The major story this week is the huge high-yield green bond from the yieldco TerraForm Power Operating; seeing more high-yield bonds is a sign that the green bond market is continuing to mature. In addition to TerraForm, more green bonds from repeat issuers OPIC, World Bank, IFC and Credit Agricole have been announced and will be closing in the coming weeks. For today, let’s dig deeper into the latest green high-yield offering.
The US-based renewable energy company TerraForm Power Operating has issued US$800m of senior unsecured green bonds (debentures), making it the largest green bond of 2015 so far. TerraForm Power Operating is a subsidiary of TerraForm Power Inc, a yieldco, spun out from the renewable energy developer SunEdison, meaning its fully focused on operating renewable energy assets.
The bond has 8-year tenor and fixed coupon of 5.875%. The bond issuance is sub-investment (junk) grade, with Moody’s rating the offering as B1 and S&P rating as BB-. The lead underwriters were Barclays Capital, Bank of America Merril Lynch, Citi, Goldman Sachs, Macquarie Securities and Morgan Stanley.
Terraform will use the proceeds in part for the acquisition of wind and solar power generation assets from First Wind. Proceeds will also service existing debt used to purchase or develop other renewable energy projects. The acquisition from First Wind will make the asset base 2/3 solar and 1/3 wind, totalling 1503MW - mainly located in the US, but also in Canada, Chile and the UK.
TerraForm provides a good level of transparency as a yieldco disclosing asset level information on their existing portfolio and the First Wind acquisition on their website. It would be good to see a commitment to report on use of proceeds of the bond, though investors can take comfort in knowing that all TerraForms assets are renewable energy.
Great to see that pure play renewable energy companies decide to add the green bond label on to their issuances. The larger investment universe provided by the green label is beneficial both for discovery and liquidity in the market. The potential for pure plays to label their bonds as green is still massively untapped: we estimated in June last year that the total outstanding bond issuances for climate solutions stands at US$502.6bn - a magnitude of difference from the labelled green market. So, here’s a challenge for the pure plays out there - get on labelling your bonds as green.
Our blogs are written by a team: Sean Kidney, Tess Olsen-Rong, Beate Sonerud, with a bit of help from Justine Leigh-Bell.
