FULL ARTICLE: GREENTECH MEDIA
Company postpones its IPO for a renewable YieldCo that sought the tax-code advantage of MLP status.
With the recent excitement about the YieldCos from SunPower, First Solar andSunEdison, it would seem that the YieldCo capital structure is a market winnerfor large project portfolios from vertically integrated companies.
But the YieldCo structure doesn't work every time, as evinced by Sol-Wind's withdrawal of its $100 million IPO registration of earlier this month, asreported by Renaissance Capital. Last month we covered Sol-Wind's IPO filingfor its modestly sized YieldCo.
The movement toward a master limited partnership (MLP) structure is what made this deal unique. The MLP structure creates the potential to open up a new source of cheap capital for solar and wind projects. It puts renewables on more equal footing with oil and gas when it comes to some of the U.S. tax code.
Bigger is definitely better when it comes to YieldCos
GTM's sources close to the deal suggest that the deal was pulled "due to, among other things, the amount of cash available for distribution (CAFD), which was too little -- the figure was around $26 million per year. That was a test of the bottom of the market. The YieldCos that have been successful have had more like $50 million CAFD, with the market really looking for figures like $80 million to $100 million. Those are hard numbers to hit, especially if the bulk of the proposed assets are in U.S. solar, where a lot of the economics are in tax benefits, not cash. If you look at the YieldCos to date, they tend to include non-solar and non-U.S. assets to help drive CAFD." CAFD is a non-GAAP metric of a YieldCo's "ability to generate cash to service its dividends."
The SunEdison TerraForm Power YieldCo has a 2015 CAFD guidance of $214 million.
The website The Deal reports, "It appears as though the market did not have enough confidence in an unknown sponsor, according to...industry sources. The management team was light on well-known industry names, which may have added to investor caution." The Deal's sources added that Sol-Wind's general partner, 40 North, a New York-based hedge fund, has "deep financial pockets and likely will just wait for the market to get 'frothy' and then brush off its IPO papers and try again."
The article quoted a source as saying that while forming a YieldCo has become easier, "bigger is definitely better in the equity capital markets."