Attached files

file filename
EX-10.3 - EXHIBIT 10.3 - TerraForm Power NY Holdings, Inc.terraform-63015xexhibit103.htm
EX-32 - EXHIBIT 32 - TerraForm Power NY Holdings, Inc.terraform-6302015xexhibit32.htm
EX-31.1 - EXHIBIT 31.1 - TerraForm Power NY Holdings, Inc.terraform-6302015xexhibit311.htm
EX-31.2 - EXHIBIT 31.2 - TerraForm Power NY Holdings, Inc.terraform-6302015xexhibit312.htm
EX-10.2 - EXHIBIT 10.2 - TerraForm Power NY Holdings, Inc.terraform-63015xexhibit102.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _____________________________________________________________________________
FORM 10-Q
 _____________________________________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-36542
 ______________________________________________________________
TerraForm Power, Inc.
(Exact name of registrant as specified in its charter)
 _____________________________________________________________________________
Delaware
 
46-4780940
(State or other jurisdiction of incorporation or organization)
 
(I. R. S. Employer Identification No.)
7550 Wisconsin Avenue, 9th Floor, Bethesda, Maryland
 
20814
(Address of principal executive offices)
 
(Zip Code)
240-762-7700
(Registrant’s telephone number, including area code)
 ______________________________________________________________
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.    x  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
o
  
Accelerated filer
 
o
Non-accelerated filer
 
x (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o     No  x
As of July 31, 2015, there were 79,904,190 shares of Class A common stock outstanding, 60,364,154 shares of Class B common stock outstanding, and no shares of Class B1 common stock outstanding.
 



TerraForm Power, Inc. and Subsidiaries
Table of Contents
Form 10-Q
 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 



PART I - Financial Information

Item 1. Financial Statements.

TERRAFORM POWER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Operating revenues, net
$
130,046

 
$
22,378

 
$
200,561

 
$
30,770

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of operations
18,409

 
1,408

 
35,229

 
1,890

Cost of operations - affiliate
4,174

 
825

 
7,817

 
1,217

General and administrative
4,521

 
358

 
13,569

 
456

General and administrative - affiliate
17,857

 
2,142

 
24,775

 
3,732

Acquisition and related costs
6,664

 
1,235

 
20,386

 
1,235

Acquisition and related costs - affiliate
604

 

 
1,040

 

Formation and offering related fees and expenses

 
2,863

 

 
2,863

Depreciation, accretion and amortization
38,136

 
4,953

 
70,027

 
8,387

Total operating costs and expenses
90,365

 
13,784

 
172,843

 
19,780

Operating income
39,681

 
8,594

 
27,718

 
10,990

Other expenses:
 
 
 
 
 
 
 
Interest expense, net
35,961

 
24,621

 
72,816

 
32,148

(Gain) loss on extinguishment of debt, net
(11,386
)
 
1,945

 
8,652

 
1,945

(Gain) loss on foreign currency exchange, net
(14,439
)
 
79

 
(70
)
 
674

Other, net
(803
)
 

 
(323
)
 

Total other expenses, net
9,333

 
26,645

 
81,075

 
34,767

Income (loss) before income tax expense (benefit)
30,348

 
(18,051
)
 
(53,357
)
 
(23,777
)
Income tax expense (benefit)
1,214

 
(5,318
)
 
1,169

 
(6,875
)
Net income (loss)
29,134

 
(12,733
)
 
(54,526
)
 
(16,902
)
Less: Predecessor loss prior to initial public offering on July 23, 2014

 
(13,204
)
 

 
(17,012
)
Less: Net income attributable to redeemable non-controlling interests
1,796

 

 
1,627

 

Less: Net income (loss) attributable to non-controlling interests
9,903

 
471

 
(45,472
)
 
110

Net income (loss) attributable to Class A common stockholders
$
17,435

 
$

 
$
(10,681
)
 
$

 
 
 
 
 
 
 
 
Weighted average number of shares:
 
 
 
 
 
 
 
Class A common stock - Basic and diluted
57,961

 
 
 
53,874

 
 
Earnings (loss) per share:
 
 
 
 
 
 
 
Class A common stock - Basic and diluted
$
0.10

 
 
 
$
(0.41
)
 
 


See accompanying notes to consolidated financial statements.

3


TERRAFORM POWER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Net income (loss)
 
$
29,134

 
$
(12,733
)
 
$
(54,526
)
 
$
(16,902
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
Net unrealized gains arising during the period
 
3,852

 
573

 
577

 
573

Hedging activities:
 
 
 
 
 
 
 
 
Net unrealized gains (losses) arising during the period
 
428

 

 
(1,820
)
 

Reclassification of net realized losses into earnings
 
350

 

 
3,207

 

Other comprehensive income, net of tax
 
4,630

 
573

 
1,964

 
573

Total comprehensive income (loss)
 
33,764

 
(12,160
)
 
(52,562
)
 
(16,329
)
Less: Predecessor comprehensive loss prior to initial public offering on July 23, 2014
 

 
(12,631
)
 

 
(16,439
)
Less comprehensive income (loss) attributable to non-controlling interests:
 
 
 
 
 
 
 
 
Net income (loss) attributable to non-controlling interests
 
9,903

 
471

 
(45,472
)
 
110

Foreign currency translation adjustments
 
2,177

 

 
315

 

Hedging activities
 
630

 

 
798

 

Comprehensive income (loss) attributable to non-controlling interests
 
12,710

 
471

 
(44,359
)
 
110

Comprehensive income (loss) attributable to Class A stockholders
 
$
21,054

 
$

 
$
(8,203
)
 
$



See accompanying notes to consolidated financial statements.


4


TERRAFORM POWER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

ASSETS
June 30, 2015
 
December 31, 2014
Current assets:
 
 
 
Cash and cash equivalents
$
390,632

 
$
468,554

Restricted cash, including consolidated variable interest entities of $25,943 and $39,898 in 2015 and 2014, respectively
74,416

 
70,545

Accounts receivable, including consolidated variable interest entities of $36,228 and $16,921 in 2015 and 2014, respectively
96,938

 
32,036

Prepaid expenses and other current assets
31,061

 
22,637

Total current assets
593,047

 
593,772

 
 
 
 
Property and equipment, net, including consolidated variable interest entities of $1,660,249 and $1,466,223 in 2015 and 2014, respectively
3,928,714

 
2,637,139

Intangible assets, net, including consolidated variable interest entities of $233,326 and $259,004 in 2015 and 2014, respectively
515,688

 
361,673

Deferred financing costs, net
52,985

 
42,741

Deferred income taxes
7

 
4,606

Other assets
82,728

 
29,419

Total assets
$
5,173,169

 
$
3,669,350



See accompanying notes to consolidated financial statements.

5


TERRAFORM POWER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(In thousands, except per share data)

LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 2015
 
December 31, 2014
Current liabilities:
 
 
 
Current portion of long-term debt and financing lease obligations, including consolidated variable interest entities of $89,331 and $20,907 in 2015 and 2014, respectively
$
322,115

 
$
97,412

Accounts payable, accrued expenses and other current liabilities, including consolidated variable interest entities of $17,956 and $27,284 in 2015 and 2014, respectively
99,832

 
83,437

Deferred revenue, including consolidated variable interest entities of $17,441 and $12,941 in 2015 and 2014, respectively
13,014

 
24,264

Due to SunEdison and affiliates, net
28,062

 
186,435

Total current liabilities
463,023

 
391,548

Other liabilities:
 
 
 
Long-term debt and financing lease obligations, less current portion, including consolidated variable interest entities of $615,658 and $620,853 in 2015 and 2014, respectively
1,944,795

 
1,599,277

Deferred revenue, including consolidated variable interest entities of $63,231 and $51,943 in 2015 and 2014, respectively
76,814

 
52,214

Deferred income taxes
7,108

 
7,877

Asset retirement obligations, including consolidated variable interest entities of $46,621 and $32,181 in 2015 and 2014, respectively
145,877

 
78,175

Other long-term liabilities
5,098

 

Total liabilities
2,642,715

 
2,129,091

 
 
 
 
Redeemable non-controlling interests
38,228

 
24,338

Stockholders' equity:
 
 
 
Preferred stock, $0.01 par value, 50,000 shares authorized, none issued and outstanding in 2015 and 2014

 

Class A common stock, $0.01 par value per share, 850,000 shares authorized, 79,904 and 42,218 issued and outstanding in 2015 and 2014, respectively.
773

 
387

Class B common stock, $0.01 par value per share, 140,000 shares authorized, 60,364 and 64,526 issued and outstanding in 2015 and 2014, respectively.
604

 
645

Class B1 common stock, $0.01 par value per share, 260,000 shares authorized, zero and 5,840 issued and outstanding in 2015 and 2014, respectively.

 
58

Additional paid-in capital
1,274,450

 
497,556

Accumulated deficit
(36,298
)
 
(25,617
)
Accumulated other comprehensive loss
(786
)
 
(1,637
)
Total TerraForm Power, Inc. stockholders' equity
1,238,743

 
471,392

Non-controlling interests
1,253,483

 
1,044,529

Total non-controlling interests and stockholders' equity
2,492,226

 
1,515,921

Total liabilities, non-controlling interests and stockholders' equity
$
5,173,169

 
$
3,669,350



See accompanying notes to consolidated financial statements.

6





TERRAFORM POWER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)

 
Controlling Interest
 
Non-controlling Interests
 
 
 
Preferred Stock
 
Class A Common Stock
 
Class B Common Stock
 
Class B1 Common Stock
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
 
 
 
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
 
 
Total Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Total
 
Capital
 
 
 
Total
 
Balance at January 1, 2015

 
$

 
42,218

 
$
387

 
64,526

 
$
645

 
5,840

 
$
58

 
$
497,556

 
$
(25,617
)
 
$
(1,637
)
 
$
471,392

 
$
1,092,809

 
$
(44,451
)
 
$
(3,829
)
 
$
1,044,529

 
$
1,515,921

Issuance of Class A common stock related to the public offering, net of issuance costs

 

 
31,912

 
318

 
(4,162
)
 
(41
)
 

 

 
921,333

 

 

 
921,610

 

 

 

 

 
921,610

Riverstone exchange

 

 
5,840

 
58

 

 

 
(5,840
)
 
(58
)
 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 
(66
)
 
10

 

 

 

 

 
7,464

 

 

 
7,474

 

 

 

 

 
7,474

Net loss¹

 

 

 

 

 

 

 

 

 
(10,681
)
 

 
(10,681
)
 

 
(45,472
)
 

 
(45,472
)
 
(56,153
)
Dividends

 

 

 

 

 

 

 

 
(33,910
)
 

 

 
(33,910
)
 

 

 

 

 
(33,910
)
Consolidation of non-controlling interests in acquired projects

 

 

 

 

 

 

 

 

 

 

 

 
104,546

 

 

 
104,546

 
104,546

Repurchase of non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 
(54,694
)
 

 

 
(54,694
)
 
(54,694
)
Contributions from SunEdison

 

 

 

 

 

 

 

 
45,053

 

 

 
45,053

 
54,331

 

 

 
54,331

 
99,384

Other comprehensive income

 

 

 

 

 

 

 

 

 

 
851

 
851

 

 

 
1,113

 
1,113

 
1,964

Sale of membership interests in projects

 

 

 

 

 

 

 

 

 

 

 

 
33,237

 

 

 
33,237

 
33,237

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 
(47,153
)
 

 

 
(47,153
)
 
(47,153
)
Equity reallocation

 

 

 

 

 

 

 

 
(163,046
)
 

 

 
(163,046
)
 
163,046

 

 

 
163,046

 

Balance at June 30, 2015

 
$

 
79,904

 
$
773

 
60,364

 
$
604

 

 
$

 
$
1,274,450

 
$
(36,298
)
 
$
(786
)
 
$
1,238,743

 
$
1,346,122

 
$
(89,923
)
 
$
(2,716
)
 
$
1,253,483

 
$
2,492,226

———
(1)
Excludes net loss attributable to redeemable non-controlling interests


See accompanying notes to consolidated financial statements.

7


TERRAFORM POWER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

 
Six Months Ended June 30,
2015
 
2014
Cash flows from operating activities:
 
 
 
Net loss
$
(54,526
)
 
$
(16,902
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Non-cash incentive revenue
(1,534
)
 
(706
)
Non-cash interest expense
931

 
299

Stock compensation expense
7,474

 

Depreciation, accretion and amortization
70,027

 
8,387

Amortization of intangible assets
5,023

 
771

Amortization of deferred financing costs and debt discounts
11,506

 
13,857

Recognition of deferred revenue
(972
)
 
(125
)
Loss on extinguishment of debt, net
8,652

 
1,945

Unrealized loss on derivatives
1,814

 

Unrealized loss (gain) on foreign currency exchange
355

 
(1,646
)
Deferred taxes
1,112

 
(6,680
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(54,889
)
 
(14,174
)
Prepaid expenses and other current assets
8,911

 
(9,526
)
Accounts payable, accrued interest, and other current liabilities
11,273

 
14,335

Deferred revenue
14,323

 
22,349

Due to SunEdison and affiliates, net
(196
)
 
76

Restricted cash from operating activities
520

 

Other, net
5,496

 
(24
)
Net cash provided by operating activities
35,300

 
12,236

Cash flows from investing activities:
 
 
 
Cash paid to third parties for renewable energy facility construction
(351,252
)
 
(524,105
)
Other investments
(10,000
)
 

Acquisitions of renewable energy facilities from third parties, net of cash acquired
(1,004,773
)
 
(191,130
)
Due to SunEdison and affiliates, net
(14,872
)
 
3,313

Change in restricted cash
4,343

 
9,015

Net cash used in investing activities
$
(1,376,554
)
 
$
(702,907
)


See accompanying notes to consolidated financial statements.











8


TERRAFORM POWER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(In thousands)

 
Six Months Ended June 30,
2015
 
2014
Cash flows from financing activities:
 
 
 
Proceeds from issuance of Class A common stock
$
921,610

 
$

Change in restricted cash for principal debt service

 
335

Proceeds from Senior Notes due 2023
945,962

 

Repayment of term loan
(573,500
)
 

Proceeds from Revolver
235,000

 

Repayment of Revolver
(235,000
)
 

Borrowings of project-level long-term debt
276,529

 
551,610

Principal payments on project-level long-term debt
(133,955
)
 
(42,923
)
Due to SunEdison and affiliates, net
(138,113
)
 

Contributions from non-controlling interests
44,792

 
1,930

Distributions to non-controlling interests
(16,885
)
 

Repurchase of non-controlling interest
(54,694
)
 

Distributions to SunEdison and affiliates
(31,555
)
 

Net SunEdison investment
99,251

 
217,680

Payment of dividends
(33,910
)
 

Debt prepayment premium
(6,412
)
 

Payment of deferred financing costs
(35,392
)
 
(23,089
)
Net cash provided by financing activities
1,263,728

 
705,543

Net (decrease) increase in cash and cash equivalents
(77,526
)
 
14,872

Effect of exchange rate changes on cash and cash equivalents
(396
)
 
100

Cash and cash equivalents at beginning of period
468,554

 
1,044

Cash and cash equivalents at end of period
$
390,632

 
$
16,016

 
 
 
 
Supplemental Disclosures:
 
 
 
Cash paid for interest, net of amounts capitalized of $4,752 and $3,392, respectively
$
44,530

 
$
8,741

Schedule of non-cash activities:
 
 
 
Additions of asset retirement obligation (ARO) assets and liabilities
$
36,176

 
$
3,122

ARO assets and obligations from acquisitions
27,208

 
10,183

Long-term debt assumed in connection with acquisitions
63,293

 
109,072



See accompanying notes to consolidated financial statements.


9

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, unless otherwise noted)



1. BASIS OF PRESENTATION

TerraForm Power, Inc. and subsidiaries (the "Company") is a subsidiary of SunEdison, Inc. ("SunEdison"). The accompanying unaudited consolidated financial statements have been prepared in accordance with the Securities and Exchange Commission’s, or SEC’s, regulations for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. generally accepted accounting principles ("U.S. GAAP") for complete financial statements. The following notes should be read in conjunction with the accounting policies and other disclosures as set forth in the notes to the Company’s annual financial statements for the year ended December 31, 2014. Interim results are not necessarily indicative of results for a full year.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company's unaudited consolidated financial position as of June 30, 2015, and the results of operations, comprehensive income and cash flows for the three and six months ended June 30, 2015 and 2014.
    
2. TRANSACTIONS BETWEEN ENTITIES UNDER COMMON CONTROL

When renewable energy facilities are acquired from SunEdison, the Company is required to recast its historical financial statements to reflect the assets and liabilities and the results of operations of the acquired renewable energy facilities for the period they were owned by SunEdison in accordance with rules applicable to transactions between entities under common control. During the six months ended June 30, 2015, the Company acquired 68 renewable energy facilities with a combined nameplate capacity of 313.0 MW from SunEdison, which resulted in a recast of the balance sheet as of December 31, 2014, and the related statement of cash flows for the year ended December 31, 2014. One of these facilities was in operation in 2014, which resulted in a recast of the statement of operations and statement of comprehensive income (loss) for the year ended December 31, 2014.

The following table presents the changes to previously reported amounts of the Company's consolidated balance sheet as of December 31, 2014 included in the Company's Current Report on Form 8-K dated May 7, 2015:
(In thousands)
Balance Sheet Caption
 
December 31, 2014 as Previously Recasted
 
Acquired Call Right and Operating Projects
 
December 31, 2014 Recast
Cash and cash equivalents
 
$
468,554

 
$

 
$
468,554

Accounts receivable
 
31,986

 
50

 
32,036

Prepaid expenses and other current assets
 
22,620

 
17

 
22,637

Property and equipment, net
 
2,554,904

 
82,235

 
2,637,139

Deferred financing costs, net
 
42,113

 
628

 
42,741

Change in total assets
 
 
 
$
82,930

 

 
 
 
 
 
 
 
Current portion of long-term debt
 
$
84,104

 
$
13,308

 
$
97,412

Accounts payable, accrued expenses and other current liabilities
 
82,605

 
832

 
83,437

Due to SunEdison and affiliates, net
 
153,052

 
33,383

 
186,435

Deferred revenue (short-term)
 
21,989

 
2,275

 
24,264

Long-term debt and financing lease obligations, less current portion
 
1,568,517

 
30,760

 
1,599,277

Asset retirement obligations
 
76,111

 
2,064

 
78,175

Deferred revenue (long-term)
 
52,081

 
133

 
52,214

Deferred income taxes
 
7,702

 
175

 
7,877

Change in total liabilities
 

 
$
82,930

 



10


The following table presents the changes to previously reported amounts of the Company's consolidated statement of cash flows for the six months ended June 30, 2014 included in the Company's previously filed Quarterly Report on Form 10-Q:
(In thousands)
Statement of Cash Flows Caption
 
As Reported
 
Acquired Call Right and Operating Projects
 
June 30, 2014 Recast
Cash flows from operating activities:
 
 
 
 
 
 
Depreciation, accretion and amortization
 
$
8,001

 
$
386

 
$
8,387

Deferred taxes
 
(6,875
)
 
195

 
(6,680
)
Changes in assets and liabilities:
 
 
 
 
 


Accounts receivable
 
(14,034
)
 
(140
)
 
(14,174
)
Prepaid expenses and other current assets
 
(9,526
)
 

 
(9,526
)
Accounts payable, accrued interest, and other current liabilities
 
13,266

 
1,069

 
14,335

Deferred revenue
 
22,349

 

 
22,349

Cash flows from investing activities:
 
 
 
 
 
 
Cash paid to SunEdison and third parties for solar generation facility construction
 
(485,756
)
 
(38,349
)
 
(524,105
)
Due to SunEdison and affiliates, net
 

 
3,313

 
3,313

Cash flows from financing activities:
 
 
 
 
 
 
Borrowings of project-level long-term debt
 
518,737

 
32,873

 
551,610

Principal payments on project-level long-term debt
 
(42,923
)
 

 
(42,923
)
Payment of deferred financing costs
 
(22,421
)
 
(668
)
 
(23,089
)
 
 
 
 
 
 
 
Net increase in cash and cash equivalents
 
14,872

 

 
14,872

Effect of exchange rate changes on cash and cash equivalents
 
100

 

 
100

Cash and cash equivalents at end of period
 
16,016

 

 
16,016


The following table presents the changes to previously reported amounts of the Company's consolidated statement of operations for the six months ended June 30, 2014 included in the Company's previously filed Quarterly Report on Form 10-Q:
(In thousands)
Statement of Operations Caption
 
As Reported
 
Acquired Call Right and Operating Projects
 
June 30, 2014 Recast
Operating revenues, net
 
$
30,077

 
$
693

 
$
30,770

Cost of operations
 
1,846

 
44

 
1,890

Cost of operations - affiliate
 
1,137

 
80

 
1,217

Depreciation, accretion and amortization
 
8,001

 
386

 
8,387

Interest expense, net
 
31,253

 
895

 
32,148

Change in net loss
 
 
 
$
(712
)
 



Acquisitions of Call Right and Operating Projects

The assets and liabilities transferred to the Company for the acquisitions listed in the table below relate to interests under common control with SunEdison and, accordingly, were recorded at historical cost basis. The difference between the cash purchase price and historical cost basis of the net assets acquired was recorded as a distribution to SunEdison and reduced the balance of its non-controlling interest.


11


The following table summarizes the Call Right and operating projects acquired by the Company from SunEdison during the six months ended June 30, 2015, through a series of transactions:
 
 
 
 
 
 
 Nameplate Capacity (MW)
 
Number of Sites
 
As of June 30, 2015 (In thousands)
Facility Size
 
Type
 
Location
 
 
Initial Cash Paid
 
Estimated Cash Due to SunEdison
 
Debt Transferred
Distributed Generation
 
Solar
 
U.S.
 
51.7

 
46

 
$
76,371

 
$
10,815

 
$
4,460

Utility
 
Solar
 
U.S.
 
47.0

 
8

 
15,396

 
55,150

 
60,903

Utility
 
Solar
 
U.K.
 
214.3

 
14

 
141,783

 
9,924

 
218,201

Total
 
 
 
 
 
313.0

 
68

 
$
233,550

 
$
75,889

 
$
283,564


Results of Operations

During the six months ended June 30, 2015, the Company paid $181.2 million to SunEdison and recorded a distribution to SunEdison of $14.6 million for facilities acquired from SunEdison that had achieved commercial operations as of June 30, 2015. Additionally, during the six months ended June 30, 2015, the Company paid $52.4 million to SunEdison for facilities acquired SunEdison that had not achieved commercial operations as of June 30, 2015.

The following table is a summary of the results of operations for the Call Right and operating projects acquired by the Company from SunEdison during the six months ended June 30, 2015:
(In thousands)
 
Six Months Ended June 30, 2015
Operating revenues, net
 
$
14,324

Operating expenses
 
7,610

Operating income
 
6,714

Interest expense, net
 
3,496

Other income
 
10,315

Net income
 
$
13,533




12

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

In preparing the unaudited consolidated financial statements, the Company used estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. Such estimates also affect the reported amounts of revenues, expenses and cash flows during the reporting period. Actual results may differ from estimates under different assumptions or conditions.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. This standard will become effective for us on January 1, 2018. Early application is permitted but not before January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method or determined the effect of the standard on its ongoing financial reporting.

In February 2015, the FASB issued ASU No. 2015-02 Consolidation (Topic 810) Amendments to the Consolidation Analysis, which affects the following areas of the consolidation analysis: limited partnerships and similar entities, evaluation of fees paid to a decision maker or service provider as a variable interest and in determination of the primary beneficiary, effect of related parties on the primary beneficiary determination and for certain investment funds. ASU No. 2015-02 is effective for us for our fiscal year ending December 31, 2016 and interim periods therein. The Company is evaluating the impact of this standard on our consolidated statements of financial position, results of operations and cash flows.

In April 2015, the FASB issued ASU No. 2015-03 Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability. ASU No. 2015-03 is effective for us for our fiscal year ending December 31, 2016 and interim periods therein. The Company is evaluating the impact of this standard on our consolidated balance sheet.

In April 2015, the FASB issued ASU No. 2015-06 Earnings Per Share, which provides guidance on the presentation of historical earnings per unit under the two-class method for transfers of net assets between entities under common control. ASU No. 2015-06 is effective for us for our fiscal year ending December 31, 2016 and interim periods therein. The Company is evaluating the impact of this standard on our consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11 Inventory, which requires inventory that is measured using the first-in, first-out method or average cost method to be measured at the lower of cost and net realizable value. ASU No. 2015-10 is effective for us for our fiscal year ending December 31, 2017 and interim periods therein. The Company is evaluating the impact of this standard on our SREC inventory.

4. ACQUISITIONS

2015 Acquisitions

Acquisition of First Wind
                                                                                                                                            
On January 29, 2015, the Company, through TerraForm Power LLC ("Terra LLC"), acquired from First Wind Holdings, LLC (together with its subsidiaries, “First Wind”) 521.1 MW of operating renewable power assets, including 500.0 MW of wind power plants and 21.1 MW of solar generation facilities (the “First Wind acquisition”). The operating renewable power assets the Company acquired are located in Maine, New York, Hawaii, Vermont and Massachusetts and are contracted under power purchase agreements ("PPAs") or renewable energy certificates ("RECs"). The purchase price for this acquisition was $810.4 million in cash, net of cash acquired.


13

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Acquisition of Northern Lights solar generation facilities
 
On June 30, 2015, the Company acquired two utility scale, ground mounted solar generation facilities from Invenergy Solar LLC ("Northern Lights"). The facilities are located in Ontario, Canada and have a total nameplate capacity of 25.7 MW. The facilities are contracted under long-term PPAs with an investment grade utility with a credit rating of Aa2, and the PPAs have a weighted average remaining life of 18 years. The cash purchase price, net of cash acquired, for this acquisition was CAD 125.4 million ($101.1 million USD equivalent) in cash, including the repayment of project-level debt and breakage fees for the termination of interest rate swaps.

Acquisition of other solar generation facilities

During the six months ended June 30, 2015, the Company acquired 66 solar generation facilities with a combined nameplate capacity of 37.6 MW for a purchase price of $90.9 million in cash, net of cash acquired, and $15.9 million of project-level debt assumed in a number of transactions with third parties. The facilities are located in Arizona, California, Connecticut Massachusetts, New Jersey and Pennsylvania as well as Ontario, Canada. The facilities are contracted under long-term PPAs with commercial and municipal customers and the PPAs have a weighted-average remaining life of approximately 15 years.     

Initial Accounting for the 2015 Acquisitions

The initial accounting for the 2015 acquisitions has not been completed because the evaluation necessary to assess the fair values of certain net assets acquired is still in process. The provisional amounts for these acquisitions, included in the table within the "Acquisition Accounting" section of this footnote below, are subject to revision until these evaluations are completed. The estimated fair value of assets, liabilities, and non-controlling interest pertaining to First Wind reflect the following material changes from the previous period: a decrease to property, plant, and equipment of $18.9 million, a decrease to intangible assets of $10.5 million, a decrease to long-term debt of $12.4 million, and a decrease to non-controlling interest of $21.1 million.

The operating revenues and net income of the facilities acquired in 2015 reflected in the accompanying unaudited consolidated statement of operations for the six months ended June 30, 2015 are $60.7 million and $20.1 million, respectively.

2014 Acquisitions
    
During the year ended December 31, 2014, the Company acquired Mt. Signal, Stonehenge Operating Projects, Capital Dynamics, Hudson Energy, and various other renewable energy facilities. The acquisition accounting for certain of these facilities was completed as of June 30, 2015, at which point the provisional fair values became final.

The acquisition accounting for Mt. Signal and Stonehenge Operating Projects are complete as of June 30, 2015. The final estimated fair value of assets, liabilities and non-controlling interests is included in the table within the "Acquisition Accounting" section of this footnote below and do not reflect any material changes from amounts previously reported. The acquisition accounting for various other 2014 acquisitions were finalized in previous periods.

The initial accounting for the acquisitions of Capital Dynamics and Hudson Energy are not complete because the evaluation necessary to assess the fair values of certain net assets acquired is still in process. The provisional amounts for these acquisitions, included in the table within the "Acquisition Accounting" section of this footnote below, are subject to revision until these evaluations are completed.

Unaudited Pro Forma Supplementary Data

The unaudited pro forma supplementary data presented in the table below gives effect to the material 2015 acquisitions, First Wind and Northern Lights, as if those transactions had each occurred on January 1, 2014. 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 acquisitions been consummated on the date assumed or of the Company’s results of operations for any future date.

14

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 
Six Months Ended June 30,
(In thousands)
2015
 
2014
Total operating revenues, net
$
217,276

 
$
95,076

Net Loss
32,684

 
13,298


Acquisition costs, incurred by the Company related to third-party acquisitions, were $21.0 million and $1.2 million for the six months ended June 30, 2015 and 2014, respectively. These costs are reflected as acquisition and related costs in the accompanying unaudited consolidated statements of operations.

Acquisition Accounting

The estimated fair values of assets, liabilities and non-controlling interests pertaining to business combinations as of June 30, 2015, are as follows:
 
2015 Preliminary
 
2014 Preliminary
 
2014 Final
(In thousands)
First Wind
 
Northern Lights
 
Other
 
Capital Dynamics
 
Other
 
Mt. Signal
 
Other
Accounts receivable
$
8,667

 
$
1,284

 
$
2,959

 
$
2,603

 
$
4,092

 
$
11,687

 
$
5,400

Property and equipment
784,178

 
75,218

 
80,939

 
219,981

 
42,001

 
649,570

 
211,796

Intangible assets
115,200

 
25,865

 
31,577

 
71,453

 
16,604

 
119,767

 
107,676

Deferred income taxes

 

 

 
26,578

 

 

 

Restricted cash
6,630

 

 
827

 
15

 
3,019

 
22,165

 
11,700

Other assets
68,330

 
24

 
331

 
3,990

 
121

 
12,621

 
4,495

Total assets acquired
983,005

 
102,391

 
116,633

 
324,620

 
65,837

 
815,810


341,067

Accounts payable, accrued expenses and other current liabilities
10,012

 
440

 
739

 
1,194

 
1,781

 
22,725

 
1,540

Long-term debt, including current portion
47,400

 

 
15,893

 

 
24,546

 
413,464

 
111,610

Deferred income taxes

 

 

 
32,476

 

 

 
927

Asset retirement obligations
15,418

 
818

 
5,332

 
13,073

 
3,269

 
4,656

 
14,105

Total liabilities assumed
72,830

 
1,258

 
21,964

 
46,743

 
29,596

 
440,845


128,182

Non-controlling interest
99,739

 

 
3,762

 
20,496

 
2,850

 
83,310

 
1,400

Purchase price, net of cash acquired
$
810,436

 
$
101,133

 
$
90,907

 
$
257,381

 
$
33,391

 
$
291,655


$
211,485


The acquired renewable energy facilities' non-financial assets represent estimates of the fair value of acquired PPAs and RECs based on significant inputs that are not observable in the market and thus represent a Level 3 measurement. The estimated fair values were determined based on an income approach and the estimated useful lives of the intangible assets range from 1 to 24 years. See Note 6. Intangible Assets for additional disclosures related to the acquired intangible assets.

Other Acquisitions

Atlantic Power Corporation wind power plant transaction

On June 26, 2015, SunEdison closed the acquisition of 521.0 MW of operating wind power plants located in Idaho and Oklahoma from Atlantic Power Corporation, for total cash consideration of $347.2 million. The assets are contracted under long term PPAs with investment grade utilities with a weighted-average credit rating of A3 and a weighted-average remaining life of 18 years. Concurrent with the closing, SunEdison formed its second warehouse facility, which we refer to as TerraForm Private warehouse, to hold the acquired operating assets from Atlantic Power for a maximum period of seven years. The Company has an exclusive call right over the warehoused operating assets, and expects to acquire them into our portfolio over time.


15

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Acquisition of Invenergy wind power plants

On June 30, 2015, the Company entered into definitive agreements to acquire net ownership of 930.0 MW of operating and under construction wind power plants from Invenergy Wind LLC (together with its subsidiaries, ‘‘Invenergy Wind’’). The Company intends to acquire 265.0 MW of the wind power plants (the ‘‘Acquired Portfolio’’) and the Company is pursuing funding for the remaining 665.0 MW of wind power plants (the ‘‘Warehouse Portfolio’’) through a drop down warehouse facility in partnership with third party investors and SunEdison. The Warehouse Portfolio would initially be acquired by such warehouse facility, and the Company would be offered call rights to acquire those assets in the future. Although the Company is pursuing funding of the Warehouse Portfolio through a warehouse facility, there is no assurance that the Company will be able to obtain such funding, and as a result, may be required to directly acquire the Warehouse Portfolio under the terms of the purchase agreement with Invenergy Wind. The aggregate consideration payable for the acquisitions of the Acquired Portfolio and the Warehouse Portfolio is approximately $2.0 billion, including approximately $818.0 million of indebtedness to be repaid or assumed. As of July 17, 2015, the Company maintains commitments for a senior unsecured bridge facility of up to $860.0 million to fund a portion of the acquisition of the Invenergy wind power plants. The Acquired Portfolio is comprised of two contracted wind power plants located in the United States and Canada with a weighted average remaining contract life of 19 years and an average counterparty credit rating of AA. Invenergy Wind will retain a 9.9% stake in the United States assets and will provide certain operation and maintenance services for these wind power plants. Final closing of this acquisition is expected by the fourth quarter of 2015.

Subsequent Event

Acquisition of Vivint Solar
    
On July 20, 2015, SunEdison and Vivint Solar, Inc. ("Vivint Solar") signed a definitive merger agreement pursuant to which SunEdison will acquire Vivint Solar for approximately $2.2 billion, payable in a combination of cash, shares of SunEdison common stock and SunEdison convertible notes. In connection with SunEdison's acquisition of Vivint Solar, the Company entered into a definitive purchase agreement with SunEdison to acquire Vivint Solar's residential solar generation facilities with a nameplate capacity of 523.0 MW (the “Vivint Operating Assets”), which is expected to be completed by the end of 2015, for $922.0 million. The Company intends to finance this acquisition with existing cash, availability under our Revolver and the assumption of project-level debt. A separate Call Right Agreement provides the Company the right to acquire future completed residential and small commercial projects from SunEdison's expanded residential and small commercial business unit. Additionally, on July 20, 2015, the Company obtained commitments for a senior unsecured bridge facility which provides the Company with up to $960.0 million to fund the acquisition of the Vivint Operating Assets.

5. PROPERTY AND EQUIPMENT

Property and equipment, net consists of the following: 
(In thousands)
 
June 30, 2015
 
December 31, 2014
Renewable energy facilities
 
$
3,842,300

 
$
2,241,728

Less accumulated depreciation - renewable energy facilities
 
(111,667
)
 
(52,981
)
Property and equipment, net
 
3,730,633

 
2,188,747

Construction in progress - renewable energy facilities
 
198,081

 
448,392

Total property and equipment
 
$
3,928,714

 
$
2,637,139


Depreciation expense related to property and equipment was $32.7 million and $57.8 million for the three and six months ended June 30, 2015, respectively, as compared to $4.6 million and $7.7 million for the same periods in the prior year.

Construction in progress represents $198.1 million of costs incurred to complete the construction of the facilities in the Company's current portfolio that were either contributed to the Company by SunEdison or acquired from SunEdison. When projects are contributed or sold to the Company after completion by SunEdison, the Company retroactively recasts its historical financial statements to present the construction activity as if it consolidated the facility at inception of the construction. All construction in progress costs are stated at SunEdison's historical cost. These costs include capitalized interest costs and amortization of deferred financing costs incurred during the asset's construction period, which totaled $4.1 million and $4.8 million for the three and six months ended June 30, 2015, respectively, and as compared to $6.1 million and $8.2 million for the same periods in the prior year.

16

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


6. INTANGIBLES

The following table presents the gross carrying amount and accumulated amortization of intangibles as of June 30, 2015:
(In thousands, except weighted average amortization period)
 
Weighted Average Amortization Period
 
Gross Carrying Amount
 
Accumulated Amortization
 
Accumulated Currency Translation Adjustment
 
Net Book Value
Revenue contracts
 
19 years
 
$
531,115

 
$
(13,647
)
 
$
(1,780
)
 
$
515,688

    
The following table presents the gross carrying amount and accumulated amortization of intangibles as of December 31, 2014:
(In thousands, except weighted average amortization period)
 
Weighted Average Amortization Period
 
Gross Carrying Amount
 
Accumulated Amortization
 
Accumulated Currency Translation Adjustment
 
Net Book Value
Revenue contracts
 
21 years
 
$
371,765

 
$
(6,169
)
 
$
(3,923
)
 
$
361,673

    
As of June 30, 2015 and December 31, 2014, the Company had revenue contracts representing long-term PPAs and RECs that were obtained through acquisitions (see Note. 4 Acquisitions). Revenue contracts are amortized on a straight-line basis over the remaining lives of the agreements, which range from 1 to 24 years as of June 30, 2015. Amortization expense related to the revenue contracts is recorded on the unaudited consolidated statements of operations as either a reduction or increase of revenue when the contract rate is above or below market rates (favorable or unfavorable) or within depreciation, accretion and amortization expense when the contract rate is equal to market rates (in-place). Amortization expense was $8.8 million and $14.1 million during the three and six months ended June 30, 2015, respectively, $5.4 million and $5.0 million of which were a decrease in revenue and $3.4 million and $9.1 million of which were recorded as depreciation, accretion and amortization expense in the accompanying unaudited consolidated statement of operations. Amortization expense was $0.8 million during both the three and six months ended June 30, 2014 and was recorded on the unaudited consolidated statements of operations as a reduction of revenue.

7. VARIABLE INTEREST ENTITIES

The Company is the primary beneficiary of twelve variable interest entities ("VIEs") in renewable energy facilities that were consolidated as of June 30, 2015, nine of which existed and were consolidated as of December 31, 2014. The VIEs own and operate renewable energy facilities in order to generate contracted cash flows. The VIEs were funded through a combination of equity contributions from the owners and non-recourse, project-level debt. No VIEs were deconsolidated during the six months ended June 30, 2015 and 2014.

The carrying amounts and classification of the consolidated VIEs’ assets and liabilities included in the Company's unaudited consolidated balance sheet are as follows:
(In thousands)
 
June 30, 2015
 
December 31, 2014
     Current assets
 
$
77,088

 
$
69,955

     Noncurrent assets
 
1,923,042

 
1,756,276

Total assets
 
$
2,000,130

 
$
1,826,231

     Current liabilities
 
$
116,953

 
$
64,324

     Noncurrent liabilities
 
739,135

 
707,989

Total liabilities
 
$
856,088

 
$
772,313


The amounts shown above in the table exclude any potential VIEs under the First Wind acquisition as the Company has not completed the accounting related to this business combination. All of the assets in the table above are restricted for settlement of the VIE obligations, and all of the liabilities in the table above can only be settled by using VIE resources.


17

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

8. LONG-TERM DEBT
    
Long-term debt consists of the following: 
(In thousands, except rates)
Description:
 
June 30, 2015
 
December 31, 2014
 
Interest Type
 
Current Interest Rate %
 
Financing Type
Corporate-level long-term debt:
 
 
 
 
 
 
 
 
 
 
Term Loan
 
$

 
$
573,500

 
Variable
 
5.3¹
 
Term debt
Senior Notes due 2023
 
950,000

 

 
Fixed
 
5.9
 
Senior notes
Project-level long-term debt:
 
 
 
 
 
 
 
 
 
 
Permanent financing
 
833,848

 
824,166

 
(2)
 
5.9³
 
Term debt / Senior notes
Construction financing
 
346,220

 
171,383

 
Variable
 
3.2³
 
Construction debt
Financing lease obligations
 
139,437

 
126,167

 
Imputed
 
6.3³
 
Financing lease obligations
Total principal due for long-term debt and financing lease obligations
 
2,269,505

 
1,695,216

 
 
 
6.0³
 
 
Less current maturities
 
(322,115
)
 
(97,412
)
 
 
 
 
 
 
Net unamortized (discount) premium
 
(2,595
)
 
1,473

 
 
 
 
 
 
Long-term debt and financing lease obligations, less current portion
 
$
1,944,795

 
$
1,599,277

 
 
 
 
 
 
———
(1)
The Company entered into an interest rate swap agreement fixing the interest rate at 5.33%, which was terminated upon repayment of the Term Loan.
(2)
Includes variable rate debt and fixed rate debt. As of June 30, 2015, 67% of this balance had a fixed interest rate and the remaining 33% of this balance had a variable interest rate. The Company has entered into interest rate swap agreements to fix the interest rates of all variable rate permanent project-level debt (see Note 10. Derivatives).
(3)
Represents the weighted average effective interest rate as of June 30, 2015.

Corporate-level Long-term Debt

Term Loan
    
On January 28, 2015, the Company repaid the remaining outstanding principal balance on the Term Loan of $573.5 million. The Company recognized a $12.0 million loss on the extinguishment of debt during the six months ended June 30, 2015, as a result of this repayment.

Revolving Credit Facilities

On January 28, 2015, the Company replaced its existing revolver with a new $550.0 million revolving credit facility (the "Revolver"). The Revolver consists of a revolving credit facility in an amount of at least $550.0 million available for revolving loans and letters of credit. The Company recognized a $1.3 million loss on the extinguishment of debt during the six months ended June 30, 2015 as a result of the exchange.

On May 1, 2015, the Company exercised its option to increase its borrowing capacity under the Revolver by $100.0 million. As a result of this transaction, the Company had a total borrowing capacity of $650.0 million under the Revolver as of June 30, 2015. There were no amounts outstanding under the Revolver as of June 30, 2015 or December 31, 2014.

On July 13, 2015, the Company obtained a commitment from a lender under the Revolver to increase the Company's borrowing capacity under the Revolver by $75.0 million. Upon the satisfaction of certain customary conditions the total borrowing capacity under the Revolver will be increased to $725.0 million.

The Revolver matures on January 28, 2020. 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 under the Revolver.


18

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

At Terra Operating LLC’s option, all outstanding amounts under the Revolver bears interest initially at a rate per annum equal to either (i) a base rate plus a margin of 1.50% or (ii) a reserve adjusted Eurodollar rate plus a margin of 2.50%. After the fiscal quarter ended June 30, 2015, the base rate margin will range between 1.25% and 1.75% and the Eurodollar rate margin will range between 2.25% and 2.75% as determined by reference to a leverage-based grid.

The Revolver provides for voluntary prepayments, in whole or in part, subject to notice periods, and requires Terra Operating LLC to prepay outstanding borrowings in an amount equal to 100% of the net cash proceeds received by Terra LLC or its restricted subsidiaries from the incurrence of indebtedness not permitted by the Revolver by Terra Operating LLC or its restricted subsidiaries.

The Revolver, each guaranty and any interest rate, currency hedging or hedging of Renewable Energy Certificate ("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 and each guarantor’s assets, (ii) 100% of the capital stock of Terra Operating LLC and each of its domestic restricted subsidiaries and 65% of the capital stock of each of Terra Operating LLC’s foreign restricted subsidiaries, and (iii) all intercompany debt. Notwithstanding the foregoing, collateral under the Revolver excludes the capital stock of non-recourse subsidiaries.

Senior Notes due 2023

On January 28, 2015, our indirect subsidiary Terra Operating LLC, issued $800.0 million of 5.875% senior notes due 2023 at an offering price of 99.214% of the principal amount. Terra Operating LLC used the net proceeds from this offering to fund a portion of the purchase price payable in the First Wind acquisition.

On June 11, 2015, our indirect subsidiary 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 "Senior Notes due 2023"). The offering price of the additional $150.0 million of notes was 101.5% of the principal amount and Terra Operating LLC used the net proceeds from the offering to repay existing borrowings under the Revolver. The Senior Notes due 2023 are senior obligations of Terra Operating LLC and are guaranteed by Terra LLC and each of Terra Operating LLC's existing and future subsidiaries that guarantee its senior secured credit facility, subject to certain exceptions.

Bridge Facility
    
On March 31, 2015, the Company entered into an agreement with Morgan Stanley Senior Funding, Inc. which provided the Company with up to $515.0 million of senior unsecured bridge facility to fund the acquisition of the Atlantic Power wind power plants. This bridge facility was terminated during the second quarter of 2015 due to the assets being acquired by the TerraForm Private warehouse (see Note 4. Acquisitions).

Project-level Long-term Debt

The Company's renewable energy facilities have long-term debt obligations in separate legal entities. The Company typically finances its renewable energy facilities through project entity specific debt secured by the renewable energy facility's assets (mainly the renewable energy facility) with no recourse to the Company. Typically, these financing arrangements provide for a construction loan, which upon completion may or may not be converted into a term loan.

SunE Perpetual Lindsay

A construction term loan to finance and develop the construction of the SunE Perpetual Lindsay utility-scale solar power plant was entered into during 2014. During the six months ended June 30, 2015, SunEdison repaid the remaining outstanding principal balance of CAD 47.7 million ($38.6 million USD equivalent) due on the SunE Perpetual Lindsay construction term loan on the Company's behalf which was recorded as a capital contribution from SunEdison on the statement of equity.


19

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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, and without recourse to the Company under the terms of the arrangement.

As a result of the First Wind acquisition, the Company acquired approximately $47.4 million of financing lease obligations. The financing lease obligations assumed by the Company include those pursuant to a sale-leaseback agreement, entered into by First Wind on November 21, 2012, whereby First Wind sold substantially all of the property, plant and equipment of the related wind power plant to a financial institution and simultaneously entered into a long-term lease with that financial institution for the use of the assets. Under the terms of the agreement, the Company will continue to operate the wind facility and has the option to extend the lease or repurchase the assets sold at the end of the lease term.

Debt Extinguishments

As part of the First Wind acquisition, the Company repaid certain long-term indebtedness of the First Wind Operating Entities. The Company recognized a loss on the extinguishment of debt of $6.4 million during the six months ended June 30, 2015 as a result of this repayment.

On May 22, 2015, SunEdison acquired the lessor interest in a portfolio of operating solar generation facilities and concurrently sold the portfolio to the Company. Upon acquisition of the Duke Energy operating facility, the Company recognized a net gain on the extinguishment of debt of $11.4 million due to the termination of $31.5 million of financing lease obligations of the portfolio.

Maturities

The aggregate amounts of payments on long-term debt including financing lease obligations, and excluding amortization of debt discounts and premiums, due after June 30, 2015 are as follows:
(In thousands)
Remainder of 2015¹
 
2016²
 
2017
 
2018
 
2019
 
Thereafter
 
Total
Maturities of long-term debt as of June 30, 2015
$
98,159

 
$
310,066

 
$
37,864

 
$
39,374

 
$
50,229

 
$
1,733,813

 
$
2,269,505

———
(1)
The amount of long-term debt due in 2015 includes $65.4 million of construction debt for the U.S. Call Right Projects.
(2)
The amount of long-term debt due in 2016 includes GBP 172.6 million (USD $271.3 million) of debt for the Fairwinds & Crundale facilities and the U.K. Call Right Projects.

Subsequent Event

Senior Notes due 2025

On July 17, 2015, our indirect subsidiary 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"). Terra Operating LLC intends to use the net proceeds from the offering to fund a portion of the price of the Invenergy wind power plants acquisition. The Senior Notes due 2025 are senior obligations of Terra Operating LLC and are guaranteed by Terra LLC and each of Terra Operating LLC's existing and future subsidiaries that guarantee its senior secured credit facility, subject to certain exceptions.

Bridge Facilities

On July 1, 2015, the Company obtained commitments for a senior unsecured bridge facility which provides the Company with up to $1,160.0 million to fund the acquisition of the Invenergy wind power plants. On July 17, 2015, the Company terminated $300.0 million of the bridge facility commitment upon the issuance of our Senior Notes due 2025.

On July 20, 2015, the Company obtained commitments for a senior unsecured bridge facility which provides the Company with up to $960.0 million to fund the acquisition of Vivint Solar.


20

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

9. INCOME TAXES

The income tax provision consisted of the following:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands, except effective tax rate)
 
2015
 
2014
 
2015
 
2014
Income/(Loss) before income tax expense (benefit)
 
$
30,348

 
$
(18,051
)
 
$
(53,357
)
 
$
(23,777
)
Income tax expense (benefit)
 
1,214

 
(5,318
)
 
1,169

 
(6,875
)
Effective tax rate
 
4.0
%
 
29.5
%
 
2.2
%
 
28.9
%
        
As of June 30, 2015, the Company owns 57.0% of Terra LLC and consolidates the results of Terra LLC through its controlling interest. The Company records SunEdison's 43.0% ownership of Terra LLC as a non-controlling interest in the financial statements. Terra LLC is treated as a partnership for income tax purposes. As such, the Company records income tax on its 57.0% of Terra LLC's taxable income and SunEdison records income tax on its 43.0% share of taxable income generated by Terra LLC.

For the six months ended June 30, 2015, the overall effective tax rate was different than the statutory rate of 35% primarily due to the recording of a valuation allowance on certain tax benefits attributed to the Company and to lower statutory income tax rates in our foreign jurisdictions. For the six months ended June 30, 2015, the tax benefits for losses realized prior to the IPO were recognized primarily because of existing deferred tax liabilities. As of June 30, 2015, most jurisdictions are in a net deferred tax asset position. A valuation allowance is recorded against the deferred tax assets primarily because of the history of losses in those jurisdictions.

10. DERIVATIVES

As part of the Company’s risk management strategy, the Company has entered into derivative instruments which include interest rate swaps, foreign currency contracts and commodity contracts to mitigate interest rate, foreign currency and commodity price exposure. If the Company elects to do so and if the instrument meets the criteria specified in Accounting Standards Codification ("ASC") 815, Derivatives and Hedging, the Company designates its derivative instruments as cash flow hedges. The Company enters into interest rate swap agreements in order to hedge the variability 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 economically hedge price variability inherent in electricity sales arrangements. The objectives of these transactions are to minimize the impact of variability in spot electricity prices and stabilize estimated revenue streams. The Company does not use derivative instruments for speculative purposes.


21

TERRAFORM POWER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of June 30, 2015 and December 31, 2014, fair values of the following derivative instruments were included in the line items indicated.
 
 
Fair Value of Derivative Instruments
 
 
 
 
 
 
 
 
Hedging Contracts
 
Derivatives Not Designated as Hedges
 
 
 
 
 
 
(In thousands)
 
Interest Rate Swaps
 
Interest Rate Swaps
 
Foreign Currency Contracts
 
Commodity Contracts
 
Gross Amounts of Assets/Liabilities Recognized
 
Gross Amounts Offset in Consolidated Balance Sheet
 
Net Amounts in Consolidated Balance Sheet
As of June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$

 
$

 
$
1,607

 
$
9,300

 
$
10,907

 
$
(339
)
 
$
10,568

Other assets
 
269

 

 
899

 
33,641

 
34,809

 
(446
)
 
34,363

Total assets
 
$
269

 
$

 
$
2,506

 
$
42,941

 
$
45,716

 
$
(785
)
 
$
44,931

Accounts payable and other current liabilities
 
$
807

 
$

 
$
757

 
$

 
$
1,564

 
$
(339
)
 
$
1,225

Other long-term liabilities
 

 
971

 
3,953

 

 
4,924

 
(446
)
 
4,478

Total liabilities
 
$
807

 
$
971

 
$
4,710

 
$

 
$
6,488

 
$
(785
)
 
$
5,703

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$

 
$

 
$

 
$

 
$

 
$

 
$

Other assets
 

 

 
1,811

 

 
1,811

 

 
1,811

Total assets
 
$

 
$

 
$
1,811

 
$

 
$
1,811

 
$

 
$
1,811

Accounts payable and other current liabilities
 
$
1,925

 
$
1,279

 
$
685

 
$

 
$
3,889

 
$

 
$
3,889

Other long-term liabilities