Attached files

file filename
EX-32 - EXHIBIT 32 - TerraForm Power NY Holdings, Inc.terraform-93016xexhibit32.htm
EX-31.2 - EXHIBIT 31.2 - TerraForm Power NY Holdings, Inc.terraform-93016xexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - TerraForm Power NY Holdings, Inc.terraform-93016xexhibit311.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 September 30, 2016
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
 ______________________________________________________________
image0a10.jpg
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.    Yes  o    No  x
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  o    No  x
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
 
x
 
Accelerated filer
 
o
Non-accelerated filer
 
o (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 January 31, 2017, there were 91,101,476 shares of Class A common stock outstanding and 48,202,310 shares of Class B 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 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Operating revenues, net
$
178,118

 
$
163,291

 
$
519,336

 
$
363,852

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of operations
32,820

 
15,201

 
94,534

 
50,430

Cost of operations - affiliate
7,149

 
6,840

 
22,898

 
14,657

General and administrative expenses
26,510

 
7,518

 
64,750

 
21,087

General and administrative expenses - affiliate
2,943

 
14,636

 
10,614

 
39,411

Acquisition and related costs

 
11,294

 
2,743

 
31,680

Acquisition and related costs - affiliate

 

 

 
1,040

Depreciation, accretion and amortization expense
57,988

 
43,667

 
178,026

 
113,694

Total operating costs and expenses
127,410

 
99,156

 
373,565

 
271,999

Operating income
50,708

 
64,135

 
145,771

 
91,853

Other expenses:
 
 
 
 
 
 
 
Interest expense, net
72,818

 
48,786

 
243,111

 
121,602

Loss on extinguishment of debt, net

 

 

 
8,652

Loss on foreign currency exchange, net
3,913

 
9,825

 
4,161

 
9,755

Loss on receivables - affiliate

 

 
845

 

Other expenses, net
548

 
1,433

 
692

 
1,110

Total other expenses, net
77,279

 
60,044

 
248,809

 
141,119

(Loss) income before income tax expense
(26,571
)
 
4,091

 
(103,038
)
 
(49,266
)
Income tax expense
1,140

 
1,673

 
3,115

 
2,842

Net (loss) income
(27,711
)
 
2,418

 
(106,153
)
 
(52,108
)
Less: Pre-acquisition net (loss) income of renewable energy facilities acquired from SunEdison

 
(2,743
)
 

 
7,892

Net (loss) income excluding pre-acquisition net (loss) income of renewable energy facilities acquired from SunEdison
(27,711
)
 
5,161

 
(106,153
)
 
(60,000
)
Less: Net income attributable to redeemable non-controlling interests
4,642

 
6,949

 
16,374

 
8,576

Less: Net loss attributable to non-controlling interests
(6,182
)
 
(968
)
 
(74,968
)
 
(46,440
)
Net loss attributable to Class A common stockholders
$
(26,171
)
 
$
(820
)
 
$
(47,559
)
 
$
(22,136
)
 
 
 
 
 
 
 
 
Weighted average number of shares:
 
 
 
 
 
 
 
Class A common stock - Basic and diluted
90,860

 
77,522

 
89,140

 
61,777

Loss per share:
 
 
 
 
 
 
 
Class A common stock - Basic and diluted
$
(0.29
)
 
$
(0.03
)
 
$
(0.53
)
 
$
(0.39
)









See accompanying notes to unaudited condensed consolidated financial statements.
3



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

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net (loss) income
 
$
(27,711
)
 
$
2,418

 
$
(106,153
)
 
$
(52,108
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
Net unrealized loss arising during the period
 
(6,158
)
 
(3,363
)
 
(2,442
)
 
(2,786
)
Hedging activities:
 
 
 
 
 
 
 
 
Net unrealized gain (loss) arising during the period, net of tax
 
14,258

 
31,850

 
(32,348
)
 
37,533

Reclassification of net realized loss into earnings, net of tax
 
3,164

 
129

 
15,667

 
3,336

Other comprehensive income (loss), net of tax
 
11,264

 
28,616

 
(19,123
)
 
38,083

Total comprehensive (loss) income
 
(16,447
)
 
31,034

 
(125,276
)
 
(14,025
)
Less: Pre-acquisition net (loss) income of renewable energy facilities acquired from SunEdison
 

 
(2,743
)
 

 
7,892

Less: Pre-acquisition other comprehensive income of renewable energy facilities acquired from SunEdison
 

 
32,985

 

 
40,488

Comprehensive (loss) income excluding pre-acquisition comprehensive income of renewable energy facilities acquired from SunEdison
 
(16,447
)
 
792

 
(125,276
)
 
(62,405
)
Less comprehensive income (loss) attributable to non-controlling interests:
 
 
 
 
 
 
 
 
Net income attributable to redeemable non-controlling interests
 
4,642

 
6,949

 
16,374

 
8,576

Net loss attributable to non-controlling interests
 
(6,182
)
 
(968
)
 
(74,968
)
 
(46,440
)
Foreign currency translation adjustments
 
(2,165
)
 
(1,447
)
 
(668
)
 
(1,132
)
Hedging activities
 
7,015

 
(759
)
 
(6,151
)
 
39

Comprehensive income (loss) attributable to non-controlling interests
 
3,310

 
3,775

 
(65,413
)
 
(38,957
)
Comprehensive loss attributable to Class A common stockholders
 
$
(19,757
)
 
$
(2,983
)
 
$
(59,863
)
 
$
(23,448
)


























See accompanying notes to unaudited condensed consolidated financial statements.
4



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

 
September 30,
2016
 
December 31, 2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
540,147

 
$
626,595

Restricted cash, including consolidated VIEs of $99,789 and $57,372 in 2016 and 2015, respectively
136,920

 
152,586

Accounts receivable, net
119,161

 
103,811

Prepaid expenses and other current assets
67,083

 
53,769

Assets held for sale
70,905

 

Total current assets
934,216

 
936,761

 
 
 
 
Renewable energy facilities, net, including consolidated VIEs of $3,514,337 and $3,558,041 in 2016 and 2015, respectively
5,103,557

 
5,834,234

Intangible assets, net, including consolidated VIEs of $891,089 and $929,580 in 2016 and 2015, respectively
1,199,816

 
1,246,164

Goodwill
55,874

 
55,874

Deferred financing costs, net
8,435

 
10,181

Other assets
101,198

 
120,343

Restricted cash
27,181

 
13,852

Non-current assets held for sale
564,702

 

Total assets
$
7,994,979

 
$
8,217,409































See accompanying notes to unaudited condensed consolidated financial statements.
5



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

 
September 30,
2016
 
December 31, 2015
Liabilities, Non-controlling Interests and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt and financing lease obligations, including consolidated VIEs of $447,035 and $980,069 in 2016 and 2015, respectively
$
1,374,327

 
$
2,037,919

Accounts payable, accrued expenses and other current liabilities, including consolidated VIEs of $56,809 and $48,359 in 2016 and 2015, respectively
147,961

 
153,046

Deferred revenue
18,702

 
15,460

Due to SunEdison, net
9,516

 
26,598

Liabilities related to assets held for sale
426,389

 

Total current liabilities
1,976,895

 
2,233,023

Long-term debt and financing lease obligations, less current portion, including consolidated VIEs of $549,108 and $59,706 in 2016 and 2015, respectively
2,637,939

 
2,524,730

Deferred revenue, less current portion
60,199

 
70,492

Deferred income taxes
29,644

 
26,630

Asset retirement obligations, including consolidated VIEs of $112,979 and $101,532 in 2016 and 2015, respectively
186,701

 
215,146

Other long-term liabilities
38,495

 
31,408

Non-current liabilities related to assets held for sale
41,328

 

Total liabilities
4,971,201

 
5,101,429

 
 
 
 
Redeemable non-controlling interests
182,885

 
175,711

Stockholders' equity:
 
 
 
Preferred stock, $0.01 par value per share, 50,000,000 shares authorized, no shares issued

 

Class A common stock, $0.01 par value per share, 850,000,000 shares authorized, 91,528,701 and 79,734,265 shares issued in 2016 and 2015, respectively, and 91,346,867 and 79,612,533 shares outstanding in 2016 and 2015, respectively
911

 
784

Class B common stock, $0.01 par value per share, 140,000,000 shares authorized, 48,202,310 and 60,364,154 shares issued and outstanding in 2016 and 2015, respectively
482

 
604

Class B1 common stock, $0.01 par value per share, 260,000,000 shares authorized, no shares issued

 

Additional paid-in capital
1,473,244

 
1,267,484

Accumulated deficit
(152,152
)
 
(104,593
)
Accumulated other comprehensive income
10,596

 
22,900

Treasury stock, 181,834 and 121,732 shares in 2016 and 2015, respectively
(3,327
)
 
(2,436
)
Total TerraForm Power, Inc. stockholders' equity
1,329,754

 
1,184,743

Non-controlling interests
1,511,139

 
1,755,526

Total non-controlling interests and stockholders' equity
2,840,893

 
2,940,269

Total liabilities, non-controlling interests and stockholders' equity
$
7,994,979

 
$
8,217,409








See accompanying notes to unaudited condensed consolidated financial statements.
6



TERRAFORM POWER, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT 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
 
 
 
Total Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Total
 
Capital
 
 
 
Total
 
Balance at December 31, 2015
79,734

 
$
784

 
60,364

 
$
604

 
$
1,267,484

 
$
(104,593
)
 
$
22,900

 
(122
)
 
$
(2,436
)
 
$
1,184,743

 
$
1,953,584

 
$
(182,822
)
 
$
(15,236
)
 
$
1,755,526

 
$
2,940,269

SunEdison exchange
12,162

 
122

 
(12,162
)
 
(122
)
 
181,045

 

 

 

 

 
181,045

 
(181,045
)
 

 

 
(181,045
)
 

Stock-based compensation
(367
)
 
5

 

 

 
4,589

 

 

 
(60
)
 
(891
)
 
3,703

 

 

 

 

 
3,703

Net loss1

 

 

 

 

 
(47,559
)
 

 

 

 
(47,559
)
 

 
(74,968
)
 

 
(74,968
)
 
(122,527
)
Net SunEdison investment

 

 

 

 
22,033

 

 

 

 

 
22,033

 
11,982

 

 

 
11,982

 
34,015

Other comprehensive loss

 

 

 

 

 

 
(12,304
)
 

 

 
(12,304
)
 

 

 
(6,819
)
 
(6,819
)
 
(19,123
)
Sale of membership interests in renewable energy facilities

 

 

 

 

 

 

 

 

 

 
15,501

 

 

 
15,501

 
15,501

Distributions to non-controlling interests in renewable energy facilities

 

 

 

 

 

 

 

 

 

 
(10,945
)
 

 

 
(10,945
)
 
(10,945
)
Equity reallocation

 

 

 

 
(1,907
)
 

 

 

 

 
(1,907
)
 
1,907

 

 

 
1,907

 

Balance at September 30, 2016
91,529

 
$
911

 
48,202

 
$
482

 
$
1,473,244

 
$
(152,152
)
 
$
10,596

 
(182
)
 
$
(3,327
)
 
$
1,329,754

 
$
1,790,984

 
$
(257,790
)
 
$
(22,055
)
 
$
1,511,139

 
$
2,840,893

———
(1)
Excludes $16,374 of net income attributable to redeemable non-controlling interests.






















See accompanying notes to unaudited condensed consolidated financial statements.
7




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

 
Nine Months Ended September 30,
2016
 
2015
Cash flows from operating activities:
 
 
 
Net loss
$
(106,153
)
 
$
(52,108
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation, accretion and amortization expense
178,026

 
113,694

Amortization of favorable and unfavorable rate revenue contracts, net
30,128

 
1,599

Amortization of deferred financing costs and debt discounts
19,579

 
25,307

Unrealized loss on U.K. interest rate swaps
35,840

 

Unrealized loss (gain) on commodity contract derivatives, net
5,006

 
(855
)
Unrealized loss on foreign currency exchange, net
6,349

 
11,269

Recognition of deferred revenue
(9,508
)
 
(5,403
)
Stock-based compensation expense
3,857

 
10,030

Loss on extinguishment of debt, net

 
8,652

Loss on receivables - affiliate
845

 

Deferred taxes
3,014

 
2,769

Other, net
2,287

 

Changes in assets and liabilities:
 
 
 
Accounts receivable
(30,502
)
 
(62,152
)
Prepaid expenses and other current assets
(11,827
)
 
6,807

Accounts payable, accrued expenses, and other current liabilities
10,035

 
20,604

Deferred revenue
2,457

 
19,025

Other, net
5,483

 
6,018

Net cash provided by operating activities
144,916

 
105,256

Cash flows from investing activities:
 
 
 
Cash paid to third parties for renewable energy facility construction
(41,698
)
 
(588,033
)
Acquisitions of renewable energy facilities from third parties, net of cash acquired
(4,064
)
 
(1,158,899
)
Change in restricted cash
(57,686
)
 
(23,262
)
Due to SunEdison, net

 
(14,872
)
Other investments

 
(10,000
)
Net cash used in investing activities
$
(103,448
)
 
$
(1,795,066
)















See accompanying notes to unaudited condensed consolidated financial statements.
8




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

 
Nine Months Ended September 30,
2016
 
2015
Cash flows from financing activities:
 
 
 
Proceeds from issuance of Class A common stock
$

 
$
921,610

Proceeds from Senior Notes due 2023

 
945,962

Proceeds from Senior Notes due 2025

 
300,000

Repayment of term loan

 
(573,500
)
Proceeds from Revolver

 
235,000

Repayment of Revolver

 
(235,000
)
Borrowings of non-recourse long-term debt
3,980

 
436,757

Principal payments on non-recourse long-term debt
(122,597
)
 
(149,894
)
Due to SunEdison, net
(29,036
)
 
9,765

Sale of membership interests in renewable energy facilities
15,501

 
82,876

Distributions to non-controlling interests in renewable energy facilities
(19,365
)
 
(21,637
)
Repurchase of non-controlling interest in renewable energy facilities

 
(54,694
)
Distributions to SunEdison

 
(51,777
)
Net SunEdison investment
37,200

 
123,196

Payment of dividends

 
(60,707
)
Debt prepayment premium

 
(6,412
)
Debt financing fees
(12,958
)
 
(43,088
)
Net cash (used in) provided by financing activities
(127,275
)
 
1,858,457

Net (decrease) increase in cash and cash equivalents
(85,807
)
 
168,647

Effect of exchange rate changes on cash and cash equivalents
(641
)
 
(1,380
)
Cash and cash equivalents at beginning of period
626,595

 
468,554

Cash and cash equivalents at end of period
$
540,147

 
$
635,821

 
Supplemental Disclosures:
 
 
 
Cash paid for interest, net of amounts capitalized of $804 and $17,982, respectively
$
183,577

 
$
74,426

Cash paid for income taxes

 

Schedule of non-cash activities:
 
 
 
Additions of asset retirement obligation (ARO) assets and liabilities
$
9,174

 
$
39,976

ARO assets and obligations from acquisitions
136

 
31,361

Long-term debt assumed in connection with acquisitions

 
136,174















See accompanying notes to unaudited condensed consolidated financial statements.
9




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



1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations

TerraForm Power, Inc. ("TerraForm Power") and its subsidiaries (together with TerraForm Power, the "Company") is a controlled affiliate of SunEdison, Inc. (together with its consolidated subsidiaries excluding the Company, "SunEdison"). TerraForm Power is a holding company and its sole asset is an equity interest in TerraForm Power, LLC ("Terra LLC"), an owner and operator of 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. TerraForm Power is the managing member of Terra LLC, and operates, controls and consolidates the business affairs of Terra LLC.

On April 21, 2016, SunEdison Inc. 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"). The Company is not a part of the SunEdison Bankruptcy and has no plans to file for bankruptcy itself. The Company does not rely substantially on SunEdison for funding or liquidity and believes that the Company will have sufficient liquidity to support its ongoing operations. The Company believes its equity interests in its renewable energy facilities that are legally owned by the Company’s subsidiaries are not available to satisfy the claims of the creditors of the SunEdison Bankruptcy. The Company is continuing to evaluate and monitor the conduct of the SunEdison Bankruptcy proceedings.

In most of the Company's debt-financed projects, the SunEdison Debtors are a party to a material project agreement or guarantor thereof, such as being a party or guarantor to an asset management or operation and maintenance ("O&M") contract. As a result of the SunEdison Bankruptcy and delays in delivery of audited financial statements for certain project-level subsidiaries, among other things, the Company has experienced defaults under most of its non-recourse financing agreements; however, these defaults are generally curable. To date none of the non-recourse financings has been accelerated and no project-level lender has notified the Company of such lenders election to enforce project security interests. While the Company has obtained waivers or temporary forbearances with respect to certain of these project-level defaults, no assurances can be given that the Company will obtain waivers and/or permanent forbearance agreements for the remaining projects, or that none of the financings will be accelerated. The Company is continuing to monitor the situation and is developing and implementing plans to obtain operation and maintenance and asset management services for its renewable energy facilities from third parties. The Company's corporate-level Revolver and Indentures do not include an event of default provision directly triggered by the occurrence of the SunEdison Bankruptcy.

Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

As described above, SunEdison filed for bankruptcy on April 21, 2016. We believe that we have observed formalities and operating procedures to maintain our separate existence, that our assets and liabilities can be readily identified as distinct from those of SunEdison and that we do not rely substantially on SunEdison for funding or liquidity and will have sufficient liquidity to support our ongoing operations. Our contingency planning with respect to the SunEdison Bankruptcy has and will include, among other things, establishing stand-alone information technology, accounting and other critical systems and infrastructure, establishing separate human resources systems and employee retention efforts, retaining backup or replacement operation and maintenance and asset management services for our power plants from other providers and the pursuit of strategic alternatives.

However, there is a risk that an interested party in the SunEdison Bankruptcy could request that the assets and liabilities of the Company be substantively consolidated with SunEdison and that the Company and/or its assets and liabilities be included in the SunEdison Bankruptcy. While it has not been requested to date and we believe there is no basis for substantive consolidation in our circumstances, we cannot assure you that substantive consolidation will not be requested in the future or that the bankruptcy court would not consider it. Substantive consolidation is an equitable remedy in bankruptcy that

10



results in the pooling of assets and liabilities of the debtor and one or more of its affiliates solely for purposes of the bankruptcy case, including for purposes of distributions to creditors and voting on and treatment under a reorganization plan. Bankruptcy courts have broad equitable powers, and as a result, outcomes in bankruptcy proceedings are inherently difficult to predict.

To the extent the bankruptcy court were to determine that substantive consolidation was appropriate under the Company's facts and circumstances, then the assets and liabilities of the Company could be made available to help satisfy the debt or contractual obligations of SunEdison.

Additionally, there have been covenant defaults under a number of our financing arrangements, mainly because of delays in the delivery of project-level audited financial statements and the delay in the filing of the Company’s audited annual financial statements for 2015 on Form 10-K, which was filed in December of 2016. In addition, in a number of cases the SunEdison Bankruptcy resulted in defaults because SunEdison Debtors have been serving as operation and maintenance and asset management services providers or as guarantors under relevant contracts. We have been working diligently with our lenders to cure or waive instances of default, including through the completion of project-level audits and the retention of replacement service providers. However, there can be no assurance that all remaining defaults will be cured or waived. If the remaining defaults are not cured or waived, this would restrict the ability of the project-level subsidiaries to make distributions to us, which may affect our ability to meet certain covenants related to our revolving credit facility at the corporate level, or entitle the related lenders to demand repayment or enforce their security interests, which could have a material adverse effect on our business, results of operations, financial condition and ability to pay dividends.

The risk of substantive consolidation of the Company with SunEdison and inclusion in the SunEdison Bankruptcy as well as the existing covenant defaults and risks of future covenant defaults under a number of our financing agreements, raise substantial doubt about the Company's ability to continue as a going concern.
 
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the Securities and Exchange Commission's ("SEC") 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 financial statements 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, 2015. Interim results are not necessarily indicative of results for a full year.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company's unaudited condensed consolidated financial position as of September 30, 2016, the results of operations and comprehensive (loss) income for the three and nine months ended September 30, 2016 and 2015 and cash flows for the nine months ended September 30, 2016 and 2015.     

The Company is required to recast historical financial statements when renewable energy facilities are acquired from SunEdison. The recast reflects the assets and liabilities and the results of operations of the acquired renewable energy facilities for the period the facilities were owned by SunEdison, which is in accordance with applicable rules governing transactions between entities under common control.

Use of Estimates

In preparing the unaudited condensed consolidated financial statements, the Company used estimates and assumptions that affect the reported amounts of 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.

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)

11



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.

In determining the fair value of the assets less cost 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 cost to sell of an asset is less than its current carrying value, the asset is written down to its estimated fair value less cost 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 sales prices require significant judgment because the current market is highly sensitive to changes in economic conditions. The Company estimated 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.

New Accounting Standards

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. ASU No. 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU No. 2014-09 will become effective for the Company on January 1, 2018. Early application is permitted but not before January 1, 2017. ASU No. 2014-09 permits the use of either the retrospective or cumulative effect transition method. The Company is working through an adoption plan which includes the evaluation of revenue contracts compared to the new standard and evaluating the impact of ASU No. 2014-09 on the Company's consolidated financial statements and related disclosures. The Company does not plan to adopt this standard prior to January 1, 2018.

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 on a retrospective basis for the Company for the fiscal year ending December 31, 2016 and interim periods therein. The Company adopted ASU No. 2015-02 as of January 1, 2016, which resulted in certain of its consolidated subsidiaries to be considered variable interest entities. No unconsolidated investments were consolidated and no consolidated subsidiaries were deconsolidated as a result of implementing this standard.

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 carrying amount of that debt liability. In August 2015, the FASB issued ASU No. 2015-15 Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, in which an entity may defer and present debt issuance costs associated with line-of-credit arrangements as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU No. 2015-03 and ASU No. 2015-15 are effective on a retrospective basis for annual and interim periods beginning on or after December 15, 2015. The Company adopted ASU No. 2015-03 and ASU No. 2015-15 as of January 1, 2016, resulting in a reclassification of $37.3 million and $43.1 million from deferred financing costs, net (current and non-current portion) to long-term debt and financing lease obligations, including current portion, as of September 30, 2016 and December 31, 2015, respectively.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which primarily changes the lessee's accounting for operating leases by requiring recognition of lease right-of-use assets and lease liabilities. This standard is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect of ASU No. 2016-02 on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). This update was issued as part of the FASB's simplification initiative and affects all entities that issue share-based payment awards to their employees. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash flows. This update is effective for annual and interim periods beginning after December 15,

12



2016 with early adoption permitted if all provisions are adopted within the same period. The guidance is required to be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in the update. The Company is currently evaluating the effect of the standard on its ongoing financial reporting.

In March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323). The amendments of ASU No. 2016-07 eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting with no retroactive adjustment to the investment. In addition, ASU No. 2016-07 requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The guidance in ASU No. 2016-07 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. The adoption of ASU No. 2016-07 is required to be applied prospectively and early adoption is permitted. The Company does not expect the standard to have a material impact on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The amendments of ASU No. 2016-15 were issued to address eight specific cash flow issues for which stakeholders have indicated to the FASB that a diversity in practice existed in how entities were presenting and classifying these items in the statement of cash flows. The issues addressed by ASU No. 2016-15 include but are not limited to the classification of debt prepayment and debt extinguishment costs, payments made for contingent consideration for a business combination, proceeds from the settlement of insurance proceeds, distributions received from equity method investees and separately identifiable cash flows and the application of the predominance principle. The amendments of ASU No. 2016-15 are effective for public entities for fiscal years beginning after December 15, 2017 and interim periods in those fiscal years. Early adoption is permitted, including adoption in an interim fiscal period with all amendments adopted in the same period. The adoption of ASU No. 2016-15 is required to be applied retrospectively. The Company is currently evaluating the impact of the standard on its consolidated statements of cash flows.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory. The amendments of ASU No. 2016-16 were issued to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party which has resulted in diversity in practice and increased complexity within financial reporting. The amendments of ASU No. 2016-16 would require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs and do not require new disclosure requirements. The amendments of ASU No. 2016-16 are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted and the adoption of ASU No. 2016-16 should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company does not expect this standard to have an impact on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810), Interests Held through Related Parties That Are under Common Control. ASU 2016-17 updates ASU 2015-02. Under the amendments, a single decision maker is not required to consider indirect interests held through related parties that are under common control with the single decision maker to be the equivalent of direct interests in their entirety. Instead, a single decision maker is required to include those interests on a proportionate basis consistent with indirect interests held through other related parties. ASU 2016-17 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the effect of the standard on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 320), Restricted Cash, a Consensus of the FASB Emerging Issues Task Force. The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update do not provide a definition of restricted cash or restricted cash equivalents. ASU

13



2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company is currently evaluating the effect of this standard on its consolidated financial statements.

In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements. The amendments cover a wide range of topics in the Accounting Standards Codification, covering differences between original guidance and the Accounting Standards Codification, guidance clarification and reference corrections, simplification and minor improvements. The adoption of ASU 2016-19 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. The Company is currently evaluating the effect of this standard on its consolidated financial statements.

In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this update are of a similar nature to the items typically addressed in ASU 2016-19, Technical Corrections and Improvements. However, the FASB decided to issue a separate update for technical corrections and improvements to Topic 606 and other Topics amended by ASU 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to ASU 2014-09. The adoption of ASU 2016-20 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual periods. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the effect of this standard on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The amendment seeks to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The adoption of ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments should be applied prospectively on or after the effective dates. Accordingly, the adoption will not have an effect on the Company's historical financial statements. The Company is currently evaluating the effect of this standard on future consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The amendment simplifies the accounting for goodwill impairment by removing Step 2 of the current test, which requires calculation of a hypothetical purchase price allocation. Under the revised guidance, goodwill impairment will be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill (currently Step 1 of the two step impairment test). Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. This updated guidance is not currently expected to impact the Company's financial reporting. The standard is effective January 1, 2020, with early adoption permitted, and must be adopted on a prospective basis.


14




2. TRANSACTIONS BETWEEN ENTITIES UNDER COMMON CONTROL

Recast of Historical Financial Statements

During the nine months ended September 30, 2016, the Company acquired renewable energy facilities with a combined nameplate capacity of 19.2 MW from SunEdison, which resulted in a recast of the consolidated balance sheet as of December 31, 2015 and the unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2015. The facilities acquired from SunEdison during the nine months ended September 30, 2016 were not in operation in 2015 and there was no impact to the unaudited condensed consolidated statement of operations or unaudited condensed consolidated statement of comprehensive loss for the nine months ended September 30, 2015 as a result of these acquisitions.

The following table presents changes to the Company's previously reported consolidated balance sheet as of December 31, 2015 included in the Company's 2015 Annual Report on Form 10-K:
(In thousands)
Balance Sheet Caption
 
As Reported
 
Recast Adjustments
 
As Recasted
Renewable energy facilities, net
 
$
5,802,380

 
$
31,854

 
$
5,834,234

Other assets
 
119,960

 
383

 
120,343

Change in total assets
 
 
 
$
32,237

 

 
 
 
 
 
 
 
Current portion of long-term debt and financing lease obligations1
 
$
2,014,331

 
$
23,588

 
$
2,037,919

Accounts payable, accrued expenses and other current liabilities
 
150,721

 
2,325

 
153,046

Due to SunEdison, net
 
20,274

 
6,324

 
26,598

Change in total liabilities
 

 
$
32,237

 

———
(1)
There is a $17.6 million difference between the as reported amount per the table above and the current portion of long-term debt and financing lease obligations amount reported in the Company's 2015 Annual Report on Form 10-K due to the reclassification of the current portion of deferred financing costs, net amount reported in the Form 10-K to current portion of long-term debt and financing lease obligations within the balance sheet included in this Form 10-Q. This reclassification was made per the Company's adoption of ASU No. 2015-03 as of January 1, 2016, which requires retrospective application for annual and interim reporting periods beginning on or after December 15, 2015. Refer to Note 1. Nature of Operations and Basis of Presentation for further discussion.


15



The following table presents changes to the Company's previously reported unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2015 included in the Company's Quarterly Report on Form 10-Q dated November 9, 2015 due to the Company's acquisition of renewable energy facilities from SunEdison during the nine months ended September 30, 2016 and during the fourth quarter of 2015. These adjustments are required to reflect the activity of the renewable energy facilities for the period owned by SunEdison in accordance with rules applicable to transactions between entities under common control.
(In thousands)
Statement of Cash Flows Caption
 
As Reported
 
Recast Adjustments
 
As Recasted
Cash flows from investing activities:
 
 
 
 
 
 
Cash paid to third parties for renewable energy facility construction
 
$
(426,682
)
 
$
(161,351
)
 
$
(588,033
)
Acquisitions of renewable energy facilities from third parties, net of cash acquired
 
(1,004,403
)
 
(154,496
)
 
(1,158,899
)
Change in net cash used in investing activities
 
 
 
(315,847
)
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
Borrowings of non-recourse long-term debt
 
276,915

 
159,842

 
436,757

Principal payments on non-recourse long-term debt
 
(148,764
)
 
(1,130
)
 
(149,894
)
Due to SunEdison, net
 
(147,370
)
 
157,135

 
9,765

Change in net cash provided by financing activities
 
 
 
315,847

 
 
 
 
 
 
 
 
 
Net increase in cash and cash equivalents
 
168,647

 

 
168,647

Effect of exchange rate changes on cash and cash equivalents
 
(1,380
)
 

 
(1,380
)
Cash and cash equivalents at beginning of period
 
468,554

 

 
468,554

Cash and cash equivalents at end of period
 
$
635,821

 
$

 
$
635,821


As a result of the Company's acquisition of renewable energy facilities from SunEdison during the fourth quarter of 2015, the following table presents changes to the Company's previously reported unaudited condensed consolidated statement of comprehensive income (loss) for the three and nine months ended September 30, 2015 included in the Company's Quarterly Report on Form 10-Q dated November 9, 2015. These adjustments are required to reflect the activity of the renewable energy facilities for the period owned by SunEdison in accordance with rules applicable to transactions between entities under common control.
 
 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
(In thousands)
Statement of Comprehensive Income (Loss)
 
As Reported
 
Recast Adjustments
 
As Recasted
 
As Reported
 
Recast Adjustments
 
As Recasted
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 


Hedging activities:
 
 
 
 
 
 
 
 
 
 
 


Net unrealized gain (loss) arising during the period, net of tax
 
$
(1,135
)
 
$
32,985

 
$
31,850

 
$
(2,955
)
 
$
40,488

 
$
37,533

Change in total comprehensive (loss) income
 
 
 
32,985

 
 
 
 
 
40,488

 
 
Less: Pre-acquisition other comprehensive income of renewable energy facilities acquired from SunEdison
 
$

 
32,985

 
$
32,985

 
$

 
40,488

 
$
40,488

Change in comprehensive loss attributable to Class A Common stockholders
 
 
 
$

 
 
 
 
 
$

 
 

Acquisitions of Renewable Energy Facilities from SunEdison

The assets and liabilities transferred to the Company for the acquisitions of renewable energy facilities relate to interests under common control with SunEdison, and accordingly, have been recorded at historical cost. The difference between the cash purchase price and historical cost of the net assets acquired has been recorded as a contribution from SunEdison.

16




The following table summarizes the renewable energy facilities acquired by the Company from SunEdison through a series of transactions:
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
As of September 30, 2016
Facility Category
 
Type
 
Location
 
Nameplate Capacity (MW)
 
Number of Sites
 
Cash Paid1
 
Cash Due to SunEdison2
 
Debt Transferred3
Distributed Generation
 
Solar
 
U.S.
 
1.2

 
3

 
$
2,750

 
$

 
$

Utility
 
Solar
 
U.S.
 
18.0

 
1

 
36,231

 

 

Total
 
 
 
 
 
19.2

 
4

 
$
38,981

 
$

 
$

————
(1)
Represents the total amount paid to SunEdison. Excludes aggregated tax equity partner payments of $1.6 million to SunEdison.
(2)
All amounts have been paid to SunEdison for these renewable energy facilities as of September 30, 2016.
(3)
$16.7 million of construction debt existed for one of the renewable energy facilities as of the acquisition date. This debt was fully repaid by SunEdison during the third quarter of 2016 using cash proceeds paid by the Company to SunEdison for the acquisition of the facility.

During the nine months ended September 30, 2016, the Company paid $55.9 million to SunEdison for the acquisition of renewable energy facilities that had achieved final funding as of September 30, 2016, which includes the second installment of the purchase price paid to SunEdison for the completion of the construction of renewable energy facilities that the Company acquired from SunEdison during 2015. The difference between the cash paid and historical cost of the net assets acquired from SunEdison of $21.3 million has been recorded as a contribution from SunEdison, which is reflected within Net SunEdison investment on the unaudited condensed consolidated statement of stockholders' equity. The Company records a contribution or distribution from SunEdison upon final funding of the acquisition.

17




3. ASSETS HELD FOR SALE

The Company commenced a sale of substantially all of its portfolio of solar power plants located in the United Kingdom (the "U.K.") through a broad based sales process pursuant to a plan approved by management (24 operating projects for sale representing 365.0 MW, the "U.K. Portfolio"), and it was probable that the sale of this portfolio would occur within one year from the balance sheet date. As a result, the Company classified $635.6 million of assets and $467.7 million of liabilities as held for sale as of September 30, 2016 and measured each at the lower of carrying value or fair value less costs to sell. The Company's analysis indicated that the fair value less costs to sell exceeded the carrying value of the assets and no impairment losses were recognized during the nine months ended September 30, 2016.

The following table summarizes the major classes of assets and liabilities which are classified as held for sale on the Company's unaudited condensed consolidated balance sheet as of September 30, 2016:
(In thousands)
 
September 30, 2016
Assets held for sale:
 
 
Restricted cash
 
$
54,731

Accounts receivable, net
 
14,060

Prepaid expenses and other current assets
 
2,114

Total current assets held for sale
 
70,905

 
 
 
Renewable energy facilities, net
 
562,755

Intangible assets, net
 
1,566

Other assets
 
381

Total non-current assets held for sale
 
564,702

 
 
 
Total assets held for sale
 
$
635,607

 
 
 
Liabilities related to assets held for sale:
 
 
Current portion of long-term debt
 
$
385,047

Accounts payable, accrued expenses and other current liabilities
 
40,598

Due to SunEdison, net
 
744

Total current liabilities related to assets held for sale
 
426,389

 
 
 
Asset retirement obligations
 
41,328

Total non-current liabilities related to assets held for sale
 
41,328

 
 
 
Total liabilities related to assets held for sale
 
$
467,717


Entry into sale and purchase agreement for the U.K. Portfolio
On January 5, 2017, TerraForm Power Operating, LLC (“Terra Operating LLC”), SunEdison Yieldco UK Holdco 2, LLC (the “Seller”), a wholly owned subsidiary of Terra Operating LLC, and Vortex Solar UK Limited (“Vortex”), a company registered in England and Wales, entered into a sale and purchase agreement (the “SPA”) to sell the U.K. Portfolio to Vortex (the “U.K. Transaction”). Terra Operating LLC expects to receive approximately $208 million of proceeds (USD equivalent on the date of the SPA) from the U.K. Transaction (comprising consideration payable and debt being repaid on behalf of the U.K. Portfolio to Terra Operating LLC), net of transaction expenses and distributions, and subject to certain adjustments. In addition, the U.K. Transaction would remove GBP 301.3 million (equivalent of approximately $370 million on the date of the SPA) in non-recourse project debt at the U.K. Portfolio level (the “Existing Debt”) from the Company's consolidated balance sheet. The closing of the U.K. Transaction is subject to certain conditions, including: (i) satisfaction of certain customary conditions precedent, including the satisfaction of certain obligations of the U.K. Portfolio under the Existing Debt, receipt of antitrust approval and the performance of the respective obligations of each of the parties to the SPA; and (ii) the satisfaction of certain conditions precedent relating to the SunEdison Bankruptcy and the outcome of the previously announced settlement discussions between TerraForm Power and SunEdison. Vortex’s payment obligations following satisfaction of these conditions

18



are supported by parent equity commitment letters, as well as an obligation to fund an escrow at a credit-worthy U.K.-based bank.
Either party may terminate the SPA if the U.K. Transaction has not closed by July 31, 2017. In addition, in the event that by April 15, 2017, either (i) TerraForm Power has not entered into a definitive transaction meeting certain criteria in connection with the previously announced strategic alternatives process or (ii) certain conditions precedent relating to the SunEdison Bankruptcy and the outcome of the previously announced settlement discussions between TerraForm Power and SunEdison have not been satisfied, and Vortex has not waived the outstanding conditions precedent, either the Seller or Vortex may terminate the SPA by notice to the other.
In connection with the U.K. Transaction, pursuant to the SPA the Seller has given certain warranties to Vortex relating to the condition of the U.K. Portfolio, which are subject to customary limitations. The Seller’s obligations under the SPA are guaranteed by Terra Operating LLC; however those obligations are subject to market standard limitations on liability and de minimis thresholds. In connection with the U.K. Transaction, Terra Operating LLC has entered into an agreement to indemnify Vortex for certain liabilities and expenses arising out of the SunEdison Bankruptcy. Terra Operating LLC and the Seller also expect to provide a market standard tax indemnity to Vortex at the closing of the U.K. Transaction. The U.K. Transaction is expected to close in the first half of 2017.

Residential Portfolio Sale

During the third quarter of 2016, the Company began exploring a sale of substantially all of its portfolio of residential rooftop solar assets located in the United States through a strategic sales process. These assets did not meet the criteria to be classified as held for sale as of September 30, 2016 but were determined to meet the criteria during the fourth quarter of 2016. In the third quarter of 2016, in conjunction with the exploration of a sale, the Company recorded a $3.3 million charge within cost of operations as a result of the decision to abandon certain residential construction in progress assets it did not expect to complete. As of September 30, 2016, the assets and liabilities, including non-controlling interests, related to this portfolio were approximately $35 million and $12 million, respectively. The Company's preliminary analysis as of the held for sale date indicated that the carrying value of the assets exceeded the fair value less costs to sell by approximately $13 million. The Company cannot give any assurance as to when or if it will complete any such sale or to the price it will receive for such assets.

4. ACQUISITIONS

2015 Acquisitions

Acquisition of Invenergy Wind Power Plants

On December 15, 2015, the Company acquired operating wind power plants with a combined nameplate capacity of 831.5 MW (net) from Invenergy Wind Global LLC (together with its subsidiaries, “Invenergy Wind”) for $1.3 billion in cash and the assumption of $531.2 million of non-recourse indebtedness. The wind power plants that the Company acquired from Invenergy Wind have contracted PPAs with an average counterparty credit rating of AA as of the acquisition date. Invenergy Wind will retain a 9.9% non-controlling interest in wind power plants located in the U.S. that the Company acquired and will provide certain operation and maintenance services for such assets.

Acquisition Accounting for Invenergy Wind

The acquisition accounting for the Invenergy Wind acquisition was completed as of the second quarter of 2016, at which point the provisional fair values became final. The final amounts for this acquisition are included in the table within the "Acquisition Accounting" section of this footnote below.

The final fair value of assets and liabilities pertaining to the Invenergy Wind acquisition reflects the following changes from the initial opening balance sheet; a decrease of $8.9 million in renewable energy facilities, an increase of $8.1 million in other assets and a decrease of $0.8 million in redeemable non-controlling interest.

The operating revenues and net loss of Invenergy Wind acquired in 2015 reflected in the unaudited condensed consolidated statement of operations for the three months ended September 30, 2016 are $17.8 million and $12.7 million, respectively. The operating revenues and net income of Invenergy Wind for the nine months ended September 30, 2016 are $90.3 million and $1.0 million, respectively.


19



Valuation of Non-controlling Interest

Invenergy Wind

The fair value of the non-controlling interest for Invenergy Wind was determined using a discounted cash flow approach. The redeemable non-controlling interest represents the fair value of 9.9% sponsor equity held by Invenergy Wind. SunEdison LLC, a wholly owned subsidiary of SunEdison, acting as intermediary, entered into certain option arrangements with Invenergy Wind for its remaining 9.9% interest in the wind power plants located in the U.S. (the ‘‘Invenergy Wind Interest’’). Simultaneously, Terra LLC entered into a back to back option agreement with SunEdison LLC on substantially identical terms (collectively the "Option Agreements"). The Option Agreements effectively permit (i) Terra LLC to exercise a call option to purchase the Invenergy Wind Interest over a 180-day period beginning on September 30, 2019, and (ii) Invenergy Wind to exercise a put option with respect to the Invenergy Wind Interest over a 180-day period beginning on September 30, 2018. The exercise prices of the put and call options described above would be based on the determination of the fair market value of the Invenergy Wind Interest at the time the relevant option is exercised, subject to certain minimum and maximum thresholds set forth in the Option Agreements. SunEdison LLC is a debtor in the SunEdison Bankruptcy. As such, SunEdison LLC may assume, assume and assign or reject its Option Agreement. If SunEdison LLC rejects its Option Agreement with Invenergy, the Company would not expect to be obligated to perform on its Option Agreement with SunEdison LLC, although the Company cannot assure that result.

Acquisition Accounting

The acquisition-date fair values of assets, liabilities and non-controlling interests pertaining to the Invenergy Wind business combination as of September 30, 2016, are as follows:
(In thousands)
 
Invenergy Wind
Renewable energy facilities
 
$
1,477,888

Accounts receivable
 
25,811

Intangible assets
 
748,300

Restricted cash
 
31,247

Derivative assets
 
32,311

Other assets
 
20,148

Total assets acquired
 
2,335,705

Accounts payable, accrued expenses and other current liabilities
 
23,195

Long-term debt, including current portion
 
531,221

Deferred income taxes
 
242

Asset retirement obligations
 
47,346

Other long-term liabilities
 
6,004

Total liabilities assumed
 
608,008

Redeemable non-controlling interest
 
140,635

Non-controlling interest
 
308,000

Purchase price, net of cash acquired
 
$
1,279,062


The acquired renewable energy facilities' non-financial assets represent estimates of the fair value of acquired PPA and REC contracts based on significant inputs that are not observable in the market and thus represent a Level 3 measurement (as defined in Note 11. Fair Value of Financial Instruments). The estimated fair values were determined based on an income approach and the estimated useful lives of the intangible assets range from 5 to 23 years as of the acquisition date. See Note 6. Intangibles for additional disclosures related to the acquired intangible assets.


20



Unaudited Pro Forma Supplementary Data

The unaudited pro forma supplementary data presented in the table below gives effect to the material 2015 acquisitions, Invenergy Wind, First Wind and Northern Lights, as if those transactions had each occurred on January 1, 2015. 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 period.
 
Nine Months Ended September 30,
(In thousands)
2015
Total operating revenues, net
$
469,619

Net loss
(22,761
)

Acquisition costs incurred by the Company related to third party acquisitions were $2.7 million for the nine months ended September 30, 2016 and $11.3 million and $32.7 million for the three and nine months ended September 30, 2015, respectively. There were no acquisition costs incurred by the Company for the three months ended September 30, 2016. These costs are reflected as acquisition and related costs and acquisition and related costs - affiliate in the unaudited condensed consolidated statements of operations.

5. RENEWABLE ENERGY FACILITIES

Renewable energy facilities, net consists of the following: 
(In thousands)
 
September 30,
2016
 
December 31, 2015
Renewable energy facilities in service, at cost
 
$
5,405,482

 
$
5,906,154

Less accumulated depreciation - renewable energy facilities
 
(306,004
)
 
(187,874
)
Renewable energy facilities in service, net
 
5,099,478

 
5,718,280

Construction in progress - renewable energy facilities
 
4,079

 
115,954

Total renewable energy facilities, net
 
$
5,103,557

 
$
5,834,234


Depreciation expense related to renewable energy facilities was $48.1 million and $148.5 million for the three and nine months ended September 30, 2016, respectively, as compared to $35.7 million and $93.5 million for the same periods in the prior year.

Construction in progress represents costs incurred to complete the construction of the facilities in the Company's portfolio that were acquired from SunEdison. When renewable energy facilities are 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 (see Note 2. Transactions Between Entities Under Common Control). All construction in progress costs are stated at SunEdison's historical cost. These costs include capitalized interest costs incurred during the asset's construction period, which totaled $0.8 million for the nine months ended September 30, 2016 and $6.6 million and $18.0 million for the three and nine months ended September 30, 2015, respectively. There were no capitalized interest costs for the three months ended September 30, 2016.

As of September 30, 2016, the Company reclassified $562.8 million from renewable energy facilities, net to non-current assets held for sale in the unaudited condensed consolidated balance sheet (see Note 3. Assets Held for Sale). There was no amount classified as assets held for sale as of December 31, 2015.

6. INTANGIBLES

The following table presents the gross carrying amount and accumulated amortization of intangibles as of September 30, 2016:
(In thousands, except weighted average amortization period)
 
Weighted Average Amortization Period
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Book Value
Favorable rate revenue contracts
 
16 years
 
$
719,368

 
$
(46,331
)
 
$
673,037

In-place value of market rate revenue contracts
 
19 years
 
555,355

 
(43,045
)
 
512,310

Favorable rate land leases
 
18 years
 
15,800

 
(1,331
)
 
14,469

Total intangible assets, net
 
 
 
$
1,290,523

 
$
(90,707
)
 
$
1,199,816

 
 
 
 
 
 
 
 
 
Unfavorable rate revenue contracts
 
7 years
 
$
35,086

 
$
(9,168
)
 
$
25,918

Unfavorable rate land lease
 
16 years
 
1,000

 
(93
)
 
907

Total intangible liabilities, net
 
 
 
$
36,086

 
$
(9,261
)
 
$
26,825


The following table presents the gross carrying amount and accumulated amortization of intangibles as of December 31, 2015:
(In thousands, except weighted average amortization period)
 
Weighted Average Amortization Period
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Book Value
Favorable rate revenue contracts
 
17 years
 
$
714,137

 
$
(12,024
)
 
$
702,113

In-place value of market rate revenue contracts
 
20 years
 
551,226

 
(22,229
)
 
528,997

Favorable rate land leases
 
19 years
 
15,800

 
(746
)
 
15,054

Total intangible assets, net
 
 
 
$
1,281,163

 
$
(34,999
)
 
$
1,246,164

 
 
 
 
 
 
 
 
 
Unfavorable rate revenue contracts
 
8 years
 
$
35,086

 
$
(4,951
)
 
$
30,135

Unfavorable rate land lease
 
17 years
 
1,000

 
(51
)
 
949

Total intangible liabilities, net
 
 
 
$
36,086

 
$
(5,002
)
 
$
31,084

    
The Company has intangible assets related to revenue contracts, representing long-term PPAs and REC agreements, and favorable rate land leases that were obtained through acquisitions. The revenue contract intangible assets are comprised of favorable rate PPAs and REC agreements and the in-place value of market rate PPAs. The Company also has intangible liabilities related to unfavorable rate PPAs and REC agreements and an unfavorable rate land lease, which are classified within other long-term liabilities in the unaudited condensed consolidated balance sheet. These intangible assets and liabilities are amortized on a straight-line basis over the remaining lives of the agreements, which range from 1 to 28 years as of September 30, 2016.

Amortization expense related to favorable rate revenue contracts is reflected in the unaudited condensed consolidated statements of operations as a reduction of operating revenues, net. Amortization related to unfavorable rate revenue contracts is reflected in the unaudited condensed consolidated statements of operations as an increase to operating revenues, net. During the three and nine months ended September 30, 2016, net amortization expense related to favorable and unfavorable rate revenue contracts resulted in a reduction of operating revenues, net of $9.8 million and $30.1 million, respectively, as compared to a $3.4 million increase to operating revenues, net and $1.6 million reduction of operating revenues, net for the same periods in the prior year.

Amortization expense related to the in-place value of market rate revenue contracts is reflected in the unaudited condensed consolidated statements of operations within depreciation, accretion and amortization expense. During the three and nine months ended September 30, 2016, amortization expense related to the in-place value of market rate revenue contracts was

21



$7.0 million and $20.8 million, respectively, as compared to $6.0 million and $15.1 million for the same periods in the prior year.

Amortization expense related to favorable rate land leases is reflected in the unaudited condensed consolidated statements of operations within cost of operations. Amortization related to the unfavorable rate land lease is reflected in the unaudited condensed consolidated statements of operations as a reduction of cost of operations. During the three and nine months ended September 30, 2016, net amortization expense related to favorable and unfavorable rate land leases was $0.2 million and $0.6 million, respectively. There was no amortization expense related to favorable and unfavorable rate land leases recorded within cost of operations during the three and nine months ended September 30, 2015.

7. VARIABLE INTEREST ENTITIES

The Company consolidates variable interest entities ("VIEs") in renewable energy facilities when the Company is the primary beneficiary. 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 nine months ended September 30, 2016 and 2015.

The carrying amounts and classification of the consolidated VIEs’ assets and liabilities included in the Company's unaudited condensed consolidated balance sheets are as follows:
(In thousands)
 
September 30,
2016
 
December 31, 2015
Current assets
 
$
216,911

 
$
180,287

Non-current assets
 
4,493,532

 
4,584,886

Total assets
 
$
4,710,443

 
$
4,765,173

Current liabilities
 
$
509,084

 
$
1,043,892

Non-current liabilities
 
703,299

 
202,629

Total liabilities
 
$
1,212,383

 
$
1,246,521


The amounts shown in the table above exclude intercompany balances which are eliminated upon consolidation. 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.


22



8. LONG-TERM DEBT
    
Long-term debt consists of the following: 
(In thousands, except rates)
Description:
 
September 30,
2016
 
December 31, 2015
 
Interest Type
 
Interest Rate (%)1
 
Financing Type
Corporate-level long-term debt2:
 
 
 
 
 
 
 
 
 
 
Senior Notes due 2023
 
$
950,000

 
$
950,000

 
Fixed
 
6.383
 
Senior notes
Senior Notes due 2025
 
300,000

 
300,000

 
Fixed
 
6.633
 
Senior notes
Revolver
 
655,000

 
655,000

 
Variable
 
3.944
 
Revolving loan
Non-recourse long-term debt5:
 
 
 
 
 
 
 
 
 
 
Permanent financing
 
2,034,882

 
2,546,864

 
Blended6
 
6.057
 
Term debt / Senior notes
Construction financing
 

 
38,063

 
Variable
 
N/A
 
Construction debt
Financing lease obligations
 
124,866

 
136,594

 
Imputed
 
5.647
 
Financing lease obligations
Total principal due for long-term debt and financing lease obligations
 
4,064,748

 
4,626,521

 
 
 
5.817
 
 
Unamortized discount, net
 
(15,148
)
 
(20,821
)
 
 
 
 
 
 
Deferred financing costs, net8
 
(37,334
)
 
(43,051
)
 
 
 
 
 
 
Less current portion of long-term debt and financing lease obligations
 
(1,374,327
)
 
(2,037,919
)
 
 
 
 
 
 
Long-term debt and financing lease obligations, less current portion
 
$
2,637,939

 
$
2,524,730

 
 
 
 
 
 
———
(1)
As of September 30, 2016.
(2)
Corporate-level debt represents debt issued by Terra Operating LLC and guaranteed by Terra LLC and certain subsidiaries of Terra Operating LLC other than non-recourse subsidiaries as defined in the relevant debt agreements.
(3)
The interest rate for the Senior Notes due 2023 and the Senior Notes due 2025 reflected in this table excludes, in each case, 3.0% per annum special interest that accrued from September 6, 2016 to and including December 6, 2016 per the terms of the Senior Notes due 2023 fourth supplemental indenture and Senior Notes due 2025 third supplemental indenture as discussed below.
(4)
The interest rate for the Revolver reflected in this table excludes 1.5% per annum special interest that accrued from September 6, 2016 to and including December 6, 2016 per the terms of the eighth amendment to the Revolver as discussed below.
(5)
Non-recourse debt represents debt issued by subsidiaries with no recourse to Terra LLC, Terra Operating LLC, or guarantors of the Company's corporate-level debt, other than limited or capped contingent support obligations, which in aggregate are not considered to be material to the Company's business and financial condition.
(6)
Includes variable rate debt and fixed rate debt. As of September 30, 2016, 59% of this balance had a variable interest rate and the remaining 41% of this balance had a fixed interest rate. The Company has entered into interest rate swap agreements to fix the interest rates of certain variable rate permanent financing non-recourse debt (see Note 10. Derivatives).
(7)
Represents the weighted average interest rate as of September 30, 2016.
(8)
Total net long-term debt and financing lease obligations, including current portion, reflects the reclassification of deferred financing costs to reduce long-term debt as further described in Note 1. Nature of Operations and Basis of Presentation.

Corporate-level Long-term Debt

Senior Notes due 2023 and Senior Notes due 2025

The Senior Notes due 2023 and the Senior Notes due 2025 require the Company to timely file with the SEC, or make publicly available, audited annual financial statements and unaudited quarterly financial statements no later than 60 days following the date required by the SEC's rules and regulations (including extensions thereof). The Company has a 90 day grace period from the date a notice of default is deemed to be duly given to Terra Operating LLC in accordance with the Senior Notes due 2023 and the Senior Notes due 2025. On May 31, 2016, Terra Operating LLC received a notice from the trustee of an event of default for failure to deliver 2015 audited annual financial statements.

On August 30, 2016, the Company announced the successful completion of a consent solicitation from holders of record on August 16, 2016 of its Senior Notes due 2023 and its Senior Notes due 2025 to obtain waivers relating to certain reporting covenants and to effectuate certain amendments under the indenture dated as of January 28, 2015 (as supplemented) with respect to the Senior Notes due 2023 (the "2023 Indenture") and the indenture dated as of July 17, 2015 (as supplemented)

23



with respect to the Senior Notes due 2025 (the "2025 Indenture"). Terra Operating LLC received validly delivered and unrevoked consents from the holders of a majority of the aggregate principal amount of each series of the notes outstanding as of the record date and paid a consent fee to each consenting holder of $5.00 for each $1,000 principal amount of such series of the notes for which such holder delivered its consent. Under the terms of the waivers obtained, the deadline to comply with the reporting covenants in the indentures relating to the filing of the Company's Form 10-K for 2015 and Form 10-Q for the first quarter of 2016 was extended to December 6, 2016. The Company filed the Form 10-K for 2015 and Form 10-Q for the first quarter of 2016 by the December 6, 2016 deadline. Although the Company's Form 10-Q for the second quarter of 2016 was not filed by December 6, 2016, it was filed with the SEC within the grace period for delivery, and consequently no event of default occurred with respect to the second quarter filing.

Following receipt of the requisite consents required to approve the amendments to the respective indentures, Terra Operating LLC entered into a fourth supplemental indenture to the 2023 Indenture and a third supplemental indenture to the 2025 Indenture on August 29, 2016. Effective as of September 6, 2016, the fourth and third supplemental indentures respectively permanently increased the interest rate payable on the Senior Notes due 2023 from 5.875% per annum to 6.375% per annum and the interest rate payable on the Senior Notes due 2025 from 6.125% per annum to 6.625% per annum. In addition, beginning on September 6, 2016 through and including December 6, 2016, special interest accrued on the Senior Notes due 2023 and the Senior Notes due 2025 at a rate equal to 3.0% per annum, which shall be payable in the same manner as regular interest payments on the first interest payment date following December 6, 2016. The fourth and third supplemental indentures also require the Company, upon the consummation of any transaction resulting in any person becoming the beneficial owner of 33.3% or more but less than or equal to 50% of the voting stock of the Company, to make an offer to each holder of the Senior Notes due 2023 and the Senior Notes due 2025, respectively, to repurchase all or any part of that holder's notes at a purchase price in cash equal to 101% of the aggregate principal amount of such notes repurchased. In lieu of making such an offer under either the 2023 Indenture or the 2025 Indenture, the applicable supplemental indenture also provides that Terra Operating LLC may elect to deliver a notice to the trustee under the 2023 Indenture or the 2025 Indenture, as applicable, to permanently increase the interest rate on the Senior Notes due 2023 from 6.375% per annum to 7.375% per annum or the interest rate on the Senior Notes due 2025 from 6.625% per annum to 7.625% per annum, respectively.

On January 17, 2017, Terra Operating LLC received a notice of default from the trustee under the 2023 Indenture and the 2025 Indenture for failure to comply with its obligation to timely furnish this Form 10-Q for the third quarter of 2016. However, this Form 10-Q for the third quarter of 2016 was filed with the SEC within the grace period for delivery, and consequently no event of default occurred with respect to the third quarter filing.

Revolving Credit Facility

The terms of the Revolver require the Company to provide audited annual financial statements within 90 days after the end of the fiscal year, with a 10-business day cure period. From March 30, 2016 to May 27, 2016, Terra Operating LLC entered into a series of amendments (fourth, fifth, sixth and seventh) to the terms of the Revolver, which provided that the date on which the Company must deliver to the Administrative Agent and other parties to the Revolver its annual financial statements and accompanying audit report with respect to fiscal year 2015 would be extended up to the earlier of (a) the tenth business day prior to the date on which the failure to deliver such financial statements would constitute an event of default under Terra Operating LLC’s 2023 Indenture and (b) March 30, 2017. As described above, Terra Operating LLC obtained a waiver that extended the deadline to comply with the reporting covenants in the 2023 Indenture to December 6, 2016.

The sixth amendment provided that the interest rate on loans made under the Revolver and commitment fees paid on undrawn Revolver commitments would be calculated using the highest applicable margin and commitment fee percentage under the Revolver until the first business day of the first quarter following the delivery of 2015 financial statements and the accompanying audit report. Consistent with its obligations under the seventh amendment, Terra Operating LLC entered into an eighth amendment to the terms of the Revolver on September 9, 2016, which increased the interest rate under the Revolver at all applicable margin levels by 50% of the increase in the interest rate on the Senior Notes due 2023 agreed to as part of the consent solicitation process described above. This amendment resulted in an increase in the interest rate payable under the Revolver prior to the eighth amendment by 1.75% for the period from September 6, 2016 to December 6, 2016 and, thereafter, an increase from the interest rate payable prior to the eighth amendment by 0.25%.

On September 27, 2016, Terra Operating LLC entered into a consent agreement and ninth amendment to the terms of the Revolver. The consent agreement provided consent for the cross-collateralization of certain utility scale assets located in Canada owned by subsidiaries of the Company as further described in the "Canada project-level financing" section below. In addition, in conjunction with this consent, the agreement provided that Terra Operating LLC would prepay $70.0 million of

24



revolving loans outstanding under the Revolver and permanently reduce the revolving commitments and borrowing capacity by such amount. This amount was repaid by Terra Operating LLC on November 10, 2016, which permanently reduced the borrowing capacity under the Revolver by such amount.

On November 25, 2016, Terra Operating LLC entered into a waiver agreement with the requisite lenders under the Revolver. The waiver agreement waived Terra Operating LLC’s obligation to comply with the debt service coverage ratio and leverage ratio financial covenants of the Revolver with respect to the third quarter of 2016 and the requirement to certify compliance with those covenants. In connection with this waiver, Terra Operating LLC made a prepayment of the revolving loans outstanding under the Revolver in an aggregate amount equal to $30.0 million and permanently reduced the revolving commitments and borrowing capacity under the Revolver by that amount. The waiver also extended to January 1, 2017, the deadline for delivery of certain financial information with respect to the third quarter of 2016. Failure to deliver certain summary financial information with respect to the third quarter of 2016 by December 21, 2016 would also have resulted in an event of default under the Revolver. The Company provided the required financial information deliverables by the respective deadlines.

Non-recourse Long-term Debt

Indirect subsidiaries of Terra Operating LLC have incurred long-term debt obligations with respect to the renewable energy facilities that those subsidiaries own directly or indirectly. This indebtedness of these subsidiaries is typically secured by the renewable energy facility's assets (mainly the renewable energy facility) or equity interests in such renewable energy facilities with no recourse to Terra LLC or Terra Operating LLC other than limited or capped contingent support obligations, which in aggregate are not considered to be 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 the Company, Terra LLC and Terra Operating LLC and the guarantors under the Revolver, the Senior Notes due 2023 and Senior Notes due 2025.

Non-recourse Debt Defaults

SunEdison is a party to or guarantor of a material project agreement, such as asset management or O&M contracts, for most of the Company's non-recourse financing arrangements. As a result of the SunEdison Bankruptcy and delays in delivery of 2015 audited financial statements for certain project-level subsidiaries, among other things, the Company experienced defaults under most of its non-recourse financing agreements in 2016. For certain of these defaults, the corresponding contractual grace periods already expired as of the financial statement issuance date or the Company could not assert that it was probable that the violation will be cured within any remaining grace periods, would be cured for a period of more than twelve months or were not likely to recur. In addition, while the Company has been actively negotiating with the lenders to obtain waivers, the lenders have not currently waived or subsequently lost the right to demand repayment for more than one year from the balance sheet date with respect to certain of these defaults. As the defaults occurred prior to the issuance of the financial statements for the nine months ended September 30, 2016 and for the year ended December 31, 2015 (and prior to the balance sheet date for the September 30, 2016 period), $1.0 billion and $1.9 billion, respectively, of the Company's non-recourse long-term indebtedness, net of unamortized debt discounts and deferred financing costs, was reclassified to current in the unaudited condensed consolidated balance sheet as the Company accounts for debt in default as of the date the financial statements are issued in the same manner as if the default existed as of the balance sheet date. $385.0 million of the September 30, 2016 reclassification amount was reclassified from current portion of long-term debt and financing lease obligations to current liabilities related to assets held for sale as discussed below. With respect to certain of the non-recourse debt defaults that occurred, the Company obtained waivers and/or cured the defaults prior to the issuance of the financial statements for the nine months ended September 30, 2016, and as a result, $0.8 billion of non-recourse long-term indebtedness, net of unamortized debt discounts and deferred financing costs, is reflected within long-term debt and financing lease obligations, less current portion in the unaudited condensed consolidated balance sheet as of September 30, 2016.

As a result of the defaults that existed as of the financial statement issuance date, the Company also reclassified $43.4 million and $61.1 million of long-term restricted cash to current as of September 30, 2016 and December 31, 2015, respectively, 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. As of September 30, 2016, $116.2 million of cash and cash equivalents was also reclassified to current restricted cash as the cash balances were subject to distribution restrictions related to debt defaults that existed as of the balance sheet date. $49.5 million of this reclassification amount was

25



reclassified from current restricted cash to assets held for sale as it related to the portfolio of U.K. assets discussed below. No similar reclassifications were made as of December 31, 2015 as these defaults and distribution restrictions did not exist as of the balance sheet date for that period. Refer to Note 10. Derivatives for discussion of corresponding interest rate swap reclassifications to current as a result of the debt defaults.

Debt Classified as Liabilities Related to Assets Held for Sale

As of September 30, 2016, the Company reclassified $385.0 million from current portion of long-term debt and financing lease obligations to current liabilities related to assets held for sale (see Note 3. Assets Held for Sale) in the unaudited condensed consolidated balance sheet, which represents non-recourse debt collateralized by project assets for substantially all of the Company's portfolio of solar power plants located in the U.K. No amount of debt was classified as liabilities related to assets held for sale as of December 31, 2015.

Canada project-level financing

On November 2, 2016, certain of the Company's subsidiaries entered into a new non-recourse loan financing in an aggregate principal amount of $120.0 million Canadian dollars (“CAD”) (including a CAD $6.9 million letter of credit) secured by approximately 40 MW(ac) of utility scale solar power plants located in Canada that are owned by the Company's subsidiaries. This new non-recourse loan has a seven-year maturity and amortizes on a 17-year sculpted amortization schedule. The loan agreement also permits the Company's subsidiaries to increase the principal amount of the credit facility by up to an additional CAD $123.0 million subject to obtaining additional lender commitments and the satisfaction of certain conditions, including the absence of defaults or events of default, pro forma compliance with debt service coverage ratios and other customary conditions. This new loan facility is non-recourse to Terra LLC and Terra Operating LLC. The proceeds of this financing were used to pay down the Revolver by $70.0 million as described above. Any additional proceeds are also expected to be used for general corporate purposes.

Maturities

The aggregate contractual payments of long-term debt due after September 30, 2016, including financing lease obligations and excluding amortization of debt discounts, premiums and deferred financing costs, as stated in the financing agreements, are as follows:
(In thousands)
Remainder of 2016¹
 
20172
 
2018
 
2019
 
2020
 
Thereafter
 
Total
Maturities of long-term debt as of September 30, 20163
$
134,531

 
$
645,203

 
$
112,042

 
$
538,660

 
$
92,018

 
$
2,542,294

 
$
4,064,748

————
(1)
Includes $100.0 million of Revolver indebtedness that was paid during the fourth quarter of 2016 as discussed above.
(2)
Includes $555.0 million of Revolver indebtedness as management currently intends to repay this indebtedness during 2017.
(3)
Represents the contractual principal payment due dates for the Company's long-term debt and does not reflect the reclassification of $0.6 billion of long-term debt to current as a result of debt defaults under certain of the Company's non-recourse financing arrangements.

9. INCOME TAXES

The income tax provision consisted of the following:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands, except effective tax rate)
 
2016
 
2015
 
2016
 
2015
(Loss) income before income tax expense
 
$
(26,571
)
 
$
4,091

 
$
(103,038
)
 
$
(49,266
)
Income tax expense
 
1,140

 
1,673

 
3,115

 
2,842

Effective tax rate
 
(4.3
)%
 
40.9
%
 
(3.0
)%
 
(5.8
)%
        
As of September 30, 2016, TerraForm Power owns 65.5% of Terra LLC and consolidates the results of Terra LLC through its controlling interest. The Company records SunEdison's 34.5% 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

26



income tax on its 65.5% of Terra LLC's taxable income and SunEdison records income tax on its 34.5% share of Terra LLC's taxable income.

For the three and nine month periods ended September 30, 2016 and 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 the Company's foreign jurisdictions. As of September 30, 2016, 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 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 the commodity contracts 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.

As of September 30, 2016 and December 31, 2015, fair values of the following derivative instruments were included in the balance sheet captions indicated below:
 
 
Fair Value of Derivative Instruments
 
 
 
 
 
 
 
 
Hedging Contracts
 
Derivatives Not Designated as Hedges
 
 
 
 
 
 
(In thousands)
 
Interest Rate Swaps
 
Commodity Contracts
 
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 September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$

 
$
7,619

 
$

 
$
1,041

 
$
12,966

 
$
21,626

 
$

 
$
21,626

Other assets
 

 
49,272

 

 
540

 
28,842

 
78,654

 

 
78,654

Total assets
 
$

 
$
56,891

 
$

 
$
1,581

 
$
41,808

 
$
100,280

 
$

 
$
100,280

Accounts payable and other current liabilities
 
$
19,186

 
$

 
$
1,513

 
$

 
$

 
$
20,699

 
$

 
$
20,699

Liabilities related to assets held for sale
 

 

 
33,216

 

 

 
33,216



 
33,216

Other long-term liabilities
 
11,353

 

 

 

 

 
11,353

 

 
11,353

Total liabilities
 
$
30,539

 
$

 
$
34,729

 
$

 
$

 
$
65,268

 
$

 
$
65,268

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$

 
$
11,455

 
$