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Nov 4, 2019

CPPIB buys renewable power company Pattern Energy

CPPIB makes multi-billion dollar bet on renewable energy


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Canada Pension Plan Investment Board agreed to buy Pattern Energy Group Inc. in a deal valued at US$2.6 billion as big investors chase wind and solar farms that had lost luster on Wall Street.

The Toronto-based pension giant will pay US$26.75 a share for Pattern, a 3.8-per-cent discount to Friday’s closing price, according to a statement. Pattern’s stock is up about 16 per cent since August following reports that the so-called yieldco had drawn interest from suitors including Brookfield Asset Management Inc.

Yieldcos, which operate wind and solar farms and promise growing dividends, were darlings on Wall Street five years ago and fell out of favor as clean-energy giant SunEdison Inc. stumbled toward bankruptcy. But large investors including BlackRock Inc., Global Infrastructure Partners and Brookfield see significant value in their clean-energy projects, which boast steady returns and long-term contracts.

“The yieldco as a vehicle has become somewhat maligned,” BloombergNEF analyst Ethan Zindler said in an interview. “These portfolios could find a better home privately.”

Pattern’s shares fell as much as 3.3 per cent to US$26.89 Monday. That’s still above CPPIB’s price, indicating that investors believe a higher offer may be pending. The deal gives Pattern 35 days to entertain other suitors.

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Pattern Energy Group is the latest yieldco to draw a buyout offer. Last year, Swiss asset manager Capital Dynamics bought the yieldco 8Point3 Energy Partners LP for US$977 million. The previous year, Brookfield bought TerraForm Global Inc. for US$750 million. It also bought a controlling stake in TerraForm Power Inc. from SunEdison.

Yieldcos emerged more than six years ago and became major growth engines for U.S. renewable power. They allowed developers to sell solar farms to publicly-traded yieldcos they controlled and reinvest the cash to build more. Then SunEdison collapsed after relying on two yieldcos to finance a dizzying buying binge. Questions arose about its governance, and investors began to doubt whether the yieldcos could continue to pay rising dividends.

Still, the yieldco model may be making a comeback. Goldman Sachs Group Inc. has launched one that has amassed at least one gigawatt of solar arrays, enough to power about 725,000 homes. The firm has sketched out plans to take the company public in the next few years.

Development Arm

Pattern has 28 wind and solar projects in the U.S., Canada and Japan, as well as development projects in Mexico. The San Francisco-based company on Monday reported US$119 million in revenue in the third quarter, meeting the average analyst estimate, according to a separate statement.

Separately, CPPIB has agreed to purchase Pattern’s development arm at an undisclosed price, said Bruce Hogg, head of power & renewables at the Canadian fund.

“Pattern is attractive because it provides scale for us and a portfolio of assets that fits our requirements,” Hogg said in an interview.

Pattern Chief Executive Officer Michael Garland, who has run the company for more than a decade, will lead the combined enterprise that includes both Pattern Energy and Pattern Energy Group Holdings 2 LP, a development company. The transaction is expected to close by the second quarter. Pattern will continue paying quarterly dividends until the deal closes, according to the statement.

The deal will be financed with US$2.6 billion of equity from CPPIB and includes US$1 billion in committed debt financing, according to a Pattern presentation Monday.

Pattern “reviewed multiple bids as part of a thorough process that involved multiple parties,” Chairman Alan Batkin said in the statement.