SunEdison, TerraForm to Acquire First Wind for $2.4 Billion

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SunEdison Inc. and its power-plant holding company, TerraForm Power Inc., agreed to buy closely held First Wind Holdings Inc. for $2.4 billion, expanding the types of renewable-energy projects it can develop.

SunEdison rose 29 percent at the close in New York. TerraForm gained 27 percent.

The acquisition will give Maryland Heights, Missouri-based SunEdison a foothold in the U.S. wind market, the company said in a statement yesterday. SunEdison now expects to install as much as 2.3 gigawatts of capacity next year, up from a range of

1.6 gigawatts to 1.8 gigawatts.

The addition of First Wind, based in Boston, is “transformative,” and will accelerate the companies’ “engine” for renewable project development, Ahmad Chatila, president and chief executive officer of SunEdison, said in an interview.

“The reason why we’re doing it is really it doubles our served available market,” Chatila said. “Now we have combined with the best team in wind.”

SunEdison, which won’t change its name to reflect the new strategy, hopes to capitalize on the growth opportunities in the global wind energy market. Wind power in the U.S., where First Wind’s project development has been located, is expected to grow 15 percent next year, according to Bloomberg New Energy Finance forecasts.

‘Strategic Move’

The acquisition is a “sound strategic move” for SunEdison, eliminating risk associated with the expiration of tax credits for solar and helping First Wind move into new markets abroad, Cowen & Co. analyst Jeffrey Osborne in New York said today in note to clients.

“We believe SunEdison can leverage First Wind’s platform to push into international markets for wind given the potential expiration of the production tax credit for U.S. wind projects,” Osborne said.

Expected to close in the first quarter, the purchase will consist of a $1.9 billion upfront payment and $510 million dependent on First Wind completing backlog projects.

‘Packaging Electrons’

TerraForm will add 521 megawatts of First Wind projects to its portfolio under the deal, with 1.6 gigawatts of projects expected to be developed by SunEdison and dropped down into TerraForm in 2016 and 2017, the companies said in the statement.

The transaction “checks all the boxes,” TerraForm Chief Executive Officer Carlos Domenech said in an interview. “What First Wind does for TerraForm is very much what SunEdison does on the solar side performing as a sponsor.”

TerraForm will add 4.6 gigawatts of installs between wind and solar by the end of 2017 after the deal, including the 3.1 gigawatts already planned with SunEdison.

“We are in the business of packaging electrons into long-term contracts,” Domenech said. “Wind is a great asset class and we see tremendous growth potential. For us this is a logical expansion into renewables.”

The company expects to look into acquiring other types of renewable energy projects, Domenech said, and is considering hydroelectric power, hybrid power systems and residential, commercial and industrial solar power assets.

Yieldco

TerraForm is a yieldco that went public in July. Yieldcos are an increasingly popular way to hold renewable energy assets. They let developers raise capital at lower costs by selling completed projects to their yieldcos and using the proceeds to fund new projects.

The purchase of First Wind is expected to be immediately accretive to TerraForm Power, delivering $72.5 million in unlevered cash available for distribution next year, according to the statement.

TerraForm raised its 2015 distribution guidance to $214 million and its dividend guidance to $1.30 a share, up 44 percent from its current 90-cent rate.

Bank of America Corp.’s Merrill Lynch acted as lead financial adviser to TerraForm in connection with the First Wind acquisition and lead structuring agent on the drop down warehouse credit facility. Goldman Sachs Group Inc. acted as exclusive financial adviser to First Wind.

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