, and upfront sales of federal and state incentive benefits recorded. The Company elected to use the contract modification practical expedient for purposes of computing the cumulative-effect adjustment recorded to the balances of stockholders’ equity as of January 1, 2018.

The Company evaluated the impact of Topic 606 as it relates to the individual sale of RECs. In certain jurisdictions, there may be a lag between physical generation of the underlying energy and the transfer of RECs to the customer due to administrative processes imposed by state regulations. Under the Company’s previous accounting policy, revenue was recognized as the underlying electricity was generated if the sale had been contracted with the customer. Based on the framework in Topic 606, for a portion of the existing individual REC sale arrangements where the transfer of control to the customer is determined to occur upon the transfer of the RECs, the Company currently recognizes revenue commensurate with the transfer of RECs to the customer as compared to the generation of the underlying energy under the previous accounting policy. Revenue recognition practices for the remainder of existing individual REC sale arrangements remain the same; that is, revenue is recognized based on the underlying generation of energy because the contracted RECs are produced from a designated facility and control of the RECs transfers to the customer upon generation of the underlying energy. The adoption of

 

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Topic 606, as it relates to the individual sale of RECs, resulted in an increase in accumulated deficit on January 1, 2018, of $20.5 million, net of tax, and net of $0.3 million and $4.5 million that were allocated to non-controlling interests and redeemable non-controlling interests, respectively. The adjustments for accumulated deficit and non-controlling interests are reflected within cumulative-effect adjustment in the consolidated statements of stockholders’ equity for the year ended December 31, 2018, and the redeemable non-controlling interests adjustment is reflected within cumulative-effect adjustment in the redeemable non-controlling interests roll-forward presented in Note 18. Non-controlling Interests.

The Company evaluated the impact of Topic 606 as it relates to the upfront sale of investment tax credits (“ITCs”) through its lease pass-through fund arrangements. The amounts allocated to the ITCs were initially recorded as deferred revenue in the consolidated balance sheets, and subsequently, one-fifth of the amounts allocated to the ITCs was recognized annually as incentives revenue in the consolidated statements of operations based on the anniversary of each solar energy system’s placed-in-service date. The Company concluded that revenue related to the sale of ITCs through its lease pass-through arrangements should be recognized at the point in time when the related solar energy systems are placed in service. Previously, the Company recognized this revenue evenly over the five-year ITC recapture period. The Company concluded that the likelihood of a recapture event related to these assessments is remote. The adoption of Topic 606, as it relates to the upfront sale of ITCs, resulted in a decrease in accumulated deficit on January 1, 2018 of $40.9 million, net of tax, which is reflected within cumulative-effect adjustment in the consolidated statements of stockholders’ equity for the year ended December 31, 2018. The impact on the Company’s results of operations for the year ended December 31, 2018 resulted in a decrease in non-cash deferred revenue recognition of $16.3 million.

PPA Rental Income

The majority of the Company’s energy revenue is derived from long-term PPAs accounted for as operating leases under ASC 840, Leases. Rental income under these lease agreements is recorded as revenue when the electricity is delivered to the customer. The Company adopted ASC 842, Leases on January 1, 2019, and elected certain of the practical expedients permitted in the issued standard, including the expedient that permits the Company to retain its existing lease assessment and classification.

Solar and Wind PPA Revenue

PPAs that are not accounted for under the scope of leases or derivatives are accounted for under Topic 606. The Company typically delivers bundled goods consisting of energy and incentive products for a singular rate based on a unit of generation at a specified facility over the term of the agreement. In these types of arrangements, the volume reflects total energy generation measured in Kilowatt hours (“kWhs”), which can vary period to period depending on system and resource availability. The contract rate per unit of generation (kWhs) is generally fixed at contract inception; however, certain pricing arrangements can provide for time-of-delivery, seasonal, or market index adjustment mechanisms over time. The customer is invoiced monthly equal to the volume of energy delivered multiplied by the applicable contract rate.

The Company considers bundled energy and incentive products within PPAs to be distinct performance obligations. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied under Topic 606. The Company views the sale of energy as a series of distinct goods that is substantially the same and has the same pattern of transfer measured by the output method. Although the Company views incentive products in bundled PPAs to be performance obligations satisfied at a point in time, measurement of satisfaction and transfer of control to the customer in a bundled arrangement coincides with a pattern of revenue recognition with the underlying energy generation. Accordingly, the Company applied the practical expedient in Topic 606 as the right to consideration corresponds directly to the value provided to the customer to recognize revenue at the invoice amount for its standalone and bundled PPA contracts.

Commodity Derivatives

The Company has certain revenue contracts within its wind fleet that are accounted for as derivatives under the scope of ASC 815, Derivatives and Hedging. Amounts recognized within operating revenues, net in the consolidated statements of operations consist of cash settlements and unrealized gains and losses representing changes in fair value for the commodity derivatives that are not designated as hedging instruments. See Note 12. Derivatives for further discussion.

 

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Regulated Solar and Wind Energy Revenue

Regulated solar and wind includes revenue generated by Saeta’s solar and wind operations in Spain, which are subject to regulations applicable to companies that generate production from renewable sources for facilities located in Spain. While Saeta’s Spanish operations are regulated by the Spanish regulator, the Company has determined that the Spanish entities do not meet the criteria of a rate-regulated entity under ASC 980 Regulated Operations, since the rates established by the Spanish regulator are not designed to recover the entity’s costs of providing its energy generation services. Accordingly, the Company applied Topic 606 to recognize revenue for these customer contract arrangements. The Company has distinct performance obligations to deliver electricity, capacity, and incentives which are discussed below.

The Company has a performance obligation to deliver electricity and these sales are invoiced monthly at the wholesale market price (subject to adjustments due to regulatory price bands that reduce market risk). The Company transfers control of the electricity over time and the customer receives and consumes the benefit simultaneously. Accordingly, the Company applied the practical expedient in Topic 606 as the right to consideration corresponds directly to the value provided to the customer to recognize revenue at the invoice amount for electricity sales.

The Company has a stand-ready performance obligation to deliver capacity in the Spanish electricity market in which these renewable energy facilities are located. Proceeds received by the Company from the customer in exchange for capacity are determined by a remuneration on an investment per unit of installed capacity that is determined by the Spanish regulators. The Company satisfies its performance obligation for capacity under a time-based measure of progress and recognizes revenue by allocating the total annual consideration evenly to each month of service.

Regulated Solar and Wind Incentive Revenue

For the Company’s Spanish solar renewable energy facilities, the Company has identified a performance obligation linked to an incentive that is distinct from the electricity and capacity deliveries discussed above. For solar technologies under the Spanish market, the customer makes an operating payment per MWh which is calculated based on the difference of a standard cost and an expected market price, both, determined by the Spanish regulator. The customer is invoiced monthly equal to the volume of energy produced multiplied by the regulated rate. The performance obligation is satisfied when the Company generates electricity from the solar renewable facility. The Company recognizes revenue based on the amount invoiced each month.

Amortization of Favorable and Unfavorable Rate-Revenue Contracts

The Company accounts for its business combinations by recognizing in the financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interests in the acquiree at fair value at the acquisition date. Intangible amortization of certain revenue contracts acquired in business combinations (favorable and unfavorable rate PPAs and REC agreements) is recognized on a straight-line basis over the remaining contract term. The current period amortization for favorable rate revenue contracts is reflected as a reduction to operating revenues, net, and amortization for unfavorable rate revenue contracts is reflected as an increase to operating revenues, net. See Note 7. Intangible Assets, Net and Goodwill for additional details.

Solar and Wind Incentive Revenue

The Company generates incentive revenue from individual incentive agreements relating to the sale of RECs and performance-based incentives to third-party customers that are not bundled with the underlying energy output. The majority of individual REC sales reflect a fixed quantity, fixed price structure over a specified term. The Company views REC products in these arrangements as distinct performance obligations satisfied at a point in time. Since the REC products delivered to the customer are not linked to the underlying generation of a specified facility, these RECs are recognized into revenue when delivered. The Company typically receives payment within 30 days of invoiced REC revenue.

For certain incentive contract arrangements, the quantity delivered to the customer is linked to a specific facility. The pattern of revenue recognition for these incentive arrangements is recognized over time coinciding with the underlying revenue generation from the related facility.

See Note 4. Revenue for additional disclosures.

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which primarily changes the lessee’s accounting for operating leases by requiring the recognition of lease right-of-use assets and lease liabilities. The guidance also eliminates previous real estate specific provisions. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, which amended the

 

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standard to give entities another option to apply the requirements of the standard in the period of adoption (January 1, 2019) or Effective Date Method. The Company adopted the new accounting guidance on January 1, 2019 using a modified retrospective approach reflecting the Effective Date Method of adoption in which the Company continued to apply the guidance in ASC 840, Leases to the comparable periods presented in the year of adoption.

The Company made the following elections provided under the standard:

 

   

The package of practical expedients that permits the Company to retain its existing lease assessment and classification;

 

   

The practical expedient that allows the Company to not evaluate existing and expired land easements;

 

   

The practical expedient to not separate non-lease components in power purchase agreements (“PPAs”) in which the Company is the lessor in providing energy, capacity, and incentive products for a bundled fixed rate; and

 

   

The Company elected not to apply the recognition requirements for short-term operating leases, defined as a term of twelve months or shorter, from the commencement date.

The Company evaluated the impact of Topic 842 as it relates to operating leases for land, buildings and equipment for which it is the lessee and reviewed its existing contracts for embedded leases. The adoption of the new standard resulted in the recognition of right-of-use assets and lease liabilities of approximately $262.1 million and $256.0 million, respectively, as of January 1, 2019, for operating leases, whereas the Company’s accounting for finance leases remained substantially unchanged.

The Company has operating leases for renewable energy production facilities, land, office space, transmission lines, vehicles and other operating equipment. Leases with an initial term of twelve months or shorter are not recorded on the balance sheet, but are expensed on a straight-line basis over the lease term. During the year ended December 31, 2019, the Company did not have any leases with an initial term of less than twelve months.

Operating lease right-of-use assets are included within renewable energy facilities, net, whereas right-of-use liabilities are included within accounts payable, accrued expenses and other current liabilities. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company calculated an incremental borrowing rate by leveraging external transactions at comparable entities and internally available information to determine the present value of lease payments. The Company’s leases have remaining lease terms ranging from 5 to 41 years.

The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term. Although some of the Company’s leases contain lease and non-lease components, the Company applies the practical expedient to account for each lease component and non-lease component as a single lease component. Lease payments include fixed rent and taxes, where applicable, and exclude variable rental payments that include other operating expenses is recognized as incurred. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The following tables outline the different components of operating leases and other terms and conditions of the lease agreements where the Company is the lessee.

As discussed above, a significant portion of the Company’s operating revenues are generated from delivering electricity and related products from owned solar and wind renewable energy facilities under PPAs in which the Company is the lessor. Revenue is recognized when electricity is delivered and is accounted for as rental income under the lease standard. The adoption of ASC 842 did not have an impact on the accounting policy for rental income from the Company’s PPAs in which it is the lessor. The Company elected the package of practical expedients available under ASC 842, which did not require the Company to reassess its lease classification from ASC 840. Additionally, the Company elected the practical expedient to not separate lease and non-lease components for lessors. This election allows energy (lease component) and environmental incentives or renewable energy certificates (non-lease components) under bundled PPAs to be accounted as a singular lease unit of account under ASC 842.

See Note 8. Leases for additional disclosures.

Income Taxes

The Company accounts for income taxes using the liability method, which requires it to use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant temporary differences.

 

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The Company reports certain of its revenues and expenses differently for financial statement purposes than for income tax return purposes, resulting in temporary and permanent differences between the Company’s financial statements and income tax returns. The tax effects of such temporary differences are recorded as either deferred income tax assets or deferred income tax liabilities in the Company’s consolidated balance sheets. The Company measures its deferred income tax assets and deferred income tax liabilities using enacted tax rates that are expected to be in effect when the deferred tax liabilities are expected to be realized or settled. Many factors are considered when assessing the likelihood of future realization of deferred tax assets, including recent earnings within taxing jurisdictions, expectations of future taxable income, the carry forward periods available and other relevant factors. The Company believes it is more likely than not that the future reversal of existing taxable temporary differences will allow the Company to realize deferred tax assets, net of valuation allowances. A valuation allowance is recorded to reduce the net deferred tax assets to an amount that is more-likely-than-not to be realized. Tax benefits are recognized when it is more-likely-than-not that a tax position will be sustained upon examination by the authorities. The benefit recognized from a position that has surpassed the more-likely-than-not threshold is the largest amount of benefit that is more than 50% likely to be realized upon settlement. The Company recognizes interest and penalties related to uncertain tax benefits as a component of income tax expense. Changes to existing net deferred tax assets or valuation allowances or changes to uncertain tax benefits are recorded to income tax expense in the period such determination is made.

The Company releases the taxes deferred in AOCI as the individual units of account (i.e., derivative instruments in a cash flow hedge or net investment hedge relationships) are terminated, extinguished, sold or substantially liquidated.

Adoption of ASU 2018-02

During the fourth quarter of 2018, the Company early adopted ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income addressing certain stranded income tax effects in AOCI resulting from the U.S. government’s enactment of the Tax Cuts and Jobs Act (the “Tax Act”) on December 22, 2017. The adoption of ASU No. 2018-12 resulted in reclassifying $9.4 million of stranded tax effects on the net unrealized gains on derivatives designated as hedging instruments in a cash flow relationship from AOCI to accumulated deficit. The reclassification is reflected as an increase to accumulated deficit within the cumulative-effect adjustment in the consolidated statements of stockholders’ equity for the year ended December 31, 2018, and an increase to the opening balance of AOCI as of January 1, 2018.

Variable Interest Entities

The Company assesses entities for consolidation in accordance with ASC 810. The Company consolidates variable interest entities (“VIEs”) in renewable energy facilities when determined to be the primary beneficiary. VIEs are entities that lack one or more of the characteristics of a voting interest entity (“VOE”). The Company has a controlling financial interest in a VIE when its variable interest or interests provide it with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

VOEs are entities in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity is consolidated.

For the Company’s consolidated VIEs, the Company has presented on its consolidated balance sheets, to the extent material, the assets of its consolidated VIEs that can only be used to settle specific obligations of the consolidated VIE, and the liabilities of its consolidated VIEs for which creditors do not have recourse to the Company’s general assets outside of the VIE.

Non-controlling Interests and Hypothetical Liquidation at Book Value (“HLBV”)

Non-controlling interests represent the portion of net assets in consolidated entities that are not owned by the Company and are reported as a component of equity in the consolidated balance sheets. Non-controlling interests in subsidiaries that are redeemable either at the option of the holder or at fixed and determinable prices at certain dates in the future are classified as redeemable non-controlling interests in subsidiaries between liabilities and stockholders’ equity in the consolidated balance sheets. Redeemable non-controlling interests that are currently redeemable or redeemable after the passage of time are adjusted to their redemption value as changes occur. The Company applies the guidance in ASC 810-10 along with the Securities and Exchange Commission (“SEC”) guidance in ASC 480-10-S99-3A in the valuation of redeemable non-controlling interests.

 

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The Company has determined the allocation of economics between the controlling party and the third party for non-controlling interests does not correspond to ownership percentages for certain of its consolidated subsidiaries. In order to reflect the substantive profit sharing arrangements, the Company has determined that the appropriate methodology for determining the value of non-controlling interests is a balance sheet approach using the HLBV method. Under the HLBV method, the amounts reported as non-controlling interest on the consolidated balance sheets represent the amounts the third party investors could hypothetically receive at each balance sheet reporting date based on the liquidation provisions of the respective operating partnership agreements. HLBV assumes that the proceeds available for distribution are equivalent to the unadjusted, stand-alone net assets of each respective partnership, as determined under U.S. GAAP. The third party non-controlling interests in the consolidated statements of operations and statements of comprehensive loss are determined based on the difference in the carrying amounts of non-controlling interests on the consolidated balance sheets between reporting dates, adjusted for any capital transactions between the Company and third party investors that occurred during the respective period.

Where, prior to the commencement of operating activities for a respective renewable energy facility, HLBV results in an immediate change in the carrying value of non-controlling interests on the consolidated balance sheets due to the recognition of ITCs or other adjustments as required by the U.S. Internal Revenue Code, the Company defers the recognition of the respective adjustments and recognizes the adjustments in non-controlling interest on the consolidated statements of operations on a straight-line basis over the expected life of the underlying assets giving rise to the respective difference. Similarly, where the Company has acquired a controlling interest in a partnership and there is a resulting difference between the initial fair value of non-controlling interest and the value of non-controlling interest as measured using HLBV, the Company initially records non-controlling interests at fair value and amortizes the resulting difference over the remaining life of the underlying assets.

Contingencies

The Company is involved in conditions, situations or circumstances in the ordinary course of business with possible gain or loss contingencies that will ultimately be resolved when one or more future events occur or fail to occur. If some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, that amount will be accrued. When no amount within the range is a better estimate than any other amount, the minimum amount in the range will be accrued. The Company continually evaluates uncertainties associated with loss contingencies and records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to the issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements; and (ii) the loss or range of loss can be reasonably estimated. Legal costs are expensed when incurred. Gain contingencies are not recorded until realized or realizable.

Derivative Financial Instruments

Adoption of ASU 2017-12

On January 1, 2018, the Company adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities which primarily resulted in simplification of the assessment of hedge effectiveness for derivatives designated in a qualifying cash flow relationship, and the periodic recognition of gains and losses related to certain components of AOCI. The Company adopted ASU No. 2017-12 using the modified retrospective transition method resulting in a cumulative-effect adjustment of $4.2 million, net of tax of $1.6 million, representing a decrease in accumulated deficit and AOCI, which is reflected within cumulative-effect adjustment in the consolidated statements of stockholders’ equity for the year ended December 31, 2018.

Initial Recognition

The Company recognizes its derivative instruments as assets or liabilities at fair value in the consolidated balance sheets on a trade date basis unless they qualify for certain exceptions, including the normal purchases and normal sales exception. Accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated as part of a hedging relationship and the type of hedging relationship.

Derivatives that qualify and are designated for hedge accounting are classified as either hedges of the variability of expected future cash flows to be received or paid related to a recognized asset or liability (cash flow hedges) or hedges of the exposure to foreign currency of a net investment in a foreign operation (net investment hedges).

The Company also uses derivative contracts outside the hedging program to manage foreign currency risk associated with intercompany loans.

 

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Subsequent Measurement

The change in fair value of components included in the effectiveness assessment of derivative instruments designated as cash flow hedges is recognized as a component of OCI and reclassified into earnings on a trade date basis in the period that the hedged transaction affects earnings. The change in fair value of components included in the effectiveness assessment of foreign currency contracts designated as net investment hedges is recorded in cumulative translation adjustments within AOCI and reclassified into earnings when the foreign operation is sold or substantially liquidated.

The change in fair value of derivative contracts intended to serve as economic hedges that are not designated as hedging instruments is reported as a component of earnings in the consolidated statements of operations.

Cash flows from derivative instruments designated as net investment hedges and non-designated derivatives used to manage foreign currency risks associated with intercompany loans are classified as investing activities in the consolidated statements of cash flows. Cash flows from all other derivative instruments are classified as operating activities in the consolidated statements of cash flows.

Fair Value Measurements

The Company performs fair value measurements defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at their fair values, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the assets or liabilities, such as inherent risk, transfer restrictions and risk of nonperformance.

In determining fair value measurements, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs. Assets and liabilities are categorized within a fair value hierarchy based upon the lowest level of input that is significant to the fair value measurement:

 

   

Level 1: Quoted prices in active markets for identical assets or liabilities;

 

   

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

 

   

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.

The Company maintains various financial instruments recorded at cost in the consolidated balance sheets that are not required to be recorded at fair value. For cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses and other current liabilities and due to affiliates, net, the carrying amount approximates fair value because of the short-term maturity of the instruments. See Note 13. Fair Value of Financial Instruments for disclosures related to the fair value of the Company’s derivative instruments and long-term debt.

Foreign Currency

The Company’s reporting currency is the U.S. dollar. Certain of the Company’s subsidiaries maintain their records in local currencies other than the U.S. dollar, which are their functional currencies. When a subsidiary’s local currency is considered its functional currency, the Company translates its assets and liabilities to U.S. dollars using exchange rates in effect at date of the financial statements and its revenue and expense accounts to U.S. dollars at average exchange rates for the period. Cumulative translation adjustments are reported in AOCI in stockholders’ equity. Cumulative translation adjustments are reclassified from AOCI to earnings only when realized upon sale or upon complete or substantially complete liquidation of an investment in a foreign subsidiary. Transaction gains and losses and changes in fair value of the Company’s foreign exchange derivative contracts not accounted for under hedge accounting are included in results of operations as recognized.

 

F-108


Business Combinations and Acquisitions of Assets

The Company applies the definition of a business in ASC 805, Business Combinations to determine whether it is acquiring a business or a group of assets.

The Company accounts for its business combinations by recognizing in the financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interests in the acquiree at fair value at the acquisition date. The Company also recognizes and measures the goodwill acquired or a gain from a bargain purchase in the business combination and determines what information to disclose to enable users of an entity’s financial statements to evaluate the nature and financial effects of the business combination. In addition, acquisition costs related to business combinations are expensed as incurred.

When the Company acquires a renewable energy business, the purchase price is allocated to (i) the acquired tangible assets and liabilities assumed, primarily consisting of land, plant and long-term debt, (ii) the identified intangible assets and liabilities, primarily consisting of the value of favorable and unfavorable rate PPAs, REC agreements, the licensing contracts and in-place value of market rate PPAs, (iii) non-controlling interests, and (iv) other working capital items based in each case on their fair values. The excess of the purchase price over the estimated fair value of net assets acquired is recorded as goodwill.

The Company generally uses independent appraisers to assist with the estimates and methodologies used such as a replacement cost approach, or an income approach or excess earnings approach. Factors considered by the Company in its analysis include considering current market conditions and costs to construct similar facilities. The Company also considers information obtained about each facility as a result of its pre-acquisition due diligence in estimating the fair value of the tangible and intangible assets and liabilities acquired or assumed. In estimating the fair value, the Company also establishes estimates of energy production, current in-place and market power purchase rates, tax credit arrangements and operating and maintenance costs. A change in any of the assumptions above, which are subjective, could have a significant impact on the results of operations.

The allocation of the purchase price directly affects the following items in the consolidated financial statements:

 

   

The amount of purchase price allocated to the various tangible and intangible assets, liabilities and non-controlling interests on the balance sheet;

 

   

The amounts allocated to the value of favorable and unfavorable rate PPAs and REC agreements are amortized to revenue over the remaining non-cancelable terms of the respective arrangement. The amounts allocated to all other tangible assets and intangibles are amortized to depreciation or amortization expense; and

 

   

The period of time over which tangible and definite-lived intangible assets and liabilities are depreciated or amortized varies, and thus, changes in the amounts allocated to these assets and liabilities will have a direct impact on the Company’s results of operations.

ASC 805 allows the acquirer to report provisional amounts and adjust them for a period of time up to one year after the acquisition date (the “measurement period”) while the Company obtains information about the facts and circumstances that existed as of the acquisition date.

When an acquired group of assets does not constitute a business, the transaction is accounted for as an asset acquisition. The Company recognizes and measures the acquired assets based on the cost of the acquisitions, generally being the consideration transferred to the seller and typically includes the direct transaction costs related to the acquisition. The Company allocates the total cost of acquisition to the individual assets acquired or liabilities assumed based on their relative fair values generally similar to the allocation of the purchase price in a business combination. No goodwill is recognized in an asset acquisition.

Assets Held for Sale

The Company records assets held for sale at the lower of the carrying value or fair value less costs to sell. The following criteria are used to determine if property is held for sale: (i) management has the authority and commits to a plan to sell the property; (ii) the property is available for immediate sale in its present condition; (iii) there is an active program to locate a buyer and the plan to sell the property has been initiated; (iv) the sale of the property is probable within one year; (v) the property is being actively marketed at a reasonable price relative to its current fair value; and (vi) it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made.

 

F-109


In determining the fair value of the assets less costs to sell, the Company considers factors including current sales prices for comparable assets in the region, recent market analysis studies, appraisals and any recent legitimate offers. If the estimated fair value less costs to sell of an asset is less than its current carrying value, the asset is written down to its estimated fair value less costs to sell. Due to uncertainties in the estimation process, it is reasonably possible that actual results could differ from the estimates used in the Company’s historical analysis. The Company’s assumptions about project sale prices require significant judgment because the current market is highly sensitive to changes in economic conditions. The Company estimates the fair values of assets held for sale based on current market conditions and assumptions made by management, which may differ from actual results and may result in additional impairments if market conditions deteriorate.

When assets are classified as held for sale, the Company does not record depreciation or amortization for the respective renewable energy facilities or intangibles.

At December 31, 2019 and 2018, there were no assets held for sale.

Stock-Based Compensation

Stock-based compensation expense for all share-based payment awards to certain employees who provide services to the Company is based on the estimated grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the award vesting term. For ratable awards, the Company recognizes compensation costs for all grants on a straight-line basis over the requisite service period of the entire award. The Company recognizes the effect of forfeitures in compensation costs when they occur.

Deferred Compensation Plan

The Company sponsors a retirement saving plan that qualifies as a deferred compensation plan under Section 401(k) of the Internal Revenue Code. Eligible U.S. employees may elect to defer a percentage of their qualified compensation for income tax purposes through payroll deductions, and the Company matches a percentage of the contributions based on employees’ elective deferrals. The Company’s total matching contribution expense under the arrangement was $0.5 million, $0.6 million and $0.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Restructuring

The Company accounts for restructuring costs in accordance with ASC 712 and ASC 420, as applicable. In connection with the consummation of the Merger and the relocation of the Company’s headquarters to New York, New York, the Company announced a restructuring plan that went into effect upon the closing of the Merger. The Company recognized $0.1 million and $3.7 million of severance and transition bonus costs related to this restructuring within general and administrative expenses in the consolidated statements of operations for the years ended December 31, 2019, and 2018. Severance and transition bonus payments were $0.4 million and $5.5 million during the years ended December 31, 2019, and 2018.

Recently Adopted Accounting Standards—Additional Guidance Adopted in 2019

In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This ASU expands the list of United States (“U.S.”) benchmark interest rates permitted in the application of hedge accounting by adding the SOFR as a permissible U.S. benchmark rate. The Company does not have any derivative instruments indexed to SOFR as a benchmark interest rate, accordingly, the adoption of ASU No. 2018-16 as of January 1, 2019 did not have an impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), to provide financial statement users with more useful information about the current expected credit losses (“CECL”). This ASU changes how entities measure credit losses on financial instruments and the timing of when such losses are recognized by utilizing a lifetime expected credit loss measurement. The guidance is effective for fiscal years and interim periods within those years beginning after January 1, 2020. The Company does not expect the adoption of Topic 326 to have a material impact on its results of operations.

 

F-110


In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU removes some disclosure requirements, modifies others, and adds some new disclosure requirements. The guidance is effective January 1, 2020, with early adoption permitted. The Company does not expect the effect of the new guidance to be material on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU amends the definition of a hosting arrangement and requires a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in ASC 350-402 to determine which implementation costs to capitalize as assets. Capitalized implementation costs are amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. The guidance is effective January 1, 2020, with early adoption permitted. The Company does not expect the effect of the new guidance to be material on its consolidated financial statements.

In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The amendments in this ASU require reporting entities to consider indirect interests held through related parties under common control for determining whether fees paid to decision makers and service provider are variable interests. These indirect interests should be considered on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in U.S. GAAP). The guidance is effective January 1, 2020, with early adoption permitted. Entities are required to apply the amendments in this guidance retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The Company does not expect the effect of the new guidance to be material on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendments also improve consistent application or and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The guidance is effective January 1, 2021, with early adoption permitted. The Company does not expect the effect of the new guidance to be material on its consolidated financial statements.

3. ACQUISITIONS AND DIVESTITURES

2019 Acquisitions

(i) WGL Acquisition

On September 26, 2019, TerraForm Arcadia Holdings, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“TerraForm Arcadia”), completed the acquisition of an approximately 320 MW distributed generation portfolio of renewable energy facilities in the United States from subsidiaries of AltaGas Ltd., a Canadian corporation (“AltaGas”), for a purchase price of $720.0 million, plus $15.1 million for working capital. The acquisition was pursuant to a membership interest purchase agreement (the “Purchase Agreement”) dated July 19, 2019, entered into by TerraForm Arcadia, WGL Energy Systems, Inc., a Delaware corporation (“WGL”), and WGSW, Inc., a Delaware corporation (“WGSW”, and together with WGL, the “Sellers”), both subsidiaries of AltaGas (the “WGL Acquisition”). Pursuant to the Purchase Agreement, the ownership of certain projects for which the Sellers had not yet received the required third party consents or had not completed construction as of the closing date (the “Delayed Projects”) were to be transferred to the Company once such third party consents were received or construction was completed, subject to certain terms and conditions. The Delayed Projects represented 11.6 MW of the combined nameplate capacity of the acquired renewable energy facilities as of December 31, 2019. The purchase price allocated to the Delayed Projects based on the Purchase Agreement was $24.8 million, and is presented as Deposit on acquisitions on the consolidated balance sheets. In the event that the title to certain Delayed Projects is not transferred to the Company within a certain period of time, the Company is entitled to a full refund of the value of these projects based on the Purchase Agreement.

The Company funded the purchase price and the related initial costs of the WGL Acquisition with the net proceeds of $475.0 million Bridge Facility and the remainder from draws on the Revolver. See Note 10. Long-term Debt for additional details.

 

F-111


The Company accounted for the WGL Acquisition under the acquisition method of accounting for business combinations. The final accounting has not been completed since the evaluation necessary to assess the fair values of acquired assets and assumed liabilities is still in process. The additional information needed by the Company to finalize the measurement of these provisional amounts include, but not limited to, additional information regarding certain energy markets in the United States, the estimation of the removal costs for the acquired assets, the completion of the transfer of the Delayed Projects, and the assessment of the incremental borrowing rate for operating leases. The provisional amounts for this business combination are subject to revision until these evaluations are completed.

The preliminary allocation of the acquisition-date fair values of assets, liabilities and non-controlling interests pertaining to this business combination as of December 31, 2019, were as follows:

 

(In thousands)    As of September 26, 2019  

Renewable energy facilities in service1

   $ 581,717

Intangible assets

     168,825

Accounts receivable

     13,160

Prepaid expenses and other assets

     9,734
  

 

 

 

Total assets acquired

     773,436

Accounts payable, accrued expenses and other current liabilities

     6,806

Asset retirement obligations

     27,338

Operating lease liabilities

     21,663

Other liabilities

     7,650
  

 

 

 

Total liabilities assumed

     63,457

Non-controlling interests2

     3,028
  

 

 

 

Purchase price, net of cash and restricted cash acquired3

     706,951

Deposit on acquisitions

     24,831
  

 

 

 

Total cash paid for the WGL Acquisition, net of cash acquired3

   $ 731,782
  

 

 

 

 

(1)

Includes $22.6 million operating lease right-of-use assets.

(2)

The fair value of the non-controlling interests was determined using an income approach representing the best indicator of fair value and was supported by a discounted cash flow technique.

(3)

The Company acquired cash and cash equivalents of $3.4 million as of the acquisition date.

The acquired non-financial assets primarily represent an estimate of the fair value of the acquired renewable energy facilities and intangible assets from PPAs using the cost and income approach. Key inputs used to estimate fair value included forecasted power pricing, operational data, asset useful lives and a discount rate factor reflecting current market conditions at the time of the acquisition. These significant inputs are not observable in the market and thus represent Level 3 measurements, as defined in Note 13. Fair Value of Financial Instruments. Refer below for additional disclosures related to the acquired finite-lived intangible assets.

The results of operations from the acquired entities are included in the Company’s consolidated results since the date of acquisition. The operating revenues and net income related to the WGL Acquisition reflected in the consolidated statements of operations for the year ended December 31, 2019, were $13.8 million and $0.1 million, respectively.

 

F-112


Intangibles at Acquisition Date

The Company attributed the intangible asset values to favorable rate revenue contracts and PPAs in-place from renewable energy facilities and the intangible liabilities to unfavorable rate revenue contracts. The following table summarizes the estimated fair values and the weighted average amortization periods of the acquired intangible assets and assumed intangible liabilities as of the acquisition date:

 

     WGL Acquisition
     Fair Value
(In thousands)
     Weighted Average
Amortization Period

Favorable rate revenue contracts

   $ 27,400    16 years

In-place value of market rate revenue contracts

     141,425    15 years

Unfavorable rate revenue contracts

     7,650    2 years

 

(1)

For the purposes of this disclosure, the weighted average amortization periods are determined based on a weighting of the individual intangible fair values against the total fair value for each major intangible asset class.

Unaudited Pro Forma Supplementary Data

The unaudited pro forma supplementary data presented in the table below gives effect to the WGL Acquisition, as if the transaction had occurred on January 1, 2018. The pro forma net loss includes interest expense related to incremental borrowings used to finance the transaction and adjustments to depreciation, accretion and amortization expense for the valuation of renewable energy facilities, intangible assets, and asset retirement obligations, and excludes the impact of acquisition costs disclosed below. The unaudited pro forma supplementary data is provided for informational purposes only and should not be construed to be indicative of the Company’s results of operations had the acquisition been consummated on the date assumed or of the Company’s consolidated results of operations for any future date.

 

     Year Ended December 31,  
(In thousands)    2019      2018  

Total operating revenues, net

   $ 1,011,526    $ 831,145

Net loss

     (214,280      (185,392

(ii) X-Elio Acquisition

On December 18, 2019, Cuanto De Luz, S.L.U., a wholly-owned subsidiary of the Company, completed the acquisition of approximately 45 MW utility-scale solar photovoltaic power facilities in Spain, from subsidiaries of X-Elio Energy, S.L., a Spanish corporation (the “X-Elio Acquisition”), for a total purchase price of €63.8 million (equivalent to $71.1 million at the date of the acquisition). The Company funded the acquisition with a portion of the net proceeds of the utility-scale wind non-recourse borrowing refinancing and cash available on hand. See Note 10. Long-term Debt for additional details. These facilities are regulated under the Spanish framework for renewable power, with approximately 21 years of remaining regulatory life. This transaction was accounted for as an acquisition of assets, whereby the Company acquired approximately $186.5 million renewable energy facilities, and $54.8 million intangible assets attributable to licensing contracts in-place from the acquired solar facilities using the cost and income approach.

(iii) Acquisition of 15.1 MW Distributed Generation Assets

During the year ended December 31, 2019, the Company acquired four distributed generation facilities located in the U.S. with a combined nameplate capacity of 15.1 MW from third parties for a total purchase price of $24.0 million plus working capital adjustments. The facilities are contracted under long-term PPAs with municipal offtakers. This transaction was accounted for as an acquisition of assets.

2018 Acquisitions

(i) Saeta Acquisition

On February 7, 2018, the Company announced that it intended to launch a voluntary tender offer (the “Tender Offer”) to acquire 100% of the outstanding shares of Saeta, a Spanish renewable power company with then over 1,000 MW of solar and wind facilities (approximately 250 MW of solar and 778 MW of wind) located primarily in Spain. The Tender Offer was for €12.20 in cash per share of Saeta. On June 8, 2018, the Company announced that Spain’s National Securities Market Commission confirmed an over 95% acceptance of shares of Saeta in the Tender Offer (the “Tendered Shares”). On June 12, 2018, the Company completed the acquisition of the Tendered Shares for total aggregate consideration of $1.12 billion and the assumption of $1.91 billion of project-level debt. Having acquired 95.28% of the shares of Saeta, the Company then pursued a statutory squeeze out procedure under Spanish law to procure the remaining approximately 4.72% of the shares of Saeta for $54.6 million.

 

F-113


The Company funded the $1.12 billion purchase price of the Tendered Shares with $650.0 million of proceeds from the private placement of its Common Stock to Orion Holdings and BBHC Orion Holdco L.P. as discussed in Note 16. Stockholders’ Equity, along with approximately $471 million from its existing liquidity, including (i) the proceeds of a $30.0 million draw on its Sponsor Line (as defined in Note 10. Long-term Debt), (ii) a $359.0 million as part of a draw on the Company’s Revolver (as defined in Note 10. Long-term Debt), and (iii) approximately $82 million of cash on hand. The Company funded the purchase of the remaining approximately 4.72% non-controlling interest in Saeta using $54.6 million of the total proceeds from an additional draw on its Sponsor Line.

The Company accounted for the acquisition of Saeta under the acquisition method of accounting for business combinations. The purchase accounting for the Saeta acquisition, including assignment of goodwill to reporting units, was finalized as of June 30, 2019. The final allocation of the acquisition-date fair values of assets, liabilities and redeemable non-controlling interests pertaining to this business combination as of December 31, 2019, was as follows:

 

(In thousands)    As of June 12,
2018, reported
at December

31, 2018
     Adjustments      As of June 12,
2019, reported at
December 31,
2019
 

Renewable energy facilities in service

   $ 1,993,520    $ 252,071    $ 2,245,591

Accounts receivable

     91,343      —          91,343

Intangible assets

     1,034,176      (290,171      744,005

Goodwill1

     123,106      10,195      133,301

Other assets

     43,402      2,845      46,247
  

 

 

    

 

 

    

 

 

 

Total assets acquired

     3,285,547      (25,060      3,260,487

Accounts payable, accrued expenses and other current liabilities

     93,032      (1,761      91,271

Long-term debt, including current portion

     1,906,831      (12,405      1,894,426

Deferred income taxes

     171,373      (10,800      160,573

Asset retirement obligations

     67,706      (94      67,612

Derivative liabilities

     137,002      —          137,002

Other long-term liabilities

     23,002      —          23,002
  

 

 

    

 

 

    

 

 

 

Total liabilities assumed

     2,398,946      (25,060      2,373,886

Redeemable non-controlling interests2

     55,117      —          55,117
  

 

 

    

 

 

    

 

 

 

Purchase price, net of cash acquired3

   $ 831,484    $  —        $ 831,484
  

 

 

    

 

 

    

 

 

 

 

(1)

The excess purchase price over the estimated fair value of net assets acquired of $133.3 million was recorded as goodwill, with $103.8 million assigned to the Regulated Solar and Wind segment and $29.5 million assigned to the Wind segment. See Note 7. Intangible Assets, Net and Goodwill and Note 23. Segment Reporting for additional details.

(2)

The fair value of the non-controlling interests was determined using a market approach using a quoted price for the instrument. As discussed above, the Company acquired the remaining shares of Saeta pursuant to a statutory squeeze out procedure under Spanish law, which closed on July 2, 2018. The quoted price for the purchase of the non-controlling interest was the best indicator of fair value and was supported by a discounted cash flow technique.

(3)

The Company acquired cash and cash equivalents of $187.2 million and restricted cash of $95.1 million as of the acquisition date.

The acquired non-financial assets primarily represent estimates of the fair value of acquired renewable energy facilities and intangible assets from licensing agreements using the cost and income approach. Key inputs used to estimate fair value included forecasted power pricing, operational data, asset useful lives, and a discount rate factor reflecting current market conditions at the time of the acquisition. These significant inputs are not observable in the market and thus represent Level 3 measurements (as defined in Note 13. Fair Value of Financial Instruments). Refer below for additional disclosures related to the acquired finite-lived intangible assets.

The results of operations of Saeta are included in the Company’s consolidated results since the date of acquisition for the year ended December 31, 2018, and for the entire year ended December 31, 2019. The operating revenues and net income of Saeta reflected in the consolidated statements of operations for the year ended December 31, 2019 were $407.1 million and $57.6 million, respectively, and $221.2 million and $38.2 million for the year ended December 31, 2018, respectively.

 

F-114


Intangibles at Acquisition Date

The Company attributed intangible asset value to licensing contracts in-place from solar and wind facilities. These intangible assets are amortized on a straight-line basis over the estimated remaining useful life of the facility from the Company’s acquisition date. The following table summarizes the estimated fair value and weighted average amortization period of acquired intangible assets as of the acquisition date for Saeta:

 

     Saeta as of June 12, 2018  
     Fair Value (In
thousands)
     Weighted
Average
Amortization
Period (In years)1
 

Intangible assets—licensing contracts

   $ 744,005      14 years  

———

(1)

For purposes of this disclosure, the weighted average amortization period is determined based on a weighting of the individual intangible fair values against the total fair value for each major intangible asset and liability class.

Out-of-Period Adjustments

During the preparation of the Company’s consolidated financial statements for the year ended December 31, 2019, management discovered errors related to the Saeta business combination as included in the Company’s consolidated condensed financial statements for the year ended December 31, 2018, included in the previously filed Annual Report on Form 10-K for the related period, and the unaudited consolidated condensed financial statements for the periods ended March 31, 2019, June 30, 2019, and September 30, 2019, as included in the previously filed Quarterly Reports on Form 10-Q for the related periods. Specifically, the Company allocated the entire value of $258.3 million of acquired projects within the International Wind operating segment as intangible assets without an allocation to renewable energy facilities. Additionally, the Company overstated the estimated fair value of assumed non-recourse long-term project debt as of June 30, 2019, and September 30, 2019, by approximately $28.5 million. The correction of these errors resulted in a $258.3 million increase in renewable energy facilities, net, a $258.3 million decrease in intangible assets, a $28.5 million decrease in long-term debt, a $22.0 million decrease in goodwill, and a $6.5 million increase in deferred tax liabilities. The correction did not have a material impact on the previously reported amounts of net loss, and comprehensive loss, and did not have any impact on the previously reported consolidated cash flows from operating, investing, or financing activities.

The Company evaluated the errors and, based on an analysis of quantitative and qualitative factors, determined that the related impact was not material to the Company’s consolidated financial statements for any prior period. Therefore, amendments to the previously filed reports were not required.

Unaudited Pro Forma Supplementary Data

The unaudited pro forma supplementary data presented in the table below shows the effect of the Saeta acquisition, as if the transaction had occurred on January 1, 2017. The pro forma net loss includes interest expense related to incremental borrowings used to finance the transaction and adjustments to depreciation and amortization expense for the valuation of renewable energy facilities and intangible assets. The pro forma net loss for the year ended December 31, 2019, excludes the impact of acquisition related costs disclosed below. The unaudited pro forma supplementary data is provided for informational purposes only and should not be construed to be indicative of the Company’s results of operations had the acquisition been consummated on the date assumed or of the Company’s results of operations for any future date.

 

(In thousands)    Year Ended December 31, 2018  

Total operating revenues, net

   $ 950,992

Net loss

     (143,903

(ii) Acquisition of 6.1 MW Distributed Generation Portfolio

In 2018, the Company acquired six distributed generation facilities located in the U.S. with a combined nameplate capacity of 6.1 MW from third parties for a purchase price of $4.1 million, net of cash acquired. The facilities are contracted under long-term PPAs with municipal offtakers. This transaction was accounted for as an acquisition of assets.

 

F-115


Acquisition Costs

Total Acquisition costs incurred by the Company for the year ended December 31, 2019, were $4.7 million. Costs related to affiliates included in these balances were $0.9 million. Acquisition costs incurred by the Company for the year ended December 31, 2018 were $14.6 million. Costs related to affiliates included in these balances were $6.9 million. These costs are reflected as acquisition costs and acquisition costs—affiliate (see Note 21. Related Parties) in the consolidated statements of operations and are excluded from the unaudited pro forma net loss amount disclosed above.

2019 Divestiture

(i) Sale of Six Distributed Generation Facilities in the United States

On December 20, 2019, the Company sold six distributed generation facilities in the United States, with a combined nameplate capacity of 6.0 MW, for a net consideration of $9.5 million. The Company recognized a net gain of $2.3 million representing the difference between the net proceeds from the sale and the net carrying amount of assets sold and liabilities extinguished, was recorded in the consolidated statement of operations for the year ended December 31, 2019 within the gain on sale of renewable energy facilities.

2017 Divestitures

(i) U.K. Portfolio Sale

On May 11, 2017, the Company announced that it completed its sale of substantially all of its portfolio of solar power plants located in the United Kingdom (24 operating projects representing an aggregate 365.0 MW, the “U.K. Portfolio”) to Vortex Solar UK Limited, a renewable energy platform managed by the private equity arm of EFG Hermes, an investment bank. The Company received approximately $214.1 million of proceeds from the sale, which was net of transaction expenses of $3.9 million and distributions taken from the U.K. Portfolio after announcement and before closing of the sale. The Company also disposed of $14.8 million of cash and cash equivalents and $21.8 million of restricted cash as a result of the sale. The proceeds were used for the reduction of the Company’s indebtedness (a $30.0 million prepayment for a non-recourse portfolio term loan and the remainder was applied towards revolving loans outstanding under its senior secured corporate-level revolving credit facility). The sale also resulted in a reduction in the Company’s non-recourse project debt by approximately £301 million British pounds sterling at the U.K. Portfolio level. The Company recognized a gain on the sale of $37.1 million, which is reflected within Gain on sale of renewable energy facilities in the consolidated statements of operations for the year ended December 31, 2017. The Company retained one 11.1 MW solar project in the United Kingdom.

(ii) Residential Portfolio Sale

In 2017, the Company closed on the sale of 100% of the membership interests of Enfinity Colorado DHA 1, LLC, a Colorado limited liability company that owned and operated 2.5 MW of solar installations situated on the roof of public housing units located in Colorado and owned by the Denver Housing Authority, and 100% of the membership interests of TerraForm Resi Solar Manager, LLC, a subsidiary of the Company that owned and operated 8.9 MW of rooftop solar installations, to Greenbacker Residential Solar II, LLC. The Company received proceeds of $7.1 million during 2017 as a result of the sale of these companies and also disposed of $0.6 million of cash and cash equivalents and $0.8 million of restricted cash. There was no additional loss recognized during 2017 as a result of these sales.

 

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4. REVENUE

The following table presents the Company’s operating revenues, net and disaggregated by revenue source:

 

     Year Ended December 31, 2019     Year Ended December 31, 2018  
(In thousands)    Solar     Wind     Regulated
Solar and
Wind
     Total     Solar     Wind     Regulated
Solar and
Wind
     Total  

PPA rental income

   $ 199,266   $ 191,508   $  —        $ 390,774   $ 198,610   $ 192,324   $  —        $ 390,934

Commodity derivatives

     —         37,054     —          37,054     —         46,287     —          46,287

PPA and market energy revenue

     46,740     79,253     97,953      223,946     39,566     54,998     58,742      153,306

Capacity revenue from remuneration programs1

     —         —         204,991      204,991     —         —         108,242      108,242

Amortization of favorable and unfavorable rate revenue contracts, net

     (8,850     (31,090     —          (39,940     (9,743     (29,024     —          (38,767

Energy revenue

     237,156     276,725     302,944      816,825     228,433     264,585     166,984      660,002

Incentive revenue2

     79,277     9,414     35,724      124,415     70,533     16,364     19,671      106,568
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating revenues, net

   $ 316,433   $ 286,139   $ 338,668    $ 941,240   $ 298,966   $ 280,949   $ 186,655    $ 766,570
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

(1)

Represents the return related to the Company’s investments associated with its renewable energy facilities in Spain. See Note 2. Summary of Significant Accounting Policies for additional details.

(2)

Incentive revenue earned at the Regulated Solar and Wind segment represents the return per MWh generated by the Company’s solar facilities in Spain to recover certain operating expenses. See Note 2. Summary of Significant Accounting Policies for additional details.

 

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Contract balances and performance obligations

The Company recognizes accounts receivable when its right to consideration from the performance of services becomes unconditional. The Company establishes an allowance for doubtful accounts to adjust its receivables to amounts considered to be ultimately collectible and charges to the allowance are recorded within general and administrative expenses in the consolidated statements of operations. The Company’s allowance is based on a variety of factors, including the length of time receivables are past due, significant one-time events, the financial health of its customers and historical experience. As of December 31, 2019 and 2018, the Company’s receivable balances related to PPA contracts with solar and wind customers were approximately $104.1 million and $83.5 million, respectively. Trade receivables for PPA contracts are reflected within accounts receivable, net in the consolidated balance sheets. The Company typically receives payment within 30 days for invoiced PPA revenue.

Energy revenues yet to be earned under these contracts are expected to be recognized between 2020 and 2043. The Company applies the practical expedient in Topic 606 to its bundled PPA contract arrangements, and accordingly, does not disclose the value of unsatisfied performance obligations for contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed.

As of December 31, 2019 and December 31, 2018, other liabilities in the consolidated balance sheets included deferred revenue comprising of $8.4 million and $8.8 million upfront government incentives, respectively, and $1.8 million and $4.9 million contract liabilities related to performance obligations that have not yet been satisfied, respectively. These contract liabilities represented advanced customer receipts primarily related to future REC deliveries that are recognized into revenue under Topic 606. The amount of revenue recognized during the year ended December 31, 2019 and 2018, related to contract liabilities was $3.1 million and $1.3 million, respectively.

5. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include all cash balances and money market funds, including restricted cash, with original maturity periods of three months or less when purchased. As of December 31, 2019 and December 31, 2018, cash and cash equivalents included $138.5 million and $177.6 million, respectively, of unrestricted cash held at project-level subsidiaries, which was available for project expenses but not available for corporate use.

Reconciliation of Cash and Cash Equivalents and Restricted Cash as Presented in the Consolidated Statements of Cash Flows

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the total of the same such amounts shown in the consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017:

 

     As of December 31,  
(In thousands)    2019      2018      2017  

Cash and cash equivalents

   $ 237,480    $ 248,524    $ 128,087

Restricted cash, current

     35,657      27,784      54,006

Restricted cash—non-current

     76,363      116,501      42,694
  

 

 

    

 

 

    

 

 

 

Cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows

   $ 349,500    $ 392,809    $ 224,787
  

 

 

    

 

 

    

 

 

 

As discussed in Note 10. Long-term Debt, the Company was in default under certain of its non-recourse financing agreements as of the financial statement issuance date for the years ended December 31, 2019 and 2018. As a result, the Company reclassified $11.0 million and $11.2 million, respectively, of long-term restricted cash to current as of December 31, 2019, and 2018, consistent with the corresponding debt classification, as the restrictions that required the cash balances to be classified as long-term restricted cash were driven by the financing agreements.

 

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6. RENEWABLE ENERGY FACILITIES

Renewable energy facilities, net consists of the following:

 

     As of December 31,  
(In thousands)    2019     2018  

Renewable energy facilities in service, at cost1

   $ 8,584,243   $ 7,298,371

Less accumulated depreciation—renewable energy facilities

     (1,191,056     (833,844
  

 

 

   

 

 

 

Renewable energy facilities in service, net

     7,393,187     6,464,527

Construction in progress—renewable energy facilities

     12,274     5,499
  

 

 

   

 

 

 

Total renewable energy facilities, net

   $ 7,405,461   $ 6,470,026
  

 

 

   

 

 

 

 

(1)

As discussed in Note 2. Summary of Significant Accounting Policies and Note 8. Leases, on January 1, 2019, the Company recognized $262.1 million right-of-use of assets related to operating leases as a result of the adoption of Topic 842, which is included within renewable energy facilities. The amount of right-of-use of assets as of December 31, 2019 was $288.3 million.

Depreciation expense related to renewable energy facilities was $325.1 million, $270.4 million and $212.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Sale of Assets

On December 20, 2019, the Company sold six distributed generation facilities in the United States, with a combined nameplate capacity of 6.0 MW, for a net consideration of $9.5 million. The Company recognized a net gain of $2.3 million, representing the difference between the net proceeds from the sale and the net carrying amount of assets sold and liabilities extinguished, in the consolidated statement of operations for the year ended December 31, 2019, within Gain on sale of renewable energy facilities.

Impairment Assessment

During the year ended December 31, 2019, the Company identified opportunities to repower two wind power plants in the Northeast with a combined nameplate capacity of 160 MW by replacing certain components of the wind turbines with newer equipment while preserving the existing towers, foundation and balance of plant. The Company views repowering activities as opportunities to increase efficiency and extend the useful lives of existing renewable energy facilities. The Company performed impairment testing for these two wind power plants and did not record any impairment losses since it was determined that the expected undiscounted cash flows were greater than the net carrying amount of the related renewable energy facilities of $79.4 million as of December 31, 2019. If the Company determines to move forward with the repowering activities for one or both of these wind plants during the year 2020, the Company will revise the estimated remaining useful lives of certain components of the renewable energy facilities that will be replaced in the repowering activities and accelerate the recognition of depreciation expense to no later than the removal date.

The Company had a REC sales agreement expiring on December 31, 2021, with a customer within a distributed generation portfolio, and on March 31, 2018, the customer filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The potential replacement of this contract would likely result in a significant decrease in expected revenues for this operating project. The Company’s analysis indicated that the bankruptcy filing was a triggering event to perform an impairment evaluation, and the carrying amount of $19.5 million as of March 31, 2018 was no longer considered recoverable based on an undiscounted cash flow forecast. The Company estimated the fair value of the operating project at $4.3 million as of March 31, 2018 and recognized an impairment charge of $15.2 million equal to the difference between the carrying amount and the estimated fair value, which is reflected within impairment of renewable energy facilities in the consolidated statements of operations for the year ended December 31, 2018. The Company used an income approach methodology of valuation to determine fair value by applying a discounted cash flow method to the forecasted cash flows of the operating project, which was categorized as a Level 3 fair value measurement due to the significance of unobservable inputs. Key estimates used in the income approach included forecasted power and incentive prices, customer renewal rates, operating and maintenance costs and the discount rate.

The Company sold 0.3 MW of residential assets (that were not classified as held for sale as of December 31, 2016) during the third quarter of 2017. These assets did not meet the criteria for held for sale classification as of June 30, 2017 but the Company determined that certain impairment indicators were present and as a result recognized an impairment charge of $1.4 million within impairment of renewable energy facilities in the consolidated statements of operations for the year ended December 31, 2017.

 

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No impairment losses were recognized for the twelve months ended December 31, 2019.

7. INTANGIBLE ASSETS, NET AND GOODWILL

The following table presents the gross carrying amount, accumulated amortization and net book value of intangibles as of December 31, 2019:

 

(In thousands, except weighted average amortization period)    Weighted
Average
Amortization
Period
   Gross
Carrying
Amount
     Accumulated
Amortization
     Net Book
Value
 

Licensing agreements

   13 years    $ 765,451    $ (81,647    $ 683,804

Favorable rate revenue contracts

   12 years      745,784      (195,287      550,497

In-place value of market rate revenue contracts

   16 years      688,832      (129,841      558,991
     

 

 

    

 

 

    

 

 

 

Total intangible assets, net

      $ 2,200,067    $ (406,775    $ 1,793,292
     

 

 

    

 

 

    

 

 

 

Unfavorable rate revenue contracts

   8 years    $ 48,420    $ (32,556    $ 15,864
     

 

 

    

 

 

    

 

 

 

Total intangible liabilities, net1

      $ 48,420    $ (32,556    $ 15,864
     

 

 

    

 

 

    

 

 

 

 

(1)

The Company’s intangible liabilities are classified within other long-term liabilities in the consolidated balance sheets.

The following table presents the gross carrying amount, accumulated amortization and net book value of intangibles as of December 31, 2018:

 

(In thousands, except weighted average amortization period)    Weighted
Average
Amortization
Period
   Gross
Carrying
Amount
     Accumulated
Amortization
     Net Book
Value
 

Licensing contracts1

   15 years    $ 1,015,824    $ (36,374    $ 979,450

Favorable rate revenue contracts

   14 years      738,488      (166,507      571,981

In-place value of market rate revenue contracts

   18 years      532,844      (100,543      432,301

Favorable rate land leases2

   16 years      15,800      (3,128      12,672
     

 

 

    

 

 

    

 

 

 

Total intangible assets, net

      $ 2,302,956    $ (306,552    $ 1,996,404
     

 

 

    

 

 

    

 

 

 

Unfavorable rate revenue contracts

   6 years    $ 58,508    $ (41,605    $ 16,903

Unfavorable rate operations and maintenance contracts

   1 year      5,000      (3,802      1,198

Unfavorable rate land lease2

   14 years      1,000      (218      782
     

 

 

    

 

 

    

 

 

 

Total intangible assets, net3

      $ 64,508    $ (45,625    $ 18,883
     

 

 

    

 

 

    

 

 

 

 

(1)

Represents the intangible assets recognized under the Saeta acquisition and attributed to licensing contracts in-place from the acquired solar and wind facilities. See Note 3. Acquisitions and Divestitures for additional details.

(2)

On January 1, 2019, these amounts were reclassified to right-of-use assets in connection with the adoption of Topic 842. See Note 2. Summary of Significant Accounting Policies and Note 8. Leases for additional details.

(3)

The Company’s intangible liabilities are classified within other long-term liabilities in the consolidated balance sheets.

Amortization expense related to the licensing contracts acquired from Saeta is reflected in the consolidated statements of operations within depreciation, accretion and amortization expense. During the years ended December 31, 2019 and 2018, amortization expense related to the licensing contracts was $66.9 million and $36.4 million, respectively.

 

F-120


Amortization expense related to favorable rate revenue contracts is reflected in the consolidated statements of operations as a reduction of operating revenues, net. Amortization related to unfavorable rate revenue contracts is reflected in the consolidated statements of operations as an increase to operating revenues, net. During the years ended December 31, 2019, 2018 and 2017, net amortization expense related to favorable and unfavorable rate revenue contracts resulted in a reduction of operating revenues, net of $39.9 million, $38.8 million and $39.6 million, respectively.

Amortization expense related to the in-place value of market rate revenue contracts is reflected in the consolidated statements of operations within depreciation, accretion and amortization expense. During the years ended December 31, 2019, 2018 and 2017, amortization expense related to the in-place value of market rate revenue contracts was $26.2 million, $28.2 million, and $25.5 million, respectively.

Over the next five years, the Company expects to recognize annual amortization on its intangibles as follows:

 

(In thousands)    2020     2021     2022     2023     2024  

Favorable rate revenue contracts

   $ 47,555   $ 44,789   $ 43,598   $ 43,598   $ 43,598

Unfavorable rate revenue contracts

     (7,545     (2,710     (1,628     (1,007     (279
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net amortization expense recorded to operating revenues, net

   $ 40,010   $ 42,079   $ 41,970   $ 42,591   $ 43,319
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Licensing contracts

   $ 57,152   $ 57,152   $ 57,152   $ 57,152   $ 57,152

In-place value of market rate revenue contracts

     38,517     38,517     38,517     38,510     38,503
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total amortization expense recorded to depreciation, accretion and amortization expense

   $ 95,669   $ 95,669   $ 95,669   $ 95,662   $ 95,655
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GOODWILL

Goodwill represents the excess of the consideration transferred over the fair values of assets acquired and liabilities assumed from business combinations, and reflects the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill balance is not deductible for income tax purposes.

The following table presents the activity of the goodwill balance for the years ended December 31, 2019, and 2018:

 

(In thousands)    Goodwill  

Balance as of December 31, 2017

   $ —  

Goodwill resulting from business combination1

     115,381

Adjustments during the period1

     7,726

Foreign exchange differences

     (2,554
  

 

 

 

Balance as of December 31, 2018

     120,553

Adjustments during the period2

     10,196

Foreign exchange differences

     (2,797
  

 

 

 

Balance as of December 31, 2019

   $ 127,952
  

 

 

 

 

(1)

Represents the excess purchase price over the estimated fair value of net assets acquired from Saeta and is primarily attributable to deferred tax liabilities and adjustment to the fair value of certain non-recourse project long-term debt. See Note 3. Acquisitions and Divestitures for additional details.

(2)

Represents adjustments to the purchase price allocation of the assets acquired and liabilities assumed from the Saeta acquisition. See Note 3. Acquisitions and Divestitures for additional details.

 

F-121


8. LEASES

The Company has operating leases for renewable energy production facilities, land, office space, transmission lines, vehicles and other operating equipment.

The components of lease expense were as follows:

 

(In thousands)    Year Ended
December 31, 2019
 

Fixed operating lease cost

   $ 21,619

Variable operating lease cost1

     5,884
  

 

 

 

Total operating lease cost

   $ 27,503
  

 

 

 

 

(1)

Primarily related to production-based variable inputs and adjustments for inflation.

Supplemental cash flow information related to the Company’s leases was as follows:

 

(In thousands)    Year Ended
December 31, 2019
 

Cash paid for amounts included in the measurement of lease liabilities:

  

Operating cash flows from operating leases1

   $ 16,485
  

 

 

 

 

(1)

Right-of-use assets, excluding the effect of acquisitions, obtained in exchange for lease obligations during the year ended December 31, 2019, were not material.

Supplemental balance sheet information related to the Company’s leases was as follows:

 

(In thousands, except lease term and discount rate)    As of
December 31, 2019
 

Operating leases:

  

Right-of-use assets

   $ 288,321
  

 

 

 

Accounts payable, accrued expenses and other current liabilities

     18,138

Operating lease obligations, less current portion

     272,894
  

 

 

 

Total operating lease liabilities

   $ 291,032
  

 

 

 

Weighted Average Remaining Lease Term:

  

Operating leases

     17.6  

Weighted Average Discount Rate:

  

Operating leases

     4.8

 

F-122


The maturities of the Company’s operating lease liabilities by fiscal year were as follows:

 

(In thousands)       

2020

   $ 21,921

2021

     21,828

2022

     22,046

2023

     22,220

2024

     22,424

Thereafter

     319,532
  

 

 

 

Total lease payments

     429,971

Less: Imputed interest

     (138,939
  

 

 

 

Total

   $ 291,032
  

 

 

 

 

F-123


The following table summarizes the Company’s future commitments under operating leases as of December 31, 2018:

 

(In thousands)    2019      2020      2021      2022      2023      Thereafter      Total  

Rent

   $ 20,002    $ 20,005    $ 20,241    $ 20,410    $ 20,577    $ 331,425    $ 432,660

The operating revenues from delivering electricity and the related products from owned solar and wind renewable energy facilities under PPAs in which the Company is the lessor, the majority of which is variable in nature, is recognized when electricity is delivered and is accounted for as rental income under the lease standard. The Company determines if an arrangement is a lease at contract inception, and if so, includes both lease and non-lease components as a single component and accounts for it as a lease. The Company’s PPAs do not contain any residual value guarantees or material restrictive covenants. The Company manages its risk associated with the residual value of its leased assets by retaining the ability to sell RECs through REC sale agreements. As a result of the adoption ASC 842 on January 1, 2019, the Company does not expect the future PPAs that it will enter into to meet the definition of a lease. See Note 2. Summary of Significant Accounting Policies for additional details.

9. ASSET RETIREMENT OBLIGATIONS

The activity on asset retirement obligations for the years ended December 31, 2019, 2018 and 2017 was as follows:

 

     Year Ended December 31,  
(In thousands)    2019      2018      2017  

Balance as of January 1

   $ 212,657    $ 154,515    $ 148,575

Assumed through acquisition

     33,143      68,441      —    

Accretion expense

     15,475      6,866      8,578

Extinguishment upon divestitures

     (864      —          (3,238

Adjustment related to change in accretion period1

     27,917      (15,734      —    

Other

     —          843      —    

Currency translation adjustments

     (1,040      (2,274      600
  

 

 

    

 

 

    

 

 

 

Balance as of December 31

   $ 287,288    $ 212,657    $ 154,515
  

 

 

    

 

 

    

 

 

 

 

 

(1)

Represents corrections related to changes in the period over which the asset retirement obligations were accreted to their expected future value using the estimate of the future timing of settlement. The correction during the year ended December 31, 2019, recorded in the third quarter, resulted in $27.9 million increase in the carrying amounts of asset retirement obligations and the corresponding renewable energy facilities. The Company also recorded an adjustment to increase the previously reported accretion and depreciation expense by $3.3 million and $3.7 million, respectively, as a result of this change. The Company had recorded an adjustment during the fourth quarter of 2018, which resulted in a $15.7 million reduction in the Company’s asset retirement obligations and the corresponding renewable energy facilities’ carrying amounts as of December 31, 2018. The Company also recorded an adjustment during the fourth quarter of 2018 to reduce previously reported accretion and depreciation expense by $6.3 million as a result of this change. The Company evaluated these adjustments and, based on an analysis of quantitative and qualitative factors, determined that the related impact was not material to the Company’s consolidated financial statements for any prior period.

The Company did not have any assets that were legally restricted for the purpose of settling the Company’s asset retirement obligations as of December 31, 2019, 2018 and 2017.

10. LONG-TERM DEBT

Long-term debt consisted of the following:

 

     As of December 31,      Interest
Type
     Interest
Rate
(%)1
        

(In thousands, except rates)

   2019      2018      Financing Type  

Corporate-level long-term debt2:

              

Senior Notes due 2023

   $ 500,000    $ 500,000      Fixed        4.25        Senior notes  

Senior Notes due 2025

     —          300,000      Fixed        N/A        Senior notes  

Senior Notes due 2028

     700,000      700,000      Fixed        5.00        Senior notes  

Senior Notes due 2030

     700,000      —          Fixed        4.75        Senior notes  

Revolver

     —          377,000      Variable        N/A        Revolving loan  

 

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Term Loan

     —         346,500     Variable       N/A       Term debt  

Non-recourse long-term debt:

          

Permanent financing

     3,854,386     3,496,370     Blended 3      4.38 4     
Term debt /
senior notes
 
 

Bridge Facility

     474,550     —         Variable       2.91       Term debt  

Financing lease obligations

     59,533     77,066     Imputed       5.80 4     
Financing lease
obligations
 
 
  

 

 

   

 

 

       

Total principal due for long-term debt and financing lease obligations

     6,288,469     5,796,936       4.38 4   

Unamortized discounts and premiums, net

     (3,509     (15,913      

Deferred financing costs, net

     (49,578     (19,178      

Less current portion of long-term debt and financing lease obligations

     (441,951     (464,332      
  

 

 

   

 

 

       

Long-term debt and financing lease obligations, less current portion

   $ 5,793,431   $ 5,297,513      
  

 

 

   

 

 

       

 

 

(1)

As of December 31, 2019.

(2)

Represents the debt issued by TerraForm Power Operating, LLC (“Terra Operating LLC”) and guaranteed by Terra LLC and certain subsidiaries of TerraForm Operating LLC other than non-recourse subsidiaries as defined in the relevant debt agreements (except for certain unencumbered non-recourse subsidiaries).

(3)

Includes fixed rate debt and variable rate debt. As of December 31, 2019, 38% of this balance had a fixed interest rate and the remaining 62% of the balance had a variable interest rate. The Company entered into interest rate swap agreements to fix the interest rates of a majority of the variable rate permanent financing non-recourse debt (see Note 12. Derivatives).

(4)

Represents the weighted average interest rate as of December 31, 2019.

Corporate-level Long-term Debt

Senior Notes

On January 28, 2015, Terra Operating LLC issued $800.0 million of 5.88%senior notes due 2023 at an offering price of 99.214% of the principal amount. On June 11, 2015, Terra Operating LLC issued an additional $150.0 million of 5.875% senior notes due 2023 (collectively, with the $800.0 million initially issued, the “Old Senior Notes due 2023”). The offering price of the additional $150.0 million of notes was 101.5% of the principal amount. On July 17, 2015, Terra Operating LLC issued $300.0 million of 6.125% senior notes due 2025 at an offering price of 100% of the principal amount (the “Senior Notes due 2025”).

On December 12, 2017, Terra Operating LLC issued $500.0 million of 4.25% senior notes due 2023 at an offering price of 100% of the principal amount (the “Senior Notes due 2023”) and $700.00 million of 5.00% senior notes due 2028 at an offering price of 100% of the principal amount (the “Senior Notes due 2028”). Terra Operating LLC used the net proceeds of the Senior Notes due 2023 and the Senior Notes due 2028 to redeem, in full, its Old Senior Notes due 2023, of which $950.0 million remained outstanding, at a redemption price that included a prepayment penalty of $50.7 million, plus accrued and unpaid interest, and to repay $150.0 million of revolving loans outstanding under the Revolver, as described below. As a result of the extinguishment of the Old Senior Notes due 2023, the Company recognized a $72.3 million loss on extinguishment of debt during the year ended December 31, 2017, consisting of the $50.7 million prepayment penalty and the write-off of $21.6 million of unamortized deferred financing costs and debt discounts as of the redemption date.

On October 16, 2019, Terra Operating LLC issued $700.0 million aggregate principal amount of 4.75% senior notes due on January 15, 2030, at an offering price of 100% of the principal amount (the “Senior Notes due 2030” and, together with the Senior Notes due 2023 and the Senior Notes due 2028, the “Senior Notes”), in an unregistered offering pursuant to Rule 144A under the Securities Act. Terra Operating LLC used the net proceeds from the Senior Notes due 2030 to (i) redeem, in full, the Senior Notes due 2025, of which $300.0 million remained outstanding, at a redemption price that included a prepayment penalty of $18.4 million, plus accrued interest, (ii) redeem, in full, the Company’s Term Loan (as defined below), of which $343.9 million remained outstanding plus accrued interest, (iii) redeem, in full, derivative liabilities related to interest rate swaps with hedge counterparties of which $8.8 million remained outstanding, and (iii) pay for the fees and expenses related to the issuance.

The Senior Notes are senior obligations of Terra Operating LLC and are guaranteed by Terra LLC and each of Terra Operating LLC’s subsidiaries that guarantee the Revolver (as defined below) or certain other material indebtedness of Terra Operating LLC or Terra LLC. Each series of the Senior Notes rank equally in right of payment with all existing and future

 

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senior indebtedness of Terra Operating LLC, including the Revolver, senior in right of payment to any future subordinated indebtedness of Terra Operating LLC, and effectively subordinated to all borrowings under the Revolver, which are secured by substantially all of the assets of Terra Operating LLC and the guarantors of the Senior Notes.

At its option, Terra Operating LLC may redeem some or all of each series of the Senior Notes at any time or from time to time before their maturity. If Terra Operating LLC elects to redeem the Senior Notes due 2023 prior to October 31, 2022, the Senior Notes due 2028 before July 31, 2027, or the Senior Notes due 2030 before January 15, 2025, Terra Operating LLC would be required to pay a prepayment penalty as set forth in the applicable indenture. If Terra Operating LLC elects to redeem the Senior Notes due 2030 between January 15, 2025 and January 14, 2028, Terra Operating LLC would be required to pay a call premium as set forth in the applicable indenture. If Terra Operating LLC elects to redeem the Senior Notes due 2023, the Senior Notes due 2028, or the Senior Notes due 2030 on or after these respective dates, Terra Operating LLC would be required to pay a redemption price equal to 100% of the aggregate principal amount of the Senior Notes redeemed plus accrued and unpaid interest thereon. If certain change of control triggering events occur in the future, Terra Operating LLC must offer to repurchase all of each series of the Senior Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.

Term Loan

On November 8, 2017, Terra Operating LLC entered into a 5-year $350.0 million senior secured term loan (the “Term Loan”) and used the net proceeds to repay outstanding borrowings under a non-recourse project-level term debt and $50.0 million of revolving loans outstanding under the Revolver. The Term Loan originally bore interest at a rate per annum equal to, at Terra Operating LLC’s option, either (i) a base rate plus a margin of 1.75% or (ii) a reserve adjusted Eurodollar rate plus a margin of 2.75%, and is secured and guaranteed equally and ratably with the Revolver. The Term Loan provided for voluntary prepayments, in whole or in part, subject to notice periods. There were no prepayment penalties or premiums other than customary breakage costs after the six-month anniversary of the closing date. Within the first six months following the closing date, a prepayment premium of 1.00% would apply to any principal amounts that were prepaid. On May 11, 2018, Terra Operating LLC entered into an amendment to the Term Loan, whereby the interest rate was reduced by 0.75% per annum. The Company recognized a $1.5 million loss on extinguishment of debt during the year ended December 31, 2018, as a result of this amendment representing write-offs of certain deferred debt financing costs. On March 8, 2019, the Company entered into interest rate swap agreements with counterparties to hedge the cash flows associated with the interest payments on the entire principal of the Term Loan, paying an average fixed rate of 2.54%. In return, the counterparties agreed to pay the variable interest payments due to the lenders until maturity. On October 17, 2019, Terra Operating LLC repaid, in full, the amounts outstanding, including the accrued interest, under the Term Loan using the proceeds of the offering of the Senior Notes due 2030. The Company recognized a loss on extinguishment of $4.0 million for the year ended December 31, 2019, representing write-offs of deferred debt financing costs.

Revolver

On October 17, 2017, Terra Operating LLC entered into a new senior secured revolving credit facility (the “Revolver”) in an initial amount of $450.0 million, available for revolving loans and letters of credit, and maturing in October 2021. All outstanding amounts originally bore interest at a rate per annum equal to, at Terra Operating LLC’s option, either (i) a base rate plus a margin ranging between 1.25% to 2.00% or (ii) a reserve adjusted Eurodollar rate plus a margin ranging between 2.25% to 3.00%. In addition to paying interest on outstanding principal under the Revolver, Terra Operating LLC is required to pay a standby fee in respect of the unutilized commitments thereunder, payable quarterly in arrears. This standby fee ranges between 0.375% and 0.50% per annum. The Revolver provides for voluntary prepayments, in whole or in part, subject to notice periods. There are no prepayment penalties or premiums other than customary breakage costs. On February 6, 2018, Terra Operating LLC entered into an amendment to increase the facility limit to $600.0 million. On October 5, 2018, Terra Operating LLC entered into an amendment to (i) reduce the interest rate by 0.75% per annum, and (ii) extend the maturity date of the Revolver to October 2023. The Revolver currently bears interest at a rate equal to, at Terra Operating LLC’s option, either (i) a reserve adjusted Eurodollar rate plus an applicable margin ranging from 1.50% to 2.25% per annum, or (ii) a base rate plus an applicable margin ranging from 0.50% to 1.25% per annum. The Company did not incur additional debt or receive any proceeds in connection with the October 5, 2018 amendment.

Under the Revolver, each of Terra Operating LLC’s existing and subsequently acquired or organized domestic restricted subsidiaries (excluding non-recourse subsidiaries) and Terra LLC are or will become guarantors. The Revolver, each guarantee and any interest rate, currency hedging or hedging of REC obligations of Terra Operating LLC or any guarantor owed to the administrative agent, any arranger or any lender under the Revolver is secured by first priority security interests in (i) all of Terra Operating LLC’s, each guarantor’s and certain unencumbered non-recourse subsidiaries’ assets, (ii) 100% of the capital stock of each of Terra Operating LLC and its domestic restricted subsidiaries and 65% of the capital stock of Terra Operating LLC’s foreign restricted subsidiaries and (iii) all intercompany debt. The Revolver is secured equally and ratably with the Term Loan.

 

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On October 8, 2019, Terra Operating LLC entered into an amendment to the Revolver agreement (the “Upsize Amendment”) whereby (i) the aggregate size of the commitments to make revolving loans (‘‘Revolving Loans’’) under the Revolver was increased by $200.0 million to $800.00 million, shared ratably among the lenders of October 8, 2019, (ii) the aggregate size of the letter of credit facility under the Revolver was increased by $50.0 million to $300.0 million and (iii) the accordion feature of the Revolver, which allows for further increases to the commitments to make Revolving Loans, was set at $150.0 million. Additionally, the Upsize Amendment extended the maturity date of the Revolver by one year to October 5, 2024.

Sponsor Line Agreement

On October 16, 2017, TerraForm Power, Inc. entered into a credit agreement (the “Sponsor Line”) with Brookfield and one of its affiliates. The Sponsor Line establishes a $500.0 million secured revolving credit facility and provides for the lenders to commit to making LIBOR loans to the Company during a period not to exceed three years from the effective date of the Sponsor Line (subject to acceleration for certain specified events). The Company may only use the revolving Sponsor Line credit facility to fund all or a portion of certain funded acquisitions or growth capital expenditures. The Sponsor Line terminates, and all obligations thereunder become payable, no later than October 16, 2022.

Borrowings under the Sponsor Line bear interest at a rate per annum equal to a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, in each case plus 3.00% per annum. In addition to paying interest on outstanding principal under the Sponsor Line, the Company is required to pay a standby fee of 0.50% per annum in respect of the unutilized commitments thereunder, payable quarterly in arrears. The Company is permitted to voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans under the Sponsor Line at any time without premium or penalty, other than customary “breakage” costs. TerraForm Power’s obligations under the Sponsor Line are secured by first-priority security interests in substantially all assets of TerraForm Power, including 100% of the capital stock of Terra LLC, in each case subject to certain exclusions set forth in the credit documentation governing the Sponsor Line. Under certain circumstances, the Company may be required to prepay amounts outstanding under the Sponsor Line.

During the year ended December 31, 2018, the Company made two draws on the Sponsor Line totaling $86.0 million. The Company used the proceeds to fund the acquisition of Saeta and were repaid in full as of December 31, 2018. The Company did not make any draws on the Sponsor Line during the years ended December 31, 2019, and 2017. See Note 21. Related Parties for details.

Covenants and Cross-defaults

The terms of the Company’s corporate-level debt agreements and indentures include customary affirmative and negative covenants and provide for customary events of default, which include, among others, nonpayment of principal or interest and failure to timely deliver financial statements, including quarterly financial maintenance covenants for the Revolver. The occurrence of an event of default for one corporate-level debt instrument could also cause a cross-default for the other corporate-level debt instruments, as described below.

Pursuant to both the terms of the Revolver and the Term Loan, a default of more than $75.0 million of indebtedness (other than non-recourse indebtedness, and indebtedness under the Sponsor Line, which is an obligation of the Company), including under these respective agreements, would result in a cross-default under the respective agreements that would permit the lenders holding more than 50% of the aggregate exposure under each to accelerate any outstanding principal amount of loans, terminate any outstanding letter of credit and terminate the outstanding commitments (as applicable to each).

Pursuant to the terms of the Senior Notes, a default of indebtedness that exceeds the greater of (i) $100.0 million for the Senior Notes due 2023 and Senior Notes due 2028, and $140.0 million for the Senior Notes due 2030, or (ii) 1.5% of the Company’s consolidated total assets (other than non-recourse indebtedness and indebtedness under the Sponsor Line, which is an obligation of TerraForm Power), that is (i) caused by a failure to pay principal of, or interest or premium, if any, on such indebtedness prior to the expiration of the grace period provided in such indebtedness on the date of such default or (ii) results in the acceleration of such indebtedness would give the trustee under the respective indentures or the holders of at least 25% in the aggregate principal amount of the then outstanding Senior Notes under the respective indentures the right to accelerate any outstanding principal amount of loans and terminate the outstanding commitments under the respective indentures.

 

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An event of default of more than $75.0 million of indebtedness under the Revolver, Term Loan and each series of the Senior Notes would trigger an event of default under the Sponsor Line that would permit the lenders to accelerate any outstanding principal amount of loans and terminate the outstanding commitments under the Sponsor Line.

Non-recourse Long-term Debt

Certain subsidiaries of the Company have incurred long-term non-recourse debt obligations related to the renewable energy facilities that those subsidiaries own directly or indirectly. The indebtedness of these subsidiaries is typically secured by the renewable energy facilities or equity interests in subsidiaries that directly or indirectly hold renewable energy facilities with no recourse to TerraForm Power, Terra LLC or Terra Operating LLC other than limited or capped contingent support obligations, which in aggregate are not considered material to the Company’s business and financial condition. In connection with these financings and in the ordinary course of its business, the Company and its subsidiaries observe formalities and operating procedures to maintain each of their separate existence and can readily identify each of their separate assets and liabilities as separate and distinct from each other. As a result, these subsidiaries are legal entities that are separate and distinct from each of TerraForm Power, Terra LLC, Terra Operating LLC and the guarantors under the Senior Notes due 2023, the Senior Notes due 2028, the Senior Notes due 2030, the Revolver and the Sponsor Line.

2019 United States Project Financings

On May 29, 2019, one of the Company’s subsidiaries entered into a new non-recourse debt financing agreement of $104.1 million senior secured term loan facility, and secured by approximately 137.7 MW of distributed generation solar power facilities located in the U.S. that are owned by certain subsidiaries of the Company. The Company used the net proceeds of this debt to repay a portion of the Revolver and general corporate purposes. The debt bears interest at a rate per annum equal to three month LIBOR plus an applicable margin of 200 basis points that increases by 12.5 basis points every four years until maturity. The debt matures on May 26, 2034, and amortizes on a fifteen-year sculpted amortization schedule. The Company entered into interest rate swap agreements with counterparties to hedge the interest payments associated with the debt, paying a fixed rate of 2.3%. In return, the counterparties agreed to pay the variable interest payments to the lenders.

On August 30, 2019, one of the Company’s subsidiaries entered into a new non-recourse debt financing agreement issuing $131.0 million of 3.2% senior notes secured by approximately 111 MW of utility-scale wind power plants located in the United States that are owned by certain subsidiaries of the Company. The Company used the net proceeds of this debt to repay a portion of the balance outstanding under the Revolver. The senior secured notes mature on July 2, 2032 and amortize on an approximately thirteen-year sculpted amortization schedule.

On September 25, 2019, one of the Company’s subsidiaries entered into a $475.0 million new non-recourse senior term loan (“Bridge Facility”) secured by the approximately 320 MW portfolio of distributed generation power facilities located in the United States that were acquired from subsidiaries of AltaGas. The Bridge Facility bears interest at a rate per annum equal to LIBOR plus an applicable margin of 100 basis points for the first six months, 150 basis points for the following six months and 175 basis points thereafter. The Company used the net proceeds of this debt to fund a portion of the purchase price of the WGL Acquisition. See Note 3. Acquisitions and Divestitures for additional details. The Bridge Facility matures on September 24, 2020. The Company has a one-year extension option and intends, through its subsidiaries, to complete a refinancing of the balance on a long-term basis before maturity in a series of two or more transactions. The balance, net of a principal repayment and unamortized deferred financing costs, is included within non-current liabilities in the consolidated balance sheets.

On November 25, 2019, one of the Company’s subsidiaries entered into a new non-recourse debt financing agreement issuing $171.5 million of 3.55% senior notes secured by approximately 200.6 MW utility-scale wind power plants located in the United States. The Company used the net proceeds of this debt to (i) redeem, in full, the outstanding balance of the non-recourse project term debt previously incurred by the subsidiary, of which $69.1 million remained outstanding plus accrued and unpaid interest, (ii) redeem, in full, derivative liabilities related to interest rate swaps with hedge counterparties of which $9.8 million remained outstanding and (iii) pay for the fees and expenses related to the issuance. The Company used the remaining proceeds for general corporate purposes. As a result of the extinguishment of the project-level debt, the Company recognized a $0.3 million loss on extinguishment of debt during the year ended December 31, 2019, representing the write-off of unamortized debt discount as of the redemption date. The senior secured notes mature on May 1, 2039, and amortize on a twenty-year amortization schedule.

 

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2019 Spain Project Financings

On December 10, 2019, five of the Company’s subsidiaries completed a €235.8 million refinancing agreement (equivalent to $264.4 million at the closing date) of certain non-recourse indebtedness associated with 236.0 MW utility-scale wind plants located in Spain (the “Spanish Wind Term Loans”). The Spanish Wind Term Loans bear interest at a rate per annum equal to three months Euribor plus an applicable margin of 165 basis points that increases by 20 basis points every five years throughout maturity. The Spanish Wind Term Loans amortize on a sculpted amortization schedule through their respective maturity dates through December 2033. The Company entered into interest rate swap agreements with counterparties to hedge approximately 80% of the cash flows associated with the debt, paying a fixed rate of 1.55%. In return, the counterparties agreed to pay the variable interest payments to the lenders. The Company used the net proceeds of the refinancing to fund a portion of the purchase price of the X-Elio Acquisition.

On December 27, 2019, one of the Company’s subsidiaries completed a €213.6 million refinancing agreement of certain non-recourse indebtedness, representing an upsize of approximately €42.0 million (equivalent to $239.5 million and $47.1 million at the closing date, respectively), of certain non-recourse indebtedness associated with approximately 50.0 MW concentrated solar power facility located in Spain (the “Spanish Solar Term Loans”). The Spanish Solar Term Loans consist of €146.4 million variable-rate tranche and €67.2 million fixed-rate tranche (equivalent to $164.2 million and $75.3 million, respectively). The variable-rate tranche bears interest at a rate per annum equal to three months Euribor plus an applicable margin of 190 basis points that increases by 20 basis points every five years throughout the maturity in December of 2033. The fixed-rate tranche bears interest at a rate of 2.55% and matures on June 30, 2035. The Spanish Solar Term Loans amortize on a sculpted amortization schedule through their respective maturity dates through 2035. The Company entered into interest rate swap agreements with counterparties to hedge approximately 80% of the variable cash flows of the debt, paying an average fixed rate of 3.70%. In return, the counterparty agreed to pay the variable interest payments to the lenders. The Company used the net proceeds of the refinancing for general corporate purposes.

2019 Uruguay Project Financing

On April 30, 2019, two of the Company’s subsidiaries completed a $204.0 million refinancing agreements of certain non-recourse indebtedness, representing a net upsize of approximately $57.5 million, associated with the Company’s 95 MW of utility-scale wind plants located in Uruguay (the “Uruguay Term Loans”). The Uruguay Term Loans consist of a $103.0 million Tranche A loan, a new $72.0 million Tranche B loan, and an additional $29.0 million senior secured term loan. Approximately 46% of the combined principal amount of the Uruguay Term Loans bears a fixed interest rate of 2.6%, and the remainder bears interest at a rate per annum equal to six-month U.S. LIBOR plus an applicable margin that ranges from 1.94% to 2.94%. The Uruguay Term Loans amortize on a sculpted amortization schedule through their respective maturity dates through December 2035. The Company entered into interest rate swap agreements with a counterparty to hedge greater than 90% of the cash flows associated with the variable portion of the debt, paying a fixed rate of 2.78%. In return, the counterparty agreed to pay the variable interest payments to the lenders. The net proceeds of the refinancing were used to pay down a portion of the Revolver and general corporate purposes.

Indebtedness Assumed on Acquisition

In connection with the X-Elio Acquisition, the Company assumed $151.7 million of project-level debt secured by the renewable energy facilities of the related entities. The average interest rates applicable to this assumed indebtedness was 2.8%. As of December 31, 2019, the Company obtained all required change of control consents from the lenders.

 

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Financing Lease Obligations

In certain transactions, the Company accounts for the proceeds of sale-leasebacks as financings, which are typically secured by the renewable energy facility asset and its future cash flows from energy sales, with no recourse to Terra LLC or Terra Operating LLC under the terms of the arrangement.

Non-recourse Debt Defaults

As of December 31, 2019 and December 31, 2018, the Company reclassified $159.3 million and $166.4 million, respectively, of non-recourse long-term indebtedness, net of unamortized deferred financing costs and debt discounts, to current in the consolidated balance sheets due to defaults remaining as of the respective financial statements issuance dates. The defaults as of December 31, 2019 primarily consisted of indebtedness of the Company’s renewable energy facility in Chile. The Company continues to amortize deferred financing costs and debt discounts over the maturities of the respective financing agreements as before the violations, since the Company believes there is a reasonable likelihood that it will be, in due course, able to successfully negotiate waivers with the lenders and/or cure existing defaults. The Company’s management based this conclusion on (i) its past history of obtaining waivers and/or forbearance agreements with lenders, (ii) the nature and existence of active negotiations between the Company and the respective lenders to secure waivers, (iii) the Company’s timely servicing of these debt instruments and (iv) the fact that no non-recourse financing has been accelerated to date and no project-level lender has notified the Company of such lenders election to enforce project security interests.

See Note 5. Cash and Cash Equivalents for discussion of corresponding restricted cash reclassifications to current as a result of these defaults.

Modification and Extinguishment of Debt

Net loss on modification and extinguishment of debt includes prepayment penalties, the write-off of unamortized deferred financing costs and debt premiums or discounts, costs incurred in a debt modification that are not capitalized as deferred financing costs, other costs incurred in relation to debt extinguishment, and any gain from the redemption of debt below its carrying amount. Loss on modification and extinguishment of debt, net in the consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017, were attributable to the following:

 

     Year Ended December 31,  
(In thousands)    2019      2018      2017  

Senior Notes due 20251

   $ 22,827    $ —      $ —  

Old Senior Notes due 20231

     —          —          72,277

Term Loan1

     4,006      1,480      —    

The Old Revolver2

     —          —          8,822

Non-recourse wind project financing in the U.S.1

     313      —          —    

Non-recourse wind project financing in Spain1

     3,949      —          —    

Solar financing lease obligation in the U.S.3

     (4,142      —            —    
  

 

 

    

 

 

    

 

 

 

Total loss on modification and extinguishment of debt, net

   $ 26,953    $ 1,480    $ 81,099
  

 

 

    

 

 

    

 

 

 

 

(1)

See above for additional details.

(2)

The Company recognized a loss on modification and extinguishment of debt as a result of the reduction of the borrowing capacity of the old revolving credit facility (the “Old Revolver”) and its termination during the year ended December 31, 2017.

(3)

The Company recognized a net gain on extinguishment of debt due to the redemption of certain financing lease obligations within the distributed generation Solar portfolio. The difference between the cash paid to redeem the obligations and the carrying amount as of the date of extinguishment was recognized as a loss on extinguishment of debt in the consolidated statements of operations.

Minimum Lease Payments

The aggregate amounts of minimum lease payments on the Company’s financing lease obligations are $59.5 million. Contractual obligations for the years 2020 through 2024 and thereafter, are as follows:

 

(In thousands)    2020      2021      2022      2023      2024      Thereafter      Total  

Minimum lease obligations1

   $ 3,091    $ 3,171    $ 3,126    $ 4,310    $ 2,933    $ 42,902    $ 59,533

 

(1)

Represents the minimum lease payment due dates for the Company’s financing lease obligations and does not reflect the reclassification of $9.8 million of financing lease obligations to current as a result of debt defaults under certain of the Company’s non-recourse financing arrangements.

 

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Maturities

The aggregate contractual principal payments of long-term debt due after December 31, 2019, excluding financing lease obligations and amortization of debt deferred financing costs, as stated in the financing agreements, are as follows:

 

(In thousands)    20202      2021      2022      2023      2024      Thereafter      Total  

Maturities of long-term debt1

   $ 742,664    $ 273,160    $ 437,168    $ 770,276    $ 279,648    $ 3,726,020    $ 6,228,936

 

(1)

Represents the contractual principal payment due dates for the Company’s long-term debt and does not reflect the reclassification of $159.3 million of long-term debt, net of unamortized deferred financing costs of $5.7 million, to current due to debt defaults that existed as of the date of the issuance of the financial statements (see above for additional details) as of December 31, 2019.

(2)

Includes the $474.6 million Bridge Facility maturing on September 24, 2020. The Company has a one-year extension option and intends, through its subsidiaries, to complete a refinancing of the balance on a long-term basis prior to maturity. The balance, net of unamortized deferred financing costs, is included within non-current liabilities in the consolidated balance sheets.

11. INCOME TAXES

The income tax expense (benefit) was calculated based on the income and losses before income tax between U.S. and foreign operations as follows:

 

(In thousands)    2019      2018      2017  

(Loss) income before income taxes:

        

United States

   $ (212,995    $ (182,289    $ (292,190

Foreign

     18,308      16,672      36,246
  

 

 

    

 

 

    

 

 

 

Loss before income taxes

   $ (194,687    $ (165,617    $ (255,944
  

 

 

    

 

 

    

 

 

 

 

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The income tax provision consisted of the following:

 

(In thousands)    Current      Deferred      Total  

Year ended December 31, 2019

        

U.S. federal

   $ 145    $ 4,728    $ 4,873

State and local

     134      3,197      3,331

Foreign

     4,636      (942      3,694
  

 

 

    

 

 

    

 

 

 

Total expense

     4,915      6,983      11,898

Tax benefit in equity

     —          (978      (978
  

 

 

    

 

 

    

 

 

 

Total

   $ 4,915    $ 6,005    $ 10,920
  

 

 

    

 

 

    

 

 

 

Year ended December 31, 2018

        

U.S. federal

   $ (461    $ (18,301    $ (18,762

State and local

     323      (4,376      (4,053

Foreign

     2,739      7,786      10,525
  

 

 

    

 

 

    

 

 

 

Total expense (benefit)

     2,601      (14,891      (12,290

Tax expense in equity

     —          2,826      2,826
  

 

 

    

 

 

    

 

 

 

Total

   $ 2,601    $ (12,065    $ (9,464
  

 

 

    

 

 

    

 

 

 

Year ended December 31, 2017

        

U.S. federal

   $ (45    $ (20,489      (20,534

State and local

     95      (1,211      (1,116

Foreign

     220      1,789      2,009
  

 

 

    

 

 

    

 

 

 

Total expense (benefit)

     270      (19,911      (19,641

Tax expense in equity

     —          14,081      14,081
  

 

 

    

 

 

    

 

 

 

Total

   $ 270    $ (5,830    $ (5,560
  

 

 

    

 

 

    

 

 

 

Effective Tax Rate

The income tax provision differed from the expected amounts computed by applying the statutory U.S. federal income tax rate of 21% as of December 31, 2019 and December 31, 2018 and 35% as of December 31, 2017, to loss before income taxes, as follows:

 

     Year Ended December 31,  
     2019     2018     2017  

Income tax benefit at U.S. federal statutory rate

     21.0     21.0     35.0

Increase (reduction) in income taxes:

      

State income taxes, net of U.S. federal benefit

     5.9       5.0     4.0

Foreign operations

     (2.0     (0.5     8.7

Non-controlling interests

     (8.0     (25.9     (9.4

Permanent differences

     (0.2     (1.6     —    

Tax Act rate change impact

     —         —         2.0

Return to provision

     —         —         2.8

Change in valuation allowance

     (22.4     7.8     (34.1

Other

     (0.4     1.6     —    
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     (6.1 )%      7.4     9.0
  

 

 

   

 

 

   

 

 

 

 

F-132


Prior to the consummation of the Merger on October 16, 2017, TerraForm Power owned approximately 66% of Terra LLC and SunEdison owned approximately 34% of Terra LLC. On October 16, 2017, pursuant to the Settlement Agreement, SunEdison transferred its interest in Terra LLC to TerraForm Power. Since the date of this transaction, TerraForm Power owns 100% of the capital and profits interest in Terra LLC, except for the IDRs which are owned by Brookfield IDR Holder. The Merger resulted in a change in control to occur subjecting TerraForm Power’s loss carryforwards to be limited for future usage under Internal Revenue Code Section 382.

On December 31, 2018, the Company executed a reorganization of its Capital Dynamics portfolio which resulted in no current tax impact by effectively moving the stock of the Capital Dynamics corporate entities up to TerraForm Power and then immediately contributing Capital Dynamics project assets to Terra LLC. The Company recognized a deferred tax benefit of $20.1 million during the year ended December 31, 2018, resulting from an excess net deferred tax liability that was previously recognized by TerraForm Power Holdings, Inc. as a separate taxpayer which is now expected to reverse in future periods as part of the U.S. federal and state tax consolidated group and provide a source of future taxable income to realize the Company’s net operating loss (“NOL”) carryforwards.

For the years ended December 31, 2019 and December 31, 2018, the overall effective tax rate was different than the statutory rate of 21% primarily due to the recording of a valuation allowance on certain income tax benefits attributed to the Company, losses allocated to non-controlling interests, the 2018 revaluation of deferred federal and state tax balances for TerraForm Power Holdings, Inc., and the effect of foreign and state taxes. For the year ended December 31, 2017, the overall effective tax rate was different from the statutory tax rate of 35% primarily due to the recording of a valuation allowance on certain income tax benefits attributed to the Company, losses allocated to non-controlling interests, the 2017 revaluation of deferred federal and state tax balances and the effect of foreign and state taxes.

The tax effects of the major items recorded as deferred tax assets and liabilities were as follows:

 

     As of December 31,  
(In thousands)    2019      2018  

Deferred tax assets:

     

Net operating losses and tax credit carryforwards

   $ 623,858    $ 587,833

Derivative Liabilities

     26,087      33,261

Interest expense limitation carryforward

     117,598      67,887

Total deferred tax assets

     767,543      688,981

Valuation allowance

     (413,884      (386,336
  

 

 

    

 

 

 

Net deferred tax assets

     353,659      302,645
  

 

 

    

 

 

 

Deferred tax liabilities:

     

Investment in partnership

     270,237      221,694

Renewable energy facilities

     107,908      30,261

Intangible assets

     169,195      229,363

Other

     858      176
  

 

 

    

 

 

 

Total deferred tax liabilities

     548,198      481,494
  

 

 

    

 

 

 

Net deferred tax liabilities

   $ 194,539    $ 178,849
  

 

 

    

 

 

 

For U.S. income tax purposes, Terra LLC is taxed as a U.S. partnership and controls the underlying renewable energy facilities. Thus, the tax effects of temporary differences related to the Company’s portfolio companies are captured within the net deferred tax liability for the investment in the partnership. At December 31, 2019, the Company has gross NOL carryforwards of $2.29 billion in the U.S. and gross NOL carryforwards of $132.1 million in foreign jurisdictions that will both expire in tax years beginning in 2035. Of the $2.3 billion of gross NOL carryforwards generated in the U.S., approximately $0.56 billion are limited and are expected to expire unused. For the remaining $1.73 billion, the Company does not believe it is more likely than not that it will generate sufficient taxable income to realize this entire amount. Consequently, the Company has recorded a valuation allowance against its deferred tax assets, net of the deferred tax liability related to the Company’s partnership investments that is expected to reverse within the NOL carryforward period with the exception of certain NOL at its Canadian, Portuguese, Spanish and Uruguayan operations. The current year movement in the valuation allowance is related to losses generated in the current year as a result of the current year operations and changes in the Company’s tax accounting methods and the limitations on such U.S. Federal and State losses as a result of U.S. Tax Reform.

 

F-133


Prior to the acquisition of Saeta, the Company’s foreign entities had cumulative negative earnings and profits, therefore, those entities had no earnings to repatriate back to the U.S. Following the enactment of the Tax Act and the current year acquisition of Saeta, the Company does not assert the indefinite reinvestment related to undistributed earnings of its foreign subsidiaries. The Company plans to utilize earnings generated by its foreign subsidiaries to make strategic acquisitions abroad and repatriate any excess earnings. The Company’s management determined there was no material deferred tax liabilities that needed to be recognized as of December 31, 2019.

The 2017 Tax Act included a provision to tax global intangible low tax income (“GILTI”) of foreign subsidiaries in excess of a standard rate of return. The Company will record expense related to GILTI in the period the tax is incurred. For the year ended December 31, 2019, the Company was in an overall tested loss position for GILTI purposes and therefore has not included GILTI in its calculation of taxable loss. The U.S. Treasury has issued additional guidance through notices and final regulations during 2019 which did not significantly impact the Company’s interpretation of the 2017 Tax Act. The Company will continue to monitor developments as they occur.

As of December 31, 2019 and 2018, the Company had not identified any uncertain tax positions for which a liability was required under ASC 740-10.

12. DERIVATIVES

As part of its risk management strategy, the Company entered into derivative instruments which include interest rate swaps, foreign currency contracts and commodity contracts to mitigate interest rate, foreign currency and commodity price exposures. If the Company elects to do so and if the instrument meets the criteria specified in ASC 815, Derivatives and Hedging, the Company designates its derivative instruments as either cash flow hedges or net investment hedges. The Company enters into interest rate swap agreements in order to hedge the variability the of expected future cash interest payments. Foreign currency contracts are used to reduce risks arising from the change in fair value of certain foreign currency denominated assets and liabilities. The objective of these practices is to minimize the impact of foreign currency fluctuations on operating results. The Company also enters into commodity contracts to hedge price variability inherent in energy sales arrangements. The objectives of the commodity contracts are to minimize the impact of variability in spot energy prices and stabilize estimated revenue streams. The Company does not use derivative instruments for trading or speculative purposes.

 

F-134


As of December 31, 2019 and 2018, the fair values of the following derivative instruments were included in the respective balance sheet captions indicated below:

 

     Fair Value of Derivative Instruments1                      
     Derivatives Designated as Hedging
Instruments
     Derivatives Not Designated as
Hedging Instruments
                     
(In thousands)    Interest
Rate
Swaps
     Foreign
Currency
Contracts
     Commodity
Contracts
     Interest
Rate
Swaps
     Foreign
Currency
Contracts
     Commodity
Contracts
     Gross
Derivatives
     Counterparty
Netting2
    Net
Derivatives
 

As of December 31, 2019

 

Derivative assets, current

   $ —        $ 349    $ 1,040    $ —        $ 8,092    $ 7,279    $ 16,760    $ (941   $ 15,819

Derivative assets

     809      24      33,269      —          504      23,583      58,189      (472     57,717
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 809    $ 373    $ 34,309    $ —        $ 8,596    $ 30,862    $ 74,949    $ (1,413   $ 73,536
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Derivative liabilities, current

   $ 12,046    $ 631    $ —        $ 21,923    $ 310    $ —        $ 34,910    $ (941   $ 33,969

Derivative liabilities

     41,605      315      —          59,412      534      —          101,866      (472     101,394
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

   $ 53,651    $ 946    $ —        $ 81,335    $ 844    $ —        $ 136,776    $ (1,413   $ 135,363
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

As of December 31, 2018

 

Derivative assets, current

   $ 1,478    $ 605    $ 18    $ —        $ 3,344    $ 9,783    $ 15,228    $ (857   $ 14,371

Derivative assets

     5,818      2,060      42,666      —          647      40,137      91,328      (344     90,984
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 7,296    $ 2,665    $ 42,684    $ —        $ 3,991    $ 49,920    $ 106,556    $ (1,201   $ 105,355
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Derivative liabilities, current

   $ 465    $ —        $ —        $ 34,267    $ 1,684    $ —        $ 36,416    $ (857   $ 35,559

Derivative liabilities

     3,334      1,437      —          88,034      1,387      —          94,192      (344     93,848
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

   $ 3,799    $ 1,437    $ —        $ 122,301    $ 3,071    $ —        $ 130,608    $ (1,201   $ 129,407
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(1)

Fair value amounts are shown before the effects of counterparty netting adjustments.

(2)

Represents the netting of derivative exposures covered by qualifying master netting arrangements.

As of December 31, 2019 and December 31, 2018, the Company had posted letters of credit in the amount of $15.0 million, as collateral related to certain commodity contracts. Certain derivative contracts contain provisions providing the counterparties a lien on specific assets as collateral. There was no cash collateral received or pledged as of December 31, 2019 and December 31, 2018 related to the Company’s derivative transactions.

The Company elected to present all derivative assets and liabilities on a net basis on the consolidated balance sheets as a right to set-off exists. The Company enters into International Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreements with its counterparties. An ISDA Master Agreement is an agreement that can govern multiple derivative transactions between two counterparties that typically provides for the net settlement of all, or a specified group, of these derivative transactions through a single payment, and in a single currency, as applicable. A right to set-off typically exists when the Company has a legally enforceable ISDA Master Agreement. No amounts were netted for commodity contracts as of December 31, 2019 or 2018 as each of the commodity contracts were in a gain position.

 

F-135


The following table presents the notional amounts of derivative instruments as of December 31, 2019 and 2018:

 

     December 31,  
(In thousands)    2019      2018  

Derivatives designated as hedging instruments:

     

Cash flow hedges:

     

Interest rate swaps (USD)

     441,628      357,797

Interest rate swaps (CAD)

     138,575      147,522

Interest rate swaps (EUR)

     310,721      —    

Commodity contracts (MWhs)

     5,360      6,030

Net investment hedges:

     

Foreign currency contracts (CAD)

     94,100      81,600

Foreign currency contracts (EUR)

     199,750      320,000

Derivatives not designated as hedging instruments:

     

Interest rate swaps (USD)

     11,399      12,326

Interest rate swaps (EUR)1

     745,719      1,044,253

Foreign currency option contracts (EUR)2

     625,200      —    

Foreign currency forward contracts (EUR)2

     118,550      640,200

Commodity contracts (MWhs)