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Rating Action:

Moody's downgrades TerraForm Power and TerraForm Global to B3 CFR; outlook negative

24 Feb 2016

New York, February 24, 2016 -- Moody's Investors Service, ("Moody's") today downgraded the Corporate Family Rating (CFR) of TerraForm Power Operating LLC (TPO) and TerraForm Global Operating LLC (TGO) to B3 from B2. The unsecured debt rating at both TPO and TGO were downgraded to Caa1 from B3, and the Probability of Default rating at both TPO and TGO were downgraded to B3-PD from B2-PD. The Speculative Grade Liquidity (SGL) rating of TPO was lowered to SGL-4 and the SGL of TGO was maintained at SGL-3. The rating outlook of both entities is negative. TPO and TGO are subsidiaries of TerraForm Power Inc (TERP) and TerraForm Global Inc (GLBL), respectively, which are the publicly listed YieldCos and subsidiaries of sponsor SunEdison Inc (SUNE, unrated).

Downgrades:

..Issuer: TerraForm Global Operating, LLC

.... Probability of Default Rating, Downgraded to B3-PD from B2-PD

.... Corporate Family Rating, Downgraded to B3 from B2

....Senior Unsecured Regular Bond/Debenture, Downgraded to Caa1 (LGD 5) from B3 (LGD4)

....

..Issuer: TerraForm Power Operating LLC

.... Probability of Default Rating, Downgraded to B3-PD from B2-PD

.... Speculative Grade Liquidity Rating, Downgraded to SGL-4 from SGL-3

.... Corporate Family Rating, Downgraded to B3 from B2

....Senior Unsecured Regular Bond/Debenture, Downgraded to Caa1 (LGD 5) from B3 (LGD 5)

Outlook Actions:

..Issuer: TerraForm Global Operating, LLC

....Outlook, Remains Negative

..Issuer: TerraForm Power Operating LLC

....Outlook, Remains Negative

Affirmations:

..Issuer: TerraForm Global Operating, LLC

.... Speculative Grade Liquidity Rating, Affirmed SGL-3

RATINGS RATIONALE

Rating Rationale

"Our rating action reflects heightened concerns around the solvency of SunEdison as well as liquidity considerations at the yieldcos, with TERP likely needing additional capital in 2016 to meet obligations under the Vivint asset purchase commitment agreement", said Swami Venkataraman, Moody's Vice President -- Senior Credit Officer. "In our opinion, both TERP and GLBL exhibit stronger credit quality than parent SUNE because their cash flows remain stable. However, our rating incorporates a low but not negligible probability that one or both yieldcos may eventually end up in bankruptcy proceedings as a result of a SUNE bankruptcy", he added.

We believe that the fundamental credit quality of both TERP and GLBL has been weakened as they have not been able to terminate or otherwise eliminate certain of their financial obligations. In TERP's case, while the ultimate obligation to purchase the Invenergy assets always resided with TERP, the initial plan called for SUNE to own a part of the portfolio in a warehouse and for the assets to be dropped into TERP over time. SUNE's inability to raise capital resulted in TERP purchasing all of the assets in 2015.. In addition, TERP signed an amended "purchase commitment" that reduced its prior obligation but will potentially still require it to purchase 400-450 MW of rooftop systems from Vivint annually for up to five years. This obligation, along with the requirement to purchase other assets from SUNE, will require TERP to incur additional non-recourse debt, sell assets or access the capital markets in 2016 as its liquidity is limited, although the obligations would fall away if SUNE is successful in selling these assets to third-parties. We estimate that TERP will need to draw down a substantial all of its $725 million revolver, accounting for the downgrade of its SGL rating to SGL-4 from SGL-3. Proforma for the Invenergy acquisition that closed in Dec 2015, we estimate that TERP's Debt/EBITDA stands at about 6.9x, and cash flow coverage of interest and debt at 2.57x and 8.5%, respectively.

In our opinion GLBL has also stepped up to support SUNE, with SUNE selling it 425 MW of solar projects in India. GLBL pre-paid $231 million for these assets in Q4 2015, with an adjustment to the price paid to be made as the projects are completed and transferred in 2016. GLBL is yet to complete four of its originally planned acquisitions (under construction or pending project lender or governmental approvals) and one planned acquisition has been terminated by SUNE. As a result the company did not need external capital to complete the Indian solar acquisition and we estimate still has approximately $800 million of cash balances as of Dec 31, 2015 and full availability of its $485 million revolving credit facility, leading us to keep GLBL's SGL rating unchanged at SGL-3.

On January 7, 2016, when SUNE completed its $725 million second lien debt and exchange offer, the company disclosed that it had $1.1 billion of cash on hand proforma for the debt issuance. We estimate that about $500 million of this amount likely resides at various projects currently under construction and a majority of this amount is not really free cash available to meet liquidity needs. A portion of this cashincludes EPC profits retained temporarily at the projects by SUNE, which normally acts as the EPC contractor for all the projects it develops, and which we believe is likely available for general liquidity if needed. SUNE has about $200 million in interest payments and approximately $600 million in G&A expenses for 2016. Even if one assumes $200 million of EBITDA at SUNE's services business as forecasted by the company, this leaves SUNE dependent upon sales of developed assets to maintain its solvency.

SUNE's challenging financial position and heightened bankruptcy risk also contributed to the downgrade since it raises the possibility, although unlikely, that the yieldcos may be pulled into a SUNE bankruptcy. When SUNE added independent directors to the board in November 2015, the CEO and the CFO of both TERP and GLBL were replaced and two former independent directors resigned, in our opinion it strengthened each yieldco's connection with SUNE rather than reinforcing their independence. The new Chairman of both yieldcos was a director on SUNE's board, and the CEO also acts as SUNE's CFO. The current board of both yieldcos consists of 4 independent directors and 3 representatives from SUNE. SUNE's ability to sell assets to the yieldcos also illustrates this increasingly close relationship.

The yieldcos will face collateral consequences from a SUNE bankruptcy and at some point, it is possible that their boards may need to make an independent decision as to whether the yieldcos themselves may need to be filed into bankruptcy. In our view, there are a number of factors that reduce the risk of a voluntary bankruptcy filing by TERP or GLBL including: (i) The companies are currently able to meet all of their obligations and are not themselves insolvent; (ii) SUNE only has a minority economic interest in both yieldcos, though it controls both companies through class B shares; (iii) Both TERP and GLBL are publicly listed Delaware corporations rather than wholly owned SPVs and Delaware law imposes fiduciary duties on a company's directors; and (iv) a voluntary filing of either yieldco requires a vote of a majority of three independent directors on the yieldco's "corporate governance and conflicts committee".

The assets and cash flows of the yieldcos would only be available to SUNE's creditors in case of a SUNE bankruptcy if a substantive consolidation of the yieldcos into a SUNE bankruptcy were ordered by a bankruptcy judge. Although we consider the likelihood of this event to be remote, since all three companies have operated as clearly separate legal entities with their own boards, capital structures and financing documents, it is not impossible that a bankruptcy court might reach a different result. At the time of the original ratings of TERP and GLBL, Moody's was also provided with non-consolidation opinions from an external counsel.

Liquidity

TPO has an SGL-4 rating while TGO has an SGL-3 rating. We project TERP'S liquidity is weaker because of our expectation that they will draw substantially all of their revolver while we project that TGO has approximately $800 million of cash balances and full availability of its $485 million revolving credit facility. TERP's liquidity is also affected by its need to raise additional capital in relation to Vivint related asset purchase obligations should that acquisition close.

Outlook: The negative outlook primarily reflects liquidity and solvency risks at SUNE and the possibility that TPO and TGO may be drawn into a SUNE bankruptcy, should it occur.

What could change the rating Up?

Limited near term prospects exist for a rating upgrade. However, if SUNE is able to either successfully close or terminate the Vivint acquisition, a stable outlook on TPO and TGO could be considered. This would also require a high degree of certainty that SUNE will not file for bankruptcy and is able to successfully continue as a going concern. A stable outlook would also require that TPO and TGO are not saddled with additional financial obligations that pressure their financial profiles and that they continue to maintain adequate liquidity to support their operations

What could change the rating Down?

Ratings at both TPO and TGO could be lowered further if we perceive an increase in the risk at TPO and TGO from a bankruptcy filing at SUNE. Moreover, we will assess how recent management changes at SUNE, TERP and GLBL impact financing plans around the completion of near-term acquisitions, both yieldcos' strategic direction, SUNE's liquidity profile and corporate governance practices, especially how TERP and GLBL's independent directors view and react to ongoing developments.

The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in October 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Swami Venkataraman, CFA
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades TerraForm Power and TerraForm Global to B3 CFR; outlook negative
No Related Data.
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