TERRAFORM POWER, INC. The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year endedDecember 31, 2019 and our unaudited condensed consolidated financial statements for the three and six months endedJune 30, 2020 and other disclosures included in this Quarterly Report on Form 10-Q (the "Quarterly Report"). References in this section to "we," "our," "us," or the "Company" refer toTerraForm Power, Inc. and its consolidated subsidiaries. The results shown herein are not necessarily indicative of the results to be expected in any future period.
Overview
TerraForm Power, Inc. ("TerraForm Power ") acquires, owns, and operates solar and wind assets inNorth America andWestern Europe . We are the owner and operator of an over 4,200 MW diversified portfolio of high-quality solar and wind assets underpinned by long-term contracts. Significant diversity across technologies and locations coupled with contracts across a large, diverse group of creditworthy counterparties significantly reduces the impact of resource variability on cash available for distribution and limits our exposure to any individual counterparty. We are sponsored by Brookfield Asset Management Inc. ("Brookfield"), a leading global alternative asset manager with over$540 billion in assets under management. Affiliates of Brookfield held approximately 62% ofTerraForm Power's Class A common stock ("Common Stock") as ofJune 30, 2020 .TerraForm Power's objective is to deliver an attractive risk-adjusted return to its stockholders. We expect to generate this total return with a regular distribution, which we intend to grow at 5 to 8% per annum, that is backed by stable cash flows.TerraForm Power , formed in 2014, is a holding company, and its primary asset is an equity interest inTerraForm Power, LLC ("Terra LLC ").TerraForm Power is the managing member ofTerra LLC and operates, controls and consolidates the business affairs ofTerra LLC . Unless otherwise indicated or otherwise required by the context, references to "we," "our," "us" or the "Company" refer toTerraForm Power and its consolidated subsidiaries.
Recent Developments
The Merger Transaction
OnJanuary 11, 2020 , the Company received an unsolicited and non-binding proposal (the "Brookfield Proposal") from Brookfield Renewable Partners L.P. ("Brookfield Renewable"), an affiliate of Brookfield, to acquire all of the outstanding shares of Common Stock of the Company, other than the approximately 62% shares held by Brookfield Renewable and its affiliates. The Brookfield Proposal expressly conditioned the transaction contemplated thereby on the approval of a committee of the Board of Directors of the Company (the "Board") consisting solely of independent directors and the approval of a majority of the shares held by the Company's stockholders not affiliated with Brookfield Renewable and its affiliates. Following the Company's receipt of the Brookfield Proposal, the Board formed a special committee (the "Special Committee") of non-executive, disinterested and independent directors to, among other things, review, evaluate and consider the Brookfield Proposal and, if the Special Committee deemed appropriate, negotiate a transaction with Brookfield Renewable or explore alternatives thereto. The Board resolutions establishing the Special Committee expressly provided that the Board would not approve the transaction contemplated by the Brookfield Proposal or any alternative thereto without a prior favorable recommendation by the Special Committee. As ofJune 30, 2020 Brookfield Renewable held an approximately 30% indirect economic interest inTerraForm Power . OnMarch 16, 2020 , the Company,TerraForm Power NY Holdings, Inc. , a wholly owned direct subsidiary of the Company ("TERP NY"), Brookfield Renewable, Brookfield Renewable Corporation, an indirect subsidiary of Brookfield Renewable ("BEPC"), and 2252876 Alberta ULC, a wholly owned direct subsidiary of Brookfield Renewable ("Acquisition Sub"), entered into that certain Reorganization Agreement and Plan of Reorganization (the "Reorganization Agreement") for Brookfield Renewable to acquire all of the Company's outstanding shares of Common Stock, other than the approximately 62% currently owned by Brookfield Renewable and its affiliates. Also onMarch 16, 2020 , the Company andTERP NY entered into that certain Plan of Merger, dated as ofMarch 16, 2020 (the "Plan of Merger"). The transactions contemplated by the Reorganization Agreement and Plan of Merger are referred to herein as the "Transactions". Pursuant to the Reorganization Agreement, each holder of a share of Common Stock that is issued and outstanding immediately prior to the consummation of the Transactions would receive, at each such shareholder's election, 0.381 of a Brookfield Renewable limited partnership unit or of a Class A exchangeable subordinate voting share of BEPC, a Canadian subsidiary of Brookfield Renewable which is publicly listed on theNew York Stock Exchange and theToronto Stock Exchange . The Special Committee unanimously recommended that the Company's unaffiliated shareholders approve the Transactions. Consummation of the Transactions was 51 --------------------------------------------------------------------------------
subject to the non-waivable approval of a majority of the Company's shareholders not affiliated with Brookfield Renewable, receipt of required regulatory approvals and other customary closing conditions.
OnJuly 31, 2020 , pursuant to the Reorganization Agreement, Brookfield Renewable, through Acquisition Sub and BEPC, acquired all of the outstanding shares of Class A common stock of the Company ("TERP Common Stock") not held by the Brookfield Stockholders (as defined below) (such shares, the "Public TERP Shares") through a series of transactions that include the Reincorporation Merger and the Share Exchange (each as defined below). Pursuant to the Reorganization Agreement and the Plan of Merger, at the effective time of the Reincorporation Merger (the "Reincorporation Effective Time"), the Company merged with and intoTERP NY , withTERP NY as the surviving corporation of such merger (the "Reincorporation Merger"), and (i)BBHC Orion Holdco L.P. ("BBHC Orion") andOrion U.S. Holdings 1 L.P. ("OrionU.S. " and, together with BBHC Orion, the "Brookfield Stockholders"), each an affiliate of BEP, received shares of class A common stock, par value$0.01 , ofTERP NY ("TERP NY Class A Common Stock"), (ii) holders of Public TERP Shares who did not elect to receive non-voting limited partnership units of BEP (the "BEP Units") received shares of class B common stock, par value$0.01 , ofTERP NY ("TERP NY Class B Common Stock"), and (iii) holders of Public TERP Shares who elected to receive BEP Units received shares of class C common stock, par value$0.01 , ofTERP NY ("TERP NY Class C Common Stock"). Immediately thereafter, at the effective time of the Share Exchange (the "Exchange Effective Time"), (i) pursuant to a binding share exchange, BEPC acquired each share of TERP NY Class B Common Stock issued and outstanding after the Reincorporation Effective Time in exchange for the right to receive class A exchangeable subordinate voting shares, no par value, of BEPC (the "BEPC Exchangeable Shares") and cash in lieu of fractional BEPC Exchangeable Shares (the "BEPC Exchange") and (ii) pursuant to a binding share exchange, Acquisition Sub acquired each share of TERP NY Class C Common Stock issued and outstanding after the Reincorporation Effective Time in exchange for the right to receive BEP Units and cash in lieu of fractional BEP Units (the "BEP Exchange" and, together with the BEPC Exchange, the "Share Exchange" and, together with the Reincorporation Merger, the "Merger Transaction").
For a detailed description of the Reorganization Agreement, see Note 17. Related Parties to our unaudited condensed consolidated financial statements.
Spain Project Financing
OnJune 30, 2020 , we completed a €483.6 million refinancing agreement (equivalent to over$540.0 million at the closing date) of certain non-recourse project debt previously incurred and secured by the 100.0 MW utility-scale concentrated solar power ("CSP") facilities that were acquired in connection with the Termosol Acquisition (the "CSP Loans"). The CSP Loans comprise fixed and variable tranches bearing an average interest per annum equal to 2.77% and amortize on a sculpted amortization schedule over their respective maturity dates throughDecember 2037 . We entered into interest rate swap agreements with counterparties to hedge approximately 80% of the cash flows associated with the variable tranches, paying a fixed rate and in return, the counterparties agreed to pay the variable interest payments to the lenders. We used the net proceeds of the refinancing for general corporate purposes.
The COVID-19 Pandemic
We continue to monitor and evaluate the global COVID-19 pandemic and are taking steps to mitigate the known risks it poses on our business. In virtually every jurisdiction in which we operate, significant restrictions have been imposed on non-essential business activity. Our business, as a producer of energy and a provider of critical infrastructure services, is typically exempt from these types of restrictions, and as a result we are generally permitted to continue our ordinary course of operations. In addition, we have taken steps to ensure that our employees and contractors are safe, including the closures of ourNew York City headquarters andMadrid offices in lateMarch 2020 and implementing a business continuity plan to ensure our employees are best able to meet our business needs while working remotely. While the full impact on our business is unknown and difficult to predict, we believeTerraForm Power is well positioned to manage the known risks arising from the COVID-19 pandemic. Approximately 95% of our revenue is earned pursuant to long term power purchase agreements ("PPAs"), and over 90% of our customers have either an investment grade credit rating or are municipalities with investment grade characteristics. In our Regulated Solar and Wind operating segments inSpain , reduced demand for energy resulting from the economic slowdown has resulted in lower market prices for power; however, this decrease should be offset by regulatory revenues that adjust market rates to ensure renewable energy generators achieve a long-term reasonable rate of return. There are a number of factors that we believe may mitigate our exposure to loss and disruption caused by the pandemic. We believe our business is relatively less labor intensive than many other industries, meaning it can function with relatively little person-to-person interaction. Also, since our assets are predominantly operational, our exposure to potential supply chain disruptions is smaller than businesses that are more focused on construction and development. We are also 52
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working proactively with our operations and maintenance ("O&M") providers to
mitigate the impact of the pandemic on our operations by ensuring that they have
appropriate business continuity plans in place in order to safeguard the health
of our employees and contractors as well as ensure that our wind and solar
plants continue to generate power and operate normally.
We believe that we operate with sufficient liquidity to enable us to fund
near-term cash distributions, growth initiatives, capital expenditures and
withstand sudden adverse changes in economic circumstances or short-term
fluctuations in resources. Our total available corporate liquidity as of June
30, 2020 , was $1.2 billion . See Liquidity and Capital Resources section below
for additional details. While we believe TerraForm Power is well-positioned to
weather the pandemic, the situation remains fluid and difficult to predict. We
continue to monitor the situation to ensure any business interruption or other
risk is proactively addressed.
Changes within Our Portfolio
The following table provides an overview of the changes within our portfolio
from
Weighted Average
Nameplate Number of Remaining Duration
Description Facility Type Capacity (MW)1 Sites of PPA (Years)2
Total Portfolio as of December 31,
2019 4,122.5 4,941 13
Acquisition of Termosol 1 & 2 Concentrated Solar Power 99.8 2 18
Total Portfolio as of June 30, 2020 4,222.3 4,943 12---
(1)Nameplate capacity represents the maximum generating capacity of a facility
as expressed in direct current ("DC") for all facilities within our Solar
segment and alternating current ("AC") for all facilities within our Wind and
Regulated Solar and Wind segments.
(2)Weighted average remaining duration of PPA (years) represents the
weighted-average remaining term of PPAs and is calculated as of December 31,
2019 and June 30, 2020 .
Our Portfolio
Our current portfolio consists of renewable energy facilities located in the
United States (including Puerto Rico ) (the "U.S."), Canada , Spain , Portugal , the
United Kingdom (the "U.K."), Chile and Uruguay with a combined nameplate
capacity of approximately 4,222 MW as of June 30, 2020 . These renewable energy
facilities generally have long-term PPAs with creditworthy counterparties. As of
June 30, 2020 , on a weighted-average basis (based on MW), our PPAs had a
weighted-average remaining life of 12 years and our counterparties to our PPAs
had, on average, an investment grade credit rating.
The following table lists the renewable energy facilities that comprise our
portfolio as of
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Weighted Average
Remaining
Nameplate Duration of PPA
Description Capacity (MW)1 Number of Sites (Years)2
Distributed Generation:
U.S. Solar3 711.7 756 14
U.S. Residential Rooftops 21.2 4,068 14
U.S. Fuel Cells 10.0 9 16
Canada Solar 8.5 20 13
Total Distributed Generation 751.4 4,853 15
Solar Utility:
U.S. 498.6 20 17
Canada 59.4 4 14
U.K. 11.1 1 9
Chile 101.6 1 14
Total Solar Utility 670.7 26 16
Regulated Solar and Wind:
Spain 936.8 35 13
Wind Utility:
U.S. 1,546.2 17 10
Canada 78.0 1 11
Portugal 143.8 9 8
Uruguay 95.4 2 17
Total Wind Utility 1,863.4 29 10
Total Renewable Energy Facilities 4,222.3 4,943 12
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(1)Nameplate capacity represents the maximum generating capacity of a facility as expressed in DC for all facilities within our Solar reportable segment and AC for all facilities within our Wind and Regulated Solar and Wind segments. (2)Represents the weighted-average term of remaining PPA and calculated as ofJune 30, 2020 . (3)Includes aDelayed Project with an aggregate nameplate capacity of 4.2 MW. See Note 3. Acquisitions to our unaudited condensed consolidated financial statements for additional details. Key Metrics Operating Metrics Nameplate capacity We measure the electricity-generating production capacity of our renewable energy facilities in nameplate capacity. Rated capacity is the expected maximum output a power generation system can produce without exceeding its design limits. We express nameplate capacity in (i) DC, for all facilities within our Solar segment and (ii) AC, for all facilities within our Wind and Regulated Solar and Wind segments. The size of our renewable energy facilities varies significantly among the assets comprising our portfolio. We believe the combined nameplate capacity of our portfolio is indicative of our overall production capacity and period to period comparisons of our nameplate capacity are indicative of the growth rate of our business. Our renewable energy facilities had a combined nameplate capacity of approximately 4,222 MW and 4,123 MW as ofJune 30, 2020 andDecember 31, 2019 , respectively.
Gigawatt hours sold
Gigawatt hours ("GWh") sold refers to the actual volume of electricity sold by
our renewable energy facilities during a particular period. We track GWh sold as
an indicator of our ability to realize cash flows from the generation of
electricity at our renewable energy facilities. Our GWh sold for renewable
energy facilities for the three and six months ended June 30, 2020 and 2019 were
as follows:
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Three Months Ended June 30, Six Months Ended
June 30,
(In GWh) 2020 2019 2020 2019
Solar segment 642 536 1,101 916
Wind segment 1,414 1,399 2,935 3,028
Regulated Solar and Wind segment 538 515 894 905
Total 2,594 2,450 4,930 4,849
Consolidated Results of Operations
Factors Affecting the Comparability of our Financial Results
The comparability of our consolidated results of operations among the periods presented is impacted by, but not limited to, acquisitions, divestitures and foreign exchange fluctuation. Accordingly, our historical consolidated results of operations may not be comparable or indicative of future results.
The below represent the key factors that affect the comparability of our financial results:
Acquisitions
Acquisitions completed during one period impact the comparability to a prior period in which we did not own the acquired businesses or assets.
The WGL Acquisition
OnSeptember 26, 2019 , we acquired an approximately 320 MW distributed generation portfolio of renewable energy facilities in theU.S. from subsidiaries of AltaGas (the "WGL Acquisition"). Our consolidated results for the three and six months endedJune 30, 2020 include the results relating to the WGL Acquisition for the full period, whereas the prior period did not include any results of operations from the WGL acquisition.
The X-Elio Acquisition
OnDecember 18, 2019 , we acquired approximately 45 MW utility-scale solar photovoltaic ("PV") power facilities inSpain , from subsidiaries ofX-Elio Energy, S.L ., a Spanish corporation. Our consolidated results for the three and six months endedJune 30, 2020 include the results relating to the X-Elio Acquisition for the full period, whereas the prior period did not include any results of operations from the X-Elio acquisition.
The Termosol Acquisition
As discussed in Note 3. Acquisitions to our consolidated financial statements, onFebruary 11, 2020 , we acquired two CSP facilities located inSpain with a combined nameplate capacity of approximately 100 MW ("Termosol 1 & 2") from NextEra Energy Spain Holdings B.V (the "Termosol Acquisition"). Our consolidated results for the three months endedJune 30, 2020 include the results relating to the Termosol Acquisition for the full period and beginning on the acquisition date onFebruary 11, 2020 for the six months endedJune 30, 2020 , whereas the prior period did not include any results of operations from the Termosol acquisition.
Divestitures
Any divestitures of our continuing operations affect the comparability of our consolidated results from period to period. Divestitures completed during one period impact comparability to a prior period in which we owned the divested businesses or assets.
The 6 MW Distributed Generation Divestiture
OnDecember 20, 2019 , we sold six distributed generation facilities in theU.S. with a combined nameplate capacity of 6.0 MW for a net consideration of$9.5 million . 55
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Foreign Exchange
The USD is our reporting currency and our subsidiaries operate in other functional currencies, including: Euro, CAD and GBP. The principal foreign exchange exposure is the risk related to the translation of the results of foreign operations from the local currency. We monitor the impact of foreign currency movements and the correlation between the local currency and the USD. A significant portion of our revenue is generated in Euro and, to a lesser extent, in CAD and as such, our reported revenues may be affected by the strengthening or weakening of theU.S. dollar and currency exchange rates.The amounts shown below represent the results ofTerraForm Power's wholly-owned and partially-owned subsidiaries in which we have a controlling interest, with all significant intercompany accounts and transactions eliminated. Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2020 2019 2020 2019 Operating revenues, net$ 277,329 $ 255,366 $ 524,091 $ 480,698 Operating costs and expenses: Cost of operations 61,926 71,575 119,790 132,326 General and administrative expenses 18,351 22,057 44,568 45,219 General and administrative expenses - affiliate 10,717 6,159 20,494 11,323 Acquisition costs 114 293 469 475 Acquisition costs - affiliate 10 - 664 - Depreciation, accretion and amortization expense 127,908 100,354 250,299 207,323 Total operating costs and expenses 219,026 200,438 436,284 396,666 Operating income 58,303 54,928 87,807 84,032 Other expenses (income): Interest expense, net 85,332 71,041 163,291 157,328
Loss (gain) on modification and extinguishment of debt, net
- - 3,593 (5,543)
Gain on foreign currency exchange, net (116) (6,440) (4,987) (15,192)
Other (income) expenses, net (2,747) 1,485 (7,139) (1,195)
Total other expenses, net 82,469 66,086 154,758 135,398
Loss before income tax expense (24,166) (11,158) (66,951) (51,366)
Income tax (benefit) expense (10,832) 5,669 13,629 1,518
Net loss (13,334) (16,827) (80,580) (52,884)Less: Net income (loss) attributable to redeemable non-controlling interests
9 2,481 21 (6,900)
Less: Net loss attributable to non-controlling interests (13,282) (15,713) (25,469) (33,762)
Net loss attributable to Class A common stockholders $ (61) $ (3,595) $ (55,132) $ (12,222)
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Three Months Ended
Operating Revenues, net
Operating revenues, net and GWh sold for the three months endedJune 30, 2020 and 2019 and nameplate capacity as ofJune 30, 2020 andDecember 31, 2019 , were as follows: Three Months Ended June 30, (In thousands, except for GWh sold) 2020 2019 Change Energy: Solar$ 77,658 $ 63,009 $ 14,649 Wind 66,075 74,424 (8,349) Regulated Solar and Wind 96,579 82,062 14,517
Incentives, including affiliates:
Solar 21,695 19,574 2,121 Wind 3,715 2,412 1,303 Regulated Solar and Wind 11,607 13,885 (2,278) Total operating revenues, net$ 277,329 $ 255,366 $ 21,963 GWh sold: 2020 2019 Change Solar 642 536 106 Wind 1,414 1,399 15 Regulated Solar and Wind 538 515 23 Total GWh sold 2,594 2,450 144 June 30, December 31, (In MW) 2020 2019 Change Solar 1,421 1,421 - Wind 1,864 1,864 - Regulated Solar and Wind 937 837 100 Total nameplate capacity (MW) 4,222 4,122 100 Total energy revenue during the three months endedJune 30, 2020 compared to the same period in 2019, increased by$20.8 million due to$14.6 million and$14.5 million increases at our Solar and Regulated Solar and Wind segments, respectively. These increases were partially offset by an$8.3 million decrease at our Wind segment. Energy revenue at our Solar segment increased by$14.6 million primarily driven by$18.0 million in contributions from distributed generation facilities in theU.S. acquired after the second half of 2019. These contributions were partially offset by$3.4 million in net decreases primarily due to lower pricing and generation at our North American solar farms. Energy revenue at our Wind segment decreased by$8.3 million due to a (i)$5.4 million increase in unrealized losses on commodity derivatives, (ii)$1.3 million in net decreases due to lower pricing inNorth America and (iii)$1.6 million decrease due to lower generation by our international plants inPortugal andUruguay resulting from lower wind resource. Energy revenue at our Regulated Solar and Wind segment increased by$14.5 million for the three months endedJune 30, 2020 compared to the same period in 2019, primarily driven by$26.8 million in contributions from acquisitions of solar PV and CSP facilities made in the fourth quarter of 2019 and the first quarter of 2020 and a$10.6 million in increase in capacity revenue from remuneration programs under the Spanish framework for renewable power. These increases were partially offset by a$21.8 million reduction in our merchant sales due to the decline in market prices and energy demand inSpain in the first quarter of 2020 amidst the outbreak of the COVID-19 pandemic. 57
-------------------------------------------------------------------------------- Total Incentive revenue during the three months endedJune 30, 2020 , compared to the same period in 2019, increased by$1.1 million due to a$2.1 million and a$1.3 million in increases at our Solar and Wind segments in theU.S. These increases were partially offset by a$2.3 million decrease at our Regulated Solar and Wind segment. The increase in our Solar and Wind segments were primarily driven by$7.6 million in contributions from distributed generation acquisitions that closed in the third quarter of 2019, that was partially offset by a$4.2 million decrease in theU.S. due to the timing of contracting and delivering of renewable energy incentives with our counterparties. Incentive revenue at our Regulated Solar and Wind segment, representing earnings for each MWh produced by our solar facilities inSpain to recover deemed operating costs that are in excess of market revenue forecasted by the Spanish market competition regulator (the "CNMC"), decreased by$2.3 million due to a$3.6 million decrease in the amount of remuneration per MWh to renewable energy producers set by the CNMC for the year 2020 and lower generation at our solar facilities in the first half of 2020. This decrease was partially offset by$1.3 million in contributions from PV and CSP acquisitions made in the fourth quarter of 2019 and the first quarter of 2020.
Costs of Operations
Costs of operations for the three months endedJune 30, 2020 and 2019 were as follows: Three Months Ended June 30, (In thousands) 2020 2019 Change Cost of operations: Solar$ 19,343 $ 15,538 $ 3,805 Wind 17,683 41,349 (23,666) Regulated Solar and Wind 24,900 14,688 10,212 Total cost of operations$ 61,926 $ 71,575 $ (9,649) Total cost of operations decreased by$9.6 million during the three months endedJune 30, 2020 compared to the same period in 2019, due to a$23.7 million decrease at our Wind segment. This decrease was partially offset by$3.8 million and$10.2 million increases at our Solar and Regulated Solar and Wind segments, respectively. Cost of operations at our Wind segment decreased by$23.7 million due to a (i) decrease of$14.4 million in repairs and maintenance and losses on disposal of major components of certain wind power plants inNorth America following the substantial completion of our blade repair program that was initiated in 2019, (ii) reduction of$4.8 million in O&M costs payable to our existing service provider at our North American fleet as a compensation to lower generation than a certain guaranteed amount per the long-term service agreement framework and (iii) a reduction of$4.8 million in costs at our international plants inPortugal andUruguay . Cost of operations at our Solar segment increased by$3.8 million , primarily due to incurring$5.2 million in costs related to the WGL Acquisition that closed in the third quarter of 2019. Cost of operations at our Regulated Solar and Wind segment increased by$10.2 million , primarily due to incurring$5.3 million in costs related to the acquisitions of solar PV and CSP facilities made in the fourth quarter of 2019 and the first quarter of 2020 and a$1.9 million in incrase in other plant related costs. The prior period included a$3.0 million one-off reduction in operations and maintenance costs that contributed to the increase in cost of operations compared to the current period.
General and Administrative Expenses
General and administrative expenses for the three months endedJune 30, 2020 and 2019 were as follows: Three Months Ended June 30, (In thousands) 2020 2019 Change General and administrative expenses: Solar$ 2,187 $ 2,017 $ 170 Wind 329 2,457 (2,128) Regulated Solar and Wind 2,336 3,062 (726) Corporate 13,499 14,521 (1,022) Total general and administrative expenses$ 18,351 $ 22,057 $ (3,706) Total general and administrative expenses decreased by$3.7 million during the three months endedJune 30, 2020 , compared to the same period in 2019, due to$0.7 million ,$2.1 million and$1.0 million in decreases at our Regulated Solar and 58
-------------------------------------------------------------------------------- Wind, Wind, and Corporate segments, respectively. These decreases were due to the general reduction in our expenses primarily related to professional fees for accounting and legal services.
General and Administrative Expenses - Affiliate
General and administrative expenses - affiliate for the three months ended
Three Months Ended June 30,
(In thousands) 2020 2019 Change
Corporate $ 10,717 $ 6,159 $ 4,558
General and administrative expenses - affiliate for the three months ended June
30, 2020 were $10.7 million compared to $6.2 million , for the same period in
2019, and primarily consisted of $9.8 million and $5.9 million , respectively, of
quarterly base management fees under the Brookfield MSA, pursuant to which
Brookfield and certain of its affiliates provide us with certain management and
administrative services. The $3.9 million increase in the base management fee
for the three months ended June 30, 2020 compared to the same period in 2019 was
primarily driven by an increase in our market capitalization. See Note 17.
Related Parties to our unaudited condensed consolidated financial statements for
additional details.
Depreciation, Accretion and Amortization Expense
Depreciation, accretion and amortization expense increased by$27.6 million during the three months endedJune 30, 2020 , compared to the same period in 2019. This increase was in relation to our growing portfolio of renewable energy facilities from acquisitions in theU.S. andSpain , as well as capital additions placed in service after the first quarter of 2019.
Interest Expense, Net
Interest expense, net for the three months endedJune 30, 2020 and 2019 were as follows: Three Months Ended June 30, (In thousands) 2020 2019 Change Corporate-level$ 26,843 $ 30,005 $ (3,162) Non-recourse: Solar 21,282 16,593 4,689 Wind 14,265 13,811 454 Regulated Solar and Wind 22,942
10,632 12,310
Total interest expense, net $ 85,332 $
71,041
Interest expense, net increased by$14.3 million during the three months endedJune 30, 2020 , compared to the same period in 2019, due to increases of$4.7 million ,$0.5 million and$12.3 million at our Solar, Wind and Regulated Solar and Wind segments, respectively. These increases were partially offset by a$3.2 million decrease at our Corporate segment. Interest expense, net at our Solar segment increased by$4.7 million primarily driven by the increased outstanding obligations as ofJune 30, 2020 compared to 2019, following the additional non-recourse borrowings obtained in the second and third quarter of 2019, that were secured by certain distributed generation facilities in theU.S. Interest expense, net at our Regulated Solar and Wind segments increased by$12.3 million during the three months endedJune 30, 2020 , compared to the same period in 2019, primarily due to incurring$11.6 million in net interest expense related to the acquisitions of solar PV and CSP facilities made in the fourth quarter of 2019 and the first quarter of 2020. See Note 9. Long-term Debt to our consolidated financial statements for additional details. The decrease of our Corporate interest expense was primarily due to the reduction in outstanding obligations at the corporate level as ofJune 30, 2020 compared to 2019, following the refinancing activities that took place in the fourth quarter of 2019, which included the termination of our Senior Notes due 2025, the termination of our Term Loan, the substantial repayment of our Revolver, and the issuance of our Senior Notes due 2030. 59 --------------------------------------------------------------------------------
Gain on Foreign Currency Exchange, net
Gains and losses on foreign currency exchanges primarily include the transaction gains and losses and changes in fair value of our foreign exchange derivative contracts not accounted for under hedge accounting, and exchange differences on intercompany loans that are not of a long-term investment nature. We recognized a net gain on foreign currency exchange of$0.1 million for the three months endedJune 30, 2020 primarily due to a gain of$14.0 million on the remeasurement of intercompany loans, which are primarily denominated in Euros, that was partially offset by net realized and unrealized loss of$13.7 million on foreign currency derivative contracts. We recognized a net gain on foreign currency exchange of$6.4 million for the three months endedJune 30, 2019 , primarily due to a gain of$7.7 million on the remeasurement of intercompany loans, which are primarily denominated in Euros. This gain was partially offset by a net realized and unrealized loss of$1.3 million on foreign currency derivative contracts.
Other Income, net
We recognized$2.7 million of other income, net for the three months endedJune 30, 2020 , compared to$1.5 million of other expenses, net for the three months endedJune 30, 2019 . The balance is primarily comprised of miscellaneous expenses, non-operating expenses and losses net of recoveries and reimbursements.
Income Tax (Benefit) Expense
Income tax benefit was$10.8 million for the three months endedJune 30, 2020 , compared to an expense of$5.7 million during the same period in 2019. The benefit for the current period was due to a reduction to the forecasted rate, which was primarily driven by a reduction of the valuation allowance related to current period losses, whereas for the same period in 2019, we recognized an expense in relation to profits generated by foreign subsidiaries. For the three months endedJune 30, 2020 and 2019, the overall effective tax rate was different than the statutory rate of 21% primarily due to the recognition of an additional valuation allowance on certain income tax benefits, the allocation of losses to non-controlling interests, the effect of foreign and state taxes, as appropriate.
Net Loss Attributable to Non-Controlling Interests
Net loss attributable to non-controlling interests, including redeemable non-controlling interests, was$13.3 million for the three months endedJune 30, 2020 , compared to$13.2 million for the three months endedJune 30, 2019 and represents the net share of profits and losses in our partially owned subsidiaries in which we have a controlling interest. 60 --------------------------------------------------------------------------------
Six Months Ended
Operating Revenues, net
Operating revenues, net and GWh sold for the six months endedJune 30, 2020 and 2019 and nameplate capacity as ofJune 30, 2020 andDecember 31, 2019 , were as follows: Six Months Ended June 30, (In thousands, except for GWh sold) 2020 2019 Change Energy: Solar$ 128,434 $ 105,016 $ 23,418 Wind 141,026 165,426 (24,400) Regulated Solar and Wind 184,621 151,050 33,571
Incentives, including affiliates:
Solar 49,542 34,923 14,619 Wind 5,331 4,049 1,282 Regulated Solar and Wind 15,137 20,234 (5,097) Total operating revenues, net$ 524,091 $ 480,698 $ 43,393 GWh sold: 2020 2019 Change Solar 1,101 916 185 Wind 2,935 3,028 (93) Regulated Solar and Wind 894 905 (11) Total GWh sold 4,930 4,849 81 June 30, December 31, (In MW) 2020 2019 Change Solar 1,421 1,421 - Wind 1,864 1,864 - Regulated Solar and Wind 937 837 100 Total nameplate capacity (MW) 4,222 4,122 100 Total energy revenue during the six months endedJune 30, 2020 , compared to the same period in 2019, increased by$32.6 million due to$23.4 million and$33.6 million increases at our Solar and Regulated Solar and Wind segments, respectively. These increases were partially offset by a$24.4 million decrease at our Wind segment. Energy revenue at our Solar segment increased by$23.4 million primarily driven by$29.6 million in contributions from distributed generation facilities in theU.S. acquired after the second half of 2019. These contributions were partially offset by$5.8 million in net decreases primarily due to lower pricing and generation at our North American solar farms. Energy revenue at our Wind segment decreased by$24.4 million due to a (i)$3.9 million decrease due to lower generation by our fleet inNorth America resulting from lower wind resource, (ii)$8.7 million net decrease at our fleet inNorth America due to lower market prices, (iii)$4.1 million decrease due to lower generation at our international plants inPortugal andUruguay primarily resulting from lower wind resource, and (iv)$7.5 million increase in unrealized losses on commodity derivatives. Energy revenue at our Regulated Solar and Wind segments increased by$33.6 million for the three months endedJune 30, 2020 compared to the same period in 2019, primarily driven by$42.3 million in contributions from acquisitions of solar PV and CSP facilities made in the second half of 2019 and the first quarter of 2020 and a$24.3 million increase in capacity revenue from remuneration programs under the Spanish framework for renewable power. These increases were partially offset by a$33.0 million reduction in our merchant sales due to the decline in market prices and energy demand inSpain in the first half of 2020 amidst the outbreak of the COVID-19 pandemic. Total Incentive revenue during the six months endedJune 30, 2020 , compared to the same period in 2019, increased by$10.8 million due to a$14.6 million increase at our Solar segment and$1.3 million increase at our Wind Segment. These increases were partially offset by a$5.1 million decrease at our Regulated Solar and Wind segment. Incentive revenue at our 61 -------------------------------------------------------------------------------- Solar segment increased by$14.6 million primarily driven by$14.7 million in contributions from the distributed generation acquisitions that closed in the third quarter of 2019. Incentive revenue at our Wind segment increased by$1.3 million primarily due the timing of contracting and delivering of renewable energy incentives with our counterparties. Incentive revenue at our Regulated Solar and Wind segment, representing earnings for each MWh produced by our solar facilities inSpain to recover deemed operating costs that are in excess of market revenue forecasted by the Spanish market competition regulator (the "CNMC"), decreased by$5.1 million due to a$7.5 million decrease in the amount of remuneration per MWh to renewable energy producers set by the CNMC for the year 2020 and lower generation at our solar facilities in the first quarter of 2020. This decrease was partially offset by$2.4 million in contributions from PV and CSP acquisitions made in the fourth quarter of 2019 and the first quarter of 2020. Costs of Operations Costs of operations for the six months endedJune 30, 2020 and 2019 were as follows: Six Months Ended June 30, 2020 (In thousands) 2020 2019 Change Cost of operations: Solar$ 35,708 $ 28,160 $ 7,548 Wind 32,561 69,823 (37,262) Regulated Solar and Wind 51,521 34,343 17,178 Total cost of operations$ 119,790 $ 132,326 $ (12,536) Total cost of operations decreased by$12.5 million during the six months endedJune 30, 2020 compared to the same period in 2019, primarily due to a$37.3 million decrease at our Wind segment that was partially offset by$7.5 million and$17.2 million increases at our Solar and Regulated Solar and Wind segments, respectively. Cost of operations at our Wind segment decreased by$37.3 million due to a (i) reduction of$4.5 million in real property taxes related to refunds of previously assessed taxes on our plants inHawaii , (ii) decrease of$19.8 million in repairs and maintenance and losses on disposal of major components of certain wind power plants inNorth America following the substantial completion of our blade repair program that was initiated in 2019, and (iii) reduction of$12.2 million in O&M costs payable to our existing service provider at our North American fleet as a compensation to lower generation than a certain guaranteed amount per the long-term service agreement framework. Cost of operations at our Solar segment increased by$7.5 million , primarily due to incurring$13.0 million in costs related to the WGL Acquisition that closed in the third quarter of 2019. This increase in cost of sales at our Solar segment was partially offset by a (i)$2.1 million one-off reduction in sales and use taxes in theU.S. , (ii)$1.5 million reduction in O&M costs payable to our providers inNorth America and (iii)$1.1 million reduction in the cost of energy at our solar farm inChile . Cost of operations at our Regulated Solar and Wind segment increased by$17.2 million , primarily due to incurring$9.2 million in costs related to the acquisitions of solar PV and CSP facilities made in the fourth quarter of 2019 and the first quarter of 2020 and a net increase of$4.9 million in taxes payable under the Spanish framework for renewable power. The prior period included a$3.0 million one-off reduction in operations and maintenance costs that contributed to the increase in cost of operations compared to the current period. 62
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General and Administrative Expenses
General and administrative expenses for the six months endedJune 30, 2020 and 2019 were as follows: Six Months Ended June 30, 2020 (In thousands) 2020 2019 Change General and administrative expenses: Solar$ 2,546 $ 3,202 $ (656) Wind 3,301 5,642 (2,341) Regulated Solar and Wind 5,774 4,363 1,411 Corporate 32,947 32,012 935 Total general and administrative expenses$ 44,568 $ 45,219 $ (651) Total general and administrative expenses decreased by$0.7 million during the six months endedJune 30, 2020 , compared to the same period in 2019, due to the general reduction in our expenses primarily related to professional fees and certain taxes paid in theU.S.
General and Administrative Expenses - Affiliate
General and administrative expenses - affiliate for the six months ended
Six Months Ended June 30, 2020
(In thousands) 2020 2019 Change
Corporate $ 20,494 $ 11,323 $ 9,171
General and administrative expenses - affiliate for the six months ended June
30, 2020 were $20.5 million compared to $11.3 million for the same period in
2019 and primarily consisted of $19.4 million and $10.8 million , respectively,
of base management fees under the Brookfield MSA pursuant to which Brookfield
and certain of its affiliates provide us with certain management and
administrative services. The $8.6 million increase in the base management fee
for the six months ended June 30, 2020 compared to the same period in 2019 was
primarily driven by an increase in our market capitalization. See Note 17.
Related Parties to our unaudited condensed consolidated financial statements for
additional details.
Total Acquisition Costs
Total acquisition costs were $1.1 million for the six months ended June 30,
2020 , compared to $0.5 million in the same period in 2019 and primarily
consisted of professional fees for legal and accounting services. Acquisition
costs related to affiliates for the six months ended June 30, 2020 , were $0.7
million and represented reimbursements to affiliates of Brookfield for fees and
expenses incurred on our behalf. There were no acquisition costs related to
affiliates for the six months ended June 30, 2019 .
Depreciation, Accretion and Amortization Expense
Depreciation, accretion and amortization expense increased by$43.0 million during the six months endedJune 30, 2020 , compared to the same period in 2019. This increase was in relation to our growing portfolio of renewable energy facilities from acquisitions in theU.S. andSpain , as well as capital additions placed in service after the first quarter of 2019. 63 --------------------------------------------------------------------------------
Interest Expense, Net
Interest expense, net for the six months endedJune 30, 2020 and 2019 were as follows: Six Months Ended June 30, 2020 (In thousands) 2020 2019 Change Corporate-level$ 53,641 $ 60,518 $ (6,877) Non-recourse: Solar 43,257 29,391 13,866 Wind 29,225 28,953 272 Regulated Solar and Wind 37,168
38,466 (1,298)
Total interest expense, net $ 163,291 $
157,328
Interest expense, net increased by$6.0 million during the six months endedJune 30, 2020 , compared to the same period in 2019, due to increases of$13.9 million and$0.3 million at our Solar and Wind segments, respectively. These increases were partially offset by decreases of$6.9 million and$1.3 million at our Corporate and Regulated Solar and Wind segment, respectively. Interest expense, net at our Solar segment increased by$13.9 million primarily driven by the increased outstanding obligations as ofJune 30, 2020 compared to 2019, following the additional non-recourse borrowings obtained following the second half of 2019, that were secured by certain distributed generation facilities in theU.S. Interest expense, net at our Corporate segment decreased by$6.9 million due to the reduction in outstanding obligations at the corporate level as ofJune 30, 2020 compared to 2019, following the refinancing activities that took place in the fourth quarter of 2019, which included the termination of our Senior Notes due 2025, the termination of our Term Loan, the substantial repayment of our Revolver, and the issuance of our Senior Notes due 2030. Interest expense, net at our Regulated Solar and Wind segment decreased by$1.3 million during the six months endedJune 30, 2020 , compared to the same period in 2019, primarily due to a$17.8 million decrease in mark-to-market losses on interest rate swap liabilities not designated as hedging instruments and realized losses from the settlement of interest with the hedge counterparties. See Note 11. Derivatives to our unaudited condensed consolidated financial statements for additional details. This decrease was partially offset by incurring$14.0 million in net interest expense related to the acquisitions of solar PV and CSP facilities made in the fourth quarter of 2019 and the first quarter of 2020 and$3.1 million increase in interest expense related to additional outstanding obligations as ofJune 30, 2020 compared to 2019, resulting from upsize and refinancing agreements executed following the second half of 2019. See Note 9. Long-term Debt to our consolidated financial statements for additional details.
Loss (Gain) on Modification and Extinguishment of Debt, net
Losses or gains on modification and extinguishment of debt, net include prepayment penalties, the write-off of unamortized deferred financing costs and debt premiums or discounts, costs incurred in a debt modification that are not capitalized as deferred financing costs, other costs incurred in relation to debt extinguishment, and any gain from the redemption of debt below its carrying amount. We incurred a net loss on modification and extinguishment of debt of$3.6 million for the six months endedJune 30, 2020 , related to the refinancing of the debt of associated with a 218.0 MW utility-scale wind power plants located in theU.S. We recognized a gain on extinguishment of debt of$5.5 million for the six months endedJune 30, 2019 due to the redemption of certain financing lease obligations within our distributed generation Solar portfolio.See Note 9. Long-term Debt to our unaudited condensed consolidated financial statements for additional details.
Gain on Foreign Currency Exchange, net
Gains and losses on foreign currency exchanges primarily include the transaction gains and losses and changes in fair value of our foreign exchange derivative contracts not accounted for under hedge accounting, and exchange differences on intercompany loans that are not of a long-term investment nature. We recognized a net gain on foreign currency exchange of$5.0 million for the six months endedJune 30, 2020 primarily due to net realized and unrealized gain of$4.4 million on foreign currency derivative contracts that was partially offset by a loss of$0.2 million on the remeasurement of intercompany loans, which are primarily denominated in Euros. We recognized a net gain on foreign currency exchange of$15.2 million for the six months endedJune 30, 2019 , primarily due to a total$20.0 million net realized and unrealized gain on foreign currency derivative contracts that were partially offset by a loss of$4.8 million on the remeasurement of intercompany loans, which are primarily denominated in Euro. 64
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Other Income, net
We recognized$7.1 million of other income, net for the six months endedJune 30, 2020 , compared to$1.2 million of other expenses, net for the six months endedJune 30, 2019 . The balance is primarily comprised of miscellaneous expenses non-operating expenses and losses net of recoveries and reimbursements.
Income Tax Expense
Income tax expense was$13.6 million for the six months endedJune 30, 2020 , compared to$1.5 million during the same period in 2019. The expense for the current period was primarily driven by an additional valuation allowance in theU.S. and the impact of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act section 163(j) provisions as well as profits generated by certain foreign subsidiaries, whereas for the same period in 2019, we recognized an expense in relation to profits generated by foreign subsidiaries. For the six months endedJune 30, 2020 and 2019, the overall effective tax rate was different than the statutory rate of 21% primarily due to the recognition of an additional valuation allowance on certain income tax benefits, the allocation of losses to non-controlling interests, the effect of foreign and state taxes and, for the six months endedJune 30, 2020 , the impact of the CARES Act, as appropriate.
Net Loss Attributable to Non-Controlling Interests
Net loss attributable to non-controlling interests, including redeemable
non-controlling interests, was
Liquidity and Capital Resources
Capitalization
A key element to our financing strategy is to raise the majority of our debt in the form of project specific non-recourse borrowings at our subsidiaries with investment grade metrics. Going forward, we intend to primarily finance acquisitions or growth capital expenditures using long-term non-recourse debt that fully amortizes within the asset's contracted life at investment grade metrics, as well as retained cash flows from operations, issuance of equity securities through public markets and opportunistic sales of projects, portfolios of projects, or of non-controlling interests in projects or portfolios of projects.
The following table summarizes the total capitalization and debt to
capitalization percentage as of
June 30,
(In thousands) 2020 December 31, 2019
Revolving Credit Facilities1 $ 44,000 $ -
Senior Notes2 1,900,000 1,900,000
Non-recourse long-term debt, including current portion3 4,857,062 4,388,469
Long-term indebtedness, including current portion4 6,801,062 6,288,469
Total stockholders' equity and redeemable non-controlling interests
2,401,858 2,630,792
Total capitalization $ 9,202,920 $ 8,919,261
Debt to total capitalization 74 % 71 %
---
(1)Represents the amounts drawn under our Revolver, and does not include the
$117.7 million of outstanding project-level letters of credit.
(2)Represents corporate senior notes.
(3)Represents asset-specific, non-recourse borrowings and financing lease
obligations secured against the assets of certain project companies.
(4)Represents the total principal due for long-term debt and financing lease
obligations, including the current portion, which excludes $54.1 million and
$53.1 million of net unamortized debt premiums, discounts and deferred financing
costs as of June 30, 2020 and December 31, 2019 , respectively.
65
--------------------------------------------------------------------------------Liquidity Position
We believe we operate with sufficient liquidity to enable us to fund near-term cash distributions, growth initiatives, capital expenditures and withstand sudden adverse changes in economic circumstances or short-term fluctuations in resources. The principal sources of funding are cash flows from operations, revolving credit facilities (including our Revolver and Sponsor Line as discussed and defined below), unused debt capacity at our projects, non-core asset sales and proceeds from the issuance of debt or equity securities through public markets. We actively refinance our non-recourse debt across our portfolio to extend our maturity profile and benefit from any decline in interest rates. As ofJune 30, 2020 , our current liabilities exceeded our current assets by$170.9 million . We do not believe this deficit in working capital has an adverse impact on our cash flows, liquidity or operations since our current liabilities include$164.7 million of long-term non-recourse debt classified as current due to defaults that existed atJune 30, 2020 . We believe there is a reasonable likelihood that we will be, in due course, able to successfully negotiate waivers with the lenders and/or cure the existing defaults. We do not expect any of our financing agreements to be accelerated and we were not notified by any of our lenders to elect to enforce project security interests. See Note 9. Long-term debt to our unaudited condensed consolidated financial statements for additional details.
The following table summarizes corporate liquidity and available capital as of
(In thousands)June 30, 2020
Unrestricted corporate cash$ 10,043 $
54,419
Project-level distributable cash 44,918
44,556
Cash available to corporate 54,961
98,975
Credit facilities:
Committed revolving credit facility 800,000
800,000
Drawn portion of revolving credit facilities (44,000) - Revolving line of credit commitments (117,717)
(115,549)
Undrawn portion of Sponsor Line1 500,000
500,000
Available portion of credit facilities 1,138,283
1,184,451
Corporate liquidity 1,193,244
1,283,426
Other project-level unrestricted cash 204,792
138,505
Project-level restricted cash 98,042 112,020 Available capital$ 1,496,078 $ 1,533,951 --- (1)Represents a$500.0 million secured revolving credit facility (the "Sponsor Line") with Brookfield and one of its affiliates that may only be used to fund all or a portion of certain funded acquisitions or growth capital expenditures. OnJuly 31, 2020 , the Sponsor Line was terminated upon the completion of the Merger Transactions as discussed in Note 17. Related Parties to our unaudited condensed consolidated financial statements.
Debt Service Obligations
We remain focused on refinancing near-term facilities on acceptable terms and maintaining a manageable maturity ladder. We do not anticipate material issues in addressing our borrowings through 2023 on acceptable terms and will do so opportunistically based on the prevailing interest rate environment.
The aggregate contractual principal payments of long-term debt due after
Remainder of
(In thousands) 20202 2021 2022 2023 2024 Thereafter Total
Maturities of long-term
debt1 $ 644,332 $ 311,337 $ 304,861 $ 917,955 $ 320,954 $ 4,301,623 $ 6,801,062
66
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(1)Represents the contractual principal payment due dates for our long-term debt and does not reflect the reclassification of$164.7 million of long-term debt, net of unamortized deferred financing costs of$5.5 million , to current due to debt defaults that existed atJune 30, 2020 . See Note 9. Long-term Debt to our unaudited condensed consolidated financial statements for additional details. (2)Includes the$475.0 million Bridge Facility we entered into onSeptember 25, 2019 , which matures onSeptember 23, 2020 . We have a one-year extension option and intend to complete a refinancing of the balance on a long-term basis prior to maturity. The balance, net of unamortized deferred financing costs, is included within non-current liabilities in the unaudited condensed consolidated balance sheets. The balance, net of unamortized deferred financing costs, is included within non-current liabilities in the unaudited condensed consolidated balance sheets. See Note 9. Long-term Debt to our unaudited condensed consolidated financial statements for additional details.
Cash Distributions to Investors
The following table presents cash distributions declared and paid on Common
Stock during the six months ended
Distributions per Share Declaration Date Record Date Payment Date
2020:
First Quarter $ 0.2014 March 16, 2020 March 27, 2020 March 31, 2020
Second Quarter 0.2014 May 6, 2020 June 1, 2020 June 15, 2020
2019:
First Quarter $ 0.2014 March 13, 2019 March 24, 2019 March 29, 2019
Second Quarter 0.2014 May 8, 2019 June 3, 2019 June 17, 2019
Share Repurchase Program
OnJuly 25, 2019 , our Board of Directors authorized the renewal of our share repurchase program throughAugust 4, 2020 . Under the share repurchase program, we repurchase up to 5% of our Common Stock outstanding as ofJuly 25, 2019 . The timing and the amount of any repurchases of common stock will be determined based on our evaluation of market conditions and other factors. Repurchases of common stock may be made under a Rule 10b5-1 plan, which would permit common stock to be repurchased when we might otherwise be precluded from doing so under insider trading laws, open market purchases, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The program may be suspended or discontinued at any time and does not obligate us to purchase any minimum number of shares. Any repurchased common stock will be held by us as treasury stock. We expect to fund any repurchases from available liquidity.
No shares have been repurchased by us during the six months ended
Incentive Distribution Rights
BRE Delaware, Inc. (the "Brookfield IDR Holder"), an indirect, wholly-owned subsidiary of Brookfield, holds all of the outstanding incentive distribution rights ("IDRs") ofTerra LLC . UnderTerra LLC's limited liability company agreement (as amended from time to time, the "Terra LLC Agreement"), the IDR threshold for a first distribution is$0.93 per share of Common Stock and for a second distribution is$1.05 per share of Common Stock. Under theTerra LLC Agreement, amounts distributed fromTerra LLC are to be distributed on a quarterly basis as follows: •first, to the Company in an amount equal to the Company's outlays and expenses for such quarter; •second, to holders of Class A units, until an amount has been distributed to such holders of Class A units that would result, after taking account of all taxes payable by the Company in respect of the taxable income attributable to such distribution, in a distribution to holders of shares of Common Stock of$0.93 per share (subject to adjustment for distributions, combinations or subdivisions of shares of Common Stock) if such amount were distributed to all holders of shares of Common Stock; •third, 15% to the holders of the IDRs and 85% to the holders of Class A units until a further amount has been distributed to holders of Class A units in such quarter that would result, after taking account of all taxes payable by the Company in respect of the taxable income attributable to such distribution, in a distribution to holders of shares of Common Stock of an additional$0.12 per share (subject to adjustment for distributions, combinations or subdivisions of shares of Common Stock) if such amount were distributed to all holders of shares of Common Stock; and 67
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•thereafter, 75% to holders of Class A units and 25% to holders of the IDRs.
There were no IDR payments made by us during the six months ended
Changes in Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and money market funds, including restricted cash, with original maturity periods of three months or less when purchased.
Restricted cash consists of cash on deposit in financial institutions that is restricted to satisfy the requirements of certain debt agreements and funds held within our project companies that are restricted for current debt service payments and other purposes in accordance with the applicable debt agreements. These restrictions include: (i) cash on deposit in collateral accounts, debt service reserve accounts and maintenance reserve accounts; and (ii) cash on deposit in operating accounts but subject to distribution restrictions related to debt defaults existing as of the date of the balance sheet. Restricted cash that is not expected to become unrestricted within twelve months from the date of the balance sheet is presented within non-current assets.
The following table reflects the changes in our cash and cash equivalents,
including restricted cash, as of
(In thousands) June 30, 2020 December 31, 2019 Change Cash and cash equivalents$ 259,753 $ 237,480 $ 22,273 Restricted cash, current 37,886 35,657 2,229 Restricted cash 60,156 76,363 (16,207)$ 357,795 $ 349,500 $ 8,295 Cash Flow Discussion
We use measures of cash flow, including net cash flows from operating activities, investing activities and financing activities, to evaluate our periodic cash flow results.
Six Months Ended
The following table reflects the changes in cash flows for the comparative
periods:
Six Months Ended June 30,
(In thousands) 2020 2019 Change
Net cash provided by operating activities $ 176,697 $ 176,487 $ 210
Net cash (used in) provided by investing activities (54,879) 6,442 (61,321)
Net cash used in financing activities (114,359) (255,986) 141,627
Net Cash Provided by Operating Activities
Net cash provided by operating activities was$176.7 million for the six months endedJune 30, 2020 compared to$176.5 million for the same period in the prior year.
Net cash used in investing activities for the six months endedJune 30, 2020 , was$54.9 million , which consisted of$78.7 million in payments to acquire businesses, net of cash acquired and$18.1 million for capital expenditures. These payments were partially offset by (i)$38.8 million in proceeds from the settlement of foreign currency contracts used to hedge the exposure associated with foreign subsidiaries, (ii)$2.7 million in proceeds from other investing activities and$0.4 million in proceeds received from a government rebate for certain costs previously incurred for capital expenditures. Net cash provided by investing activities for the six months endedJune 30, 2019 was$6.4 million , which consisted of the proceeds from the settlement of foreign currency contracts used to hedge the exposure associated with foreign subsidiaries of$30.5 million , the receipt of$3.6 million of proceeds received from a government rebate for certain costs previously incurred for capital 68 -------------------------------------------------------------------------------- expenditures and other investing activities of$1.2 million that were partially offset by a payment of$18.3 million for the acquisition of renewable energy facilities net of cash acquired and payments of$10.6 million for capital expenditures.
Net cash used in financing activities for the six months endedJune 30, 2020 , was$114.4 million , which consisted of (i)$331.6 million principal payments on non-recourse debt, (ii)$91.0 million payments of cash distributions to our Class A common stockholders, (iii) net payments of$33.3 million to non-controlling interests, (iv) payments to terminate interest swaps of$16.3 million and (v) other financing activities of$1.0 million . This was partially offset by (i)$314.8 million in proceeds from non-recourse debt financing net of deferred financing fees and (ii)$44.0 million of net draws on our Revolver. Net cash used in financing activities for the six months endedJune 30, 2019 , was$256.0 million , primarily due to$156.7 million principal payments on non-recourse debt and deferred financing costs, a$1.8 million principal payment on our Term Loan,$84.0 million dividend payments to our Class A common stockholders and net payments of$6.0 million payments to non-controlling interests in renewable energy facilities, which were partially offset by$187.0 million of net draws on our Revolver and$179.4 million in proceeds from non-recourse debt financing.
Off-Balance Sheet Arrangements
We enter into guarantee arrangements in the normal course of business to facilitate commercial transactions with third parties. See Note 16. Commitments and Contingencies to our unaudited condensed consolidated financial statements included in this Report for additional discussion.
Critical Accounting Policies and Estimates
The accompanying unaudited condensed consolidated financial statements provided herein were prepared in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"). In preparing the accompanying financial statements, we have applied accounting policies and made certain estimates and assumptions that affect the reported amounts of assets, liabilities, stockholders' equity, revenues and expenses, and the disclosures thereof. While we believe that these policies and estimates used are appropriate, actual future events can and often do result in outcomes that can differ from these estimates. The accounting policies and related risks described in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 , are those that depend most heavily on these judgments and estimates. As ofJune 30, 2020 , the only notable changes to the significant accounting policies described in our Annual Report on Form 10-K are with respect to our adoption of the new accounting pronouncements described in Note 2. Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements.
Recently Issued Accounting Standards
See Note 2. Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements included in this Report for disclosures concerning recently issued accounting standards. These disclosures are incorporated herein by reference.
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