M&A: SunEdison and Terraform acquisition of First Wind

Channels: Debt, Equity, Renewables

Companies: SunEdison, Terraform Power, First Wind, SunEdison Semiconductor, Barclays, Goldman Sachs, Morgan Stanley, BAML, Citigroup, Macquarie Capital, Bank of America Merrill Lynch, Macquarie Securities, Barclays Capital, Orrick

SunEdison became the world's largest renewable energy developer when it took part in the acquisition of First Wind, in a deal worth $2.4 billion.

First Wind sold 521MW of operational assets as part of the deal

Together with its recently-launched yieldco, Terraform Power, the firm bought some 8GW of development-stage projects, while Terraform gained 521MW of operational assets. It marked both companies' entry into the wind energy sector – in a move reflecting a growing keenness from investors to see diversified renewables portfolios, in order to hedge against weather risk.

The move was well received by the market, and SunEdison's share price leapt nearly 30% on the day it announced the deal, in November. At the time of going to press it was still up by around 13%.

With a current market capitalisation of $6.67 billion, it provides strong liquidity and its expanded pipeline offers high visibility in terms of the growth.

One banker close to the deal says there are two reasons why the transaction was so notable, and why "very few firms could have pulled-off a deal like this".


The first is that it involved the acquisition of an integrated cleantech business, which conventionally leads to some assets – those that don't fit with the purchasing company's business model – being undervalued.

But, because the deal allowed SunEdison to take on the development pipeline while Terraform absorbed the operating assets, "each firm bought the pieces most valuable to them, which meant you could fully realise the value of the assets".

The second reason the deal was interesting was that it allowed First Wind to untangle its complex financial structuring, by wiping out its outstanding, expensive debt with a big injection of fresh capital.

"Very few firms could have pulled-off a deal like this"

The transaction involved upfront payment of $1 billion from SunEdison and $862 million from Terraform. The remaining costs will be paid to First Wind upon completion of projects in its pipeline.

SunEdison and Terraform obtained a bridging loan of $2.4 billion from an unnamed lender to fund the acquisition. This was repaid through a mammoth fundraising drive from both SunEdison and Terraform, which saw the market embrace a spate of debt and equity offerings from the pair.

In January, SunEdison sold a portion of its stake in its former subsidiary, SunEdison Semiconductor. The shares were priced at $15.19 each, and raised $190 million towards buying First Wind.

In the same month it agreed a $400 million, two-year loan from a series of unnamed lenders, secured against a chunk of its shares in Terraform; and it placed a bundle of seven-year convertible notes with a coupon of 2.375%, in a deal that was oversubscribed and ended up being upped by $50 million to $400 million.


In addition, Terraform sold $350 million of common stock – 12 million shares priced at $29.33 each. Bookrunners on the deal were Barclays, Goldman Sachs, Morgan Stanley, BAML, Citigroup and Macquarie Capital.

Finally, Terraform came to the market with an $800 million green bond – only the second to have been issued by a yieldco, and a rare example of a highyield offering in the fledgling market. The eight-year bond had a coupon of 5.875% was sold in a private placement.

The lead underwriters were Macquarie Securities, Barclays Capital, Bank of America Merrill Lynch, Citi, Goldman Sachs and Morgan Stanley.

As a result of the acquisition, SunEdison raised its installation estimates for this year to at least 2.1GW – up from 1.6GW.

Terraform's portfolio grew by more than 50% once the assets – all located in North America – were added, and it raised its 2015 dividend guidance by 44% to $1.30 per share.

Morgan Stanley acted as lead financial advisor to SunEdison on the deal, while Barclays was co-advisor and lead structuring agent. Bank of America Merrill Lynch was lead financial advisor to Terraform and Citi was co-advisor. Orrick acted as M&A counsel to SunEdison and TerraForm. Goldman Sachs was the financial adviser to First Wind. EF