EQUITY RESEARCH REPORT

Buy Recommendation/Initiation of Coverage

TERRAFORM GLOBAL (GLBL)

A Misunderstood Orphan

Terraform Global is a stressed, unloved

yieldco that had a rough start after its
IPO due to the downfall of SunEdison,
the companys sponsor which launched
Terraform Global as an entity for it to
sell renewable energy projects to.

Varying levels of investor fear created

by the SunEdison bankruptcy and the
lack of recent financial statements
seems to be a primary driver of the
stock price as of late. I believe that this
fear creates an opportunity.

TerraForm Global appears to be ripe for

a take private transaction that would
likely net a reasonable premium to
current prices.

In a sneak peek of financial

information provided by the company
to bondholders (in order to remain in
compliance with certain covenants), the
company seems to have made
reasonable progress since Q3 2015.

A DCF analysis under the assumption

that the company invests $500M of its
massive cash pile in acquiring new
projects at historical costs per Watt
with similar PPA arrangements puts my
price target on the company at $6.86.

Terraform Global will likely produce $11.50/share in cash available for

distribution in FY2016, dependent on a
number of variables.

Rating: BUY*
Price (9/9/2016): $3.66
12M Target Price: $6.86
52W Range: $1.92 - 9.70
Market Cap ($M): 652
Enterprise Value ($M): 1,122
* Speculative Buy

_______________________
Research Analyst:
Endeavor Analytics
9 September 2016
Butler University United States
Renewable Energy - Yieldco

GLBL 1 Year Price Chart

EQUITY RESEARCH REPORT

9 September 2016
Butler University United States
Equity Research
Renewable Energy - Yieldco

Key Highlights
Business Description & History
TerraForm Global owns and operates contracted clean power generation assets. The company offers
wind, geothermal, hydroelectric, and hybrid energy solutions. TerraForm Global serves customers
worldwide, primarily in emerging markets.
TerraForm Global acts essentially as a REIT and seeks to pay out cash available for distribution as
dividends to shareholders. The company was sponsored by SunEdison and was spun off as an entity that
it could sell emerging market renewable energy projects to in mid-2015, though after SunEdisons
bankruptcy within a year or so after its initial IPO, the company seemed to have lost favor in the market.

Revenue and Cost Drivers

The company generates income through purchasing and operating clean power generation assets with
fixed power purchase agreements (PPAs) with creditworthy counterparties. As of 6/30/2016 TerraForm
Global had $769M in cash and ~$1.2B in clean power generation facilities. This obviously leaves the
company with the ability to significantly grow its income and CAFD (cash available for distribution) as it
acquires projects over the next few years.
The companys primary cost driver is interest expense, as the capital requirements for purchasing clean
power generation facilities are immense. TerraForm Global currently has ~$800M in Senior Notes due
2022 carrying an interest rate of 9.75%. Having so much uninvested cash on hand is clearly detrimental
to the company, so as previously stated the company should focus on quickly acquiring high quality
generation facilities to unlock value for its stockholders.
In my DCF model, explained in detail later, I assumed that the company will spend $500M on acquiring
clean power generation facilities through the end of 2018. The company could be much more or much
less aggressive than this, but even with this moderately aggressive level of investment the company can
create substantial value for shareholders. Even at current investment levels the company is capable of
being somewhat profitable, so after creating my DCF model (detailed later in this report), I am very
optimistic about what a fully invested TerraForm Global can do for its shareholders.

Management Commentary
TerraForm Global has had some shakeups in its board of directors recently with multiple directors being
replaced over the past year. Many on the board of directors are/were affiliated with SunEdison, which at
this point stands opposed to the company as it still owes TerraForm Global a substantial sum for the
India projects it failed to deliver.

LUCAS ZIMMERMAN

EQUITY RESEARCH REPORT

9 September 2016
Butler University United States
Equity Research
Renewable Energy - Yieldco

The management team at TerraForm Global appears to be supremely competent given the situation
they were placed into and all appear to be well qualified for turning around a seemingly stressed
company. The COO appears to have extensive experience in restructuring and is a member of both the
American Bankruptcy Institute and the Association of Solvency and Restructuring Advisors, which makes
me nervous on one hand, though on the other hand that experience likely proved in valuable in the
recent deal made with bondholders which removed events of default and generated a one-time interest
savings of ~$20M for the company.
Even through these extremely uncertain times (due to the lack of formal financial statements since Q3
2015), I believe that management and the board are generally fighting the image that TerraForm Global
is reliant on SunEdison and have done a reasonably good job at moving the company forward in these
uncertain times.
Institutional Holders
As of 6/30/2016, major institutional holders have been piling in with little significant selling pressure.
Many of these are LPs and hedge funds, signaling that active managers likely see notable potential for
value creation in the stock. This trend holds across every 3 month filing period since 9/30/2015, as even
among all of this uncertainty, institutional investors have not wavered much and see the potential in the
companys common stock.

LUCAS ZIMMERMAN

EQUITY RESEARCH REPORT

9 September 2016
Butler University United States
Equity Research
Renewable Energy - Yieldco

Insider Transactions
I only have information on insider transactions through the end of 2015, so the relevancy of this data
may be somewhat limited due to its incomplete nature, but through the end of last year insider
transactions were overwhelmingly positive. While we can ignore awards, the lack of insider selling is
positive. Though seeing how insiders reacted to the SunEdison bankruptcy and the uncertainty of the
last year would be much more insightful information.

LUCAS ZIMMERMAN

EQUITY RESEARCH REPORT

9 September 2016
Butler University United States
Equity Research
Renewable Energy - Yieldco

The Yieldco Sector: A Fallen Angel

The yieldco concept was once extremely popular on Wall Street and was seen as an extremely low risk
way to add yield to a portfolio, and thus everything that could be considered a yieldco was bid up to
high stock prices, often to a point where their yields were less than that of standard utilities. Once the
buzz around yieldcos wore off and companies such as Moodys doubted the extremely high
creditworthiness that yieldcos were promised to have, stock prices plummeted.
Below is a quick visualization of how these valuations grew rapidly and then plummeted even more
rapidly. The below chart shows the stock prices of 8 popular yieldcos over a 3-year period. It is
interesting how even though every yieldco has different characteristics than the rest, essentially every
yieldco moved in lock step with one another from late 2014 through late 2015. Since then, logic has
prevailed as the prices of the yieldcos finally separated. It appears that the various yieldcos are now
being priced based on the merits of the companies themselves rather than on the whims of the crowd
towards the sector as a whole.

LUCAS ZIMMERMAN

EQUITY RESEARCH REPORT

9 September 2016
Butler University United States
Equity Research
Renewable Energy - Yieldco

Financial Analysis
Ratio Analysis & Credit Metrics: General Assumptions Based on Insufficient Information
Due to the unique situation TerraForm Global is in, we have less than a year of financial filings on hand
and no up to date financial statements. We simply know their cash and debt situation as well as what
assets they have obtained since Q3 2015 due to the supplemental information provided to bondholders.
Due to this, ratio and time series analysis would be meaningless endeavors, so I will have to speak in
generalities.
Overall, the company is very liquid due to their large cash pile (which is approaching $800M), with a
quick ratio of 6.6x as of Q3 2015. As of the last filing, total assets were roughly double total liabilities. Its
unlikely that this ratio has significantly changed due to the nature of the yieldco business model.
TerraForm Globals 9.75% Senior Notes: Tales of a Buyout
Among all of the chaos surrounding TerraForm Global as a result of the SunEdison bankruptcy, both the
equity and the bonds tanked. This happened primarily out of fear, though there were a few obvious
downsides for TerraForm Global. Namely, higher SG&A expenses, more competitive bidding for projects,
the lack of interest payment support for SUNE and the potential total loss of the money TerraForm
Global transferred to SUNE as deposit for Indian solar projects it intended to purchase.

In April, the bonds tanked to as low as 66.25 while the equity traded as low as $1.92. The equity has
recovered somewhat to $3.65 and the bonds have recovered to all-time highs and were last traded
above par, at 100.26. So why is the equity still trading at a price that signals default is likely and interest
payments are unlikely to resume, while the bonds are trading at a premium? I have a theory.

LUCAS ZIMMERMAN

EQUITY RESEARCH REPORT

9 September 2016
Butler University United States
Equity Research
Renewable Energy - Yieldco

Above is a chart of the 12-month default (12md) probability of TerraForm Globals 9.75% Senior Notes,
which compose the vast majority of Terraform Globals debt. The above uses credit default swap (CDS)
data to visualize the 12md probability. If one compares bond pricing and the 12md data from the
previous two charts, you can see that while bond prices have recovered as 12md probability data
improves, the 12md probability is still higher than it was before the SunEdison bankruptcy though the
bonds are trading at all time highs. It doesnt make any sense on the face of it. Though when one
considers the recently updated indenture agreement that management put together with bondholders,
it starts to make sense.
The recent agreement waives all events of default for TerraForm Global and gives them a ~4-month
period of 4% interest, which saves the company about $20M. Why would bondholders agree to this?
Other than a few typical restrictions on future indebtedness, the new indenture agreement stipulates
that all of the 9.75% Senior Notes must be redeemed at 101% of par (by TerraForm Global or its
Acquirer) in the event of a change of control (ex: If TerraForm Global is acquired or SunEdisons equity
interests in the company are sold) approved by the board of directors. This appears to be a poison pill
of sorts, by making any company purchasing SunEdisons Class B shares liable for redeeming all of the
Senior Notes (unless in the extremely unlikely event that the board of directors somehow approves a
transaction where they redeem the notes themselves). This makes a leveraged buyout take private
transaction the only reasonable way of SunEdison selling its equity interests, which it really needs to do.
At current equity prices, considering the asset base and cash pile of TerraForm Global, a take private
transaction would make sense as well.
It seems to me that bondholders have bid up the bonds to pennies below 101 in the belief that an
acquisition is extremely likely. I dont see why these bonds would be bid up to all time highs (on a
dimmer outlook than pre-SUNE bankruptcy) for any other reason. While the company is very liquid and
not at substantial risk of defaulting on the bonds, it is still a stressed enterprise, so to see their bonds
trading above par for any other reason seems silly to me.
SunEdison is currently looking to monetize its Class B shares in its Yieldco holdings, both in TerraForm
Global and in TerraForm Power (its developed market yieldco). These Class B shares are not entitled to
LUCAS ZIMMERMAN

EQUITY RESEARCH REPORT

9 September 2016
Butler University United States
Equity Research
Renewable Energy - Yieldco

distributions like the Class A shares and represent only 35% of shares outstanding but ~84% of voting
power. One should note that these are separate entities and management/the board of directors must
act in the best interest of shareholders and not in the best interests of SunEdison. TerraForm Global
actually sued SunEdison for funds it is owed, so I believe that SunEdisons voting power still wont allow
it to get away with any funny business.
If these were converted to Class A shares, the owner of the Class B shares would likely lose their control
of the company and would dilute the Class A Shares by nearly 50% (my DCF model assumes continued
operation without a take private transaction and therefore does not assume that the Class B shares are
converted, though the dilution would reduce my PT to $4.59 if they were converted). I dont assume an
acquisition because it is prohibitively difficult to value their assets without seeing how TerraForm
Powers bidding process values it first.
There are currently various potential bidders for SunEdisons Class B shares in TerraForm Power. The
Hedge Fund manager D.E. Shaw, a holder of nearly 7% of TerraForm Powers common stock, noted that
its bid could result in taking the company private. Bids are not yet in and it is yet to be seen what kind
of valuation TerraForm Power is assigned in the bidding process. I would imagine that they would sell at
a notable premium to current prices (especially because GLBLs emerging market projects can generally
fetch a higher valuation per MW than TERPs developed market projects), especially considering how
the bidding for TerraForm Power is expected to be competitive, though this crucial piece remains to be
seen.
TerraForm Power recently approved a rights agreement which makes acquisitions difficult for a minority
of shareholders to block. It appears that management is lubricating a potential acquisition as well by
eliminating possible roadblocks. I would expect TerraForm Global to take similar action once SunEdison
begins selling its stake in the company. Below is a relevant excerpt from a recent 8-K:
Peter Blackmore, Chairman and Interim CEO of TerraForm Power, said, "The Rights Agreement was adopted in
response to the potential sale of a significant equity stake in TerraForm Power by SunEdison and the announced
accumulation of TerraForm Power Class A shares by entities affiliated with Brookfield Asset Management. The
TerraForm Power Board of Directors believes it is in the best interests of all TerraForm Power stockholders for
acquisition proposals for all or a portion of the TerraForm Power equity interests to be able to emerge in an
environment free of a blocking position accumulated by possible bidders."

SunEdison has already noted that it is exploring ways to monetize its TerraForm Global Class B shares, so
it appears that bondholders are anticipating some sort of take-private deal, as it is the only change of
control transaction that I can personally see the board of directors approving of considering the new
stipulation laid out by bondholders in the updated indenture agreement.
Valuation Analysis
For my DCF model (see below), I assumed that the company invests 500M in clean power generation
assets over the next 2 years. This would leave it with nearly 400M in liquidity (incl. of revolver) to both
resume dividend payouts and to redeem the 9.75% Senior Notes due 2022 a few years from now
(though these Senior Notes could likely be refinanced by more debt). I believe a 10% discount rate is
LUCAS ZIMMERMAN

EQUITY RESEARCH REPORT

9 September 2016
Butler University United States
Equity Research
Renewable Energy - Yieldco

most appropriate, as the companys WACC is ~10.08% inclusive of project level debt. I did not utilize a
perpetuity growth rate due to the companys fixed PPA business model, but rather I included the
ongoing revenues from the 500M of additional clean power generation assets.
I assumed a 25.5% capacity factor for the companys clean power generation assets at $98/MWh, which
are midpoint assumptions taken from company filings. These factors led me to my $6.86 price target.

Risk Factors

Possible delisting from NASDAQ due to its failure to file financial statements
o Delisting possible as early as September 24th
o If the companys hearing is approved, the delisting decision will be made in mid-October
o This could create a buying opportunity as well and make a take private transaction more
attractive for a potential acquirer
The company may have a difficult time building up a pipeline of projects to acquire
If the company isnt taken private, value creation for shareholders may take a few years
There are numerous unforeseeable risks as well which are inherent to stressed equities

Conclusion
TerraForm Globals stock price is currently driven by fear among this uncertainty, though the company is
fundamentally capable of executing a strategy that can create substantial value for shareholders, with or
without a take private transaction.
I rate TerraForm Global a speculative buy and place a $6.86 price target on the company.
Disclosure: I currently have no position in GLBL, though I may initiate a position over the next 72 hours.
Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than
from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. This article is
purely my opinion and should not be taken as investment advice of any kind. Investors are always reminded that before making
any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article.
Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any
material in this article should be considered general information, and not relied on as a formal investment recommendation.
LUCAS ZIMMERMAN