SunEdison Inc.'s (SUNE) yieldco subsidiary's announcement on Tuesday, Nov. 18, to acquire First Wind in a transaction valued at $2.4 billion was a negotiated deal, said a source familiar with the matter.
The deal provides SunEdison, a solar developer based in St. Peters, Mo., with an entrance into the wind market and significantly increases SunEdison's installations to 2.1 to 2.3 gigawatts of capacity from 1.6 to 1.8 GW. Included in the transaction is an additional 6.4 GW of project development opportunities.
Under the agreement, the yieldco, named TerraForm Power Inc. (TERP) , will acquire 521 megawatts of contracted wind generation assets from First Wind and add 1.6 GW to its list of call right projects scheduled for drop down in 2016 to 2017. The acquisition increases the generation capacity of TerraForm Power's operating portfolio by more than 50% and provides further geographic diversity in Maine, New York, Hawaii, Vermont and Massachusetts.
The transaction will accelerate the timing and enhance the visibility of SunEdison's receipt of incentive distribution rights from TerraForm Power, and increase the value of SunEdison's yieldco platform.
The yieldco is a corporate entity designed to mimic the economics of MLPs and REITs, with their tax benefits and their ability to attract additional investors because of their guaranteed distributions to unitholders. The yieldco grows by either dropping down assets — meaning that projects are put into the yieldco from the parent — or acquisitions, with some yieldcos growing through a combination of drop-downs and acquisitions.