Notes to Consolidated Financial Statements
(Unaudited)
1.
Organization
Pattern Energy Group Inc. (Pattern Energy or the Company) was organized in the state of Delaware on October 2, 2012. Pattern Energy is an independent energy generation company focused on constructing, owning and operating energy projects with long-term energy sales contracts located in the United States, Canada and Chile. Pattern Energy Group LP (Pattern Development 1.0) owns a
19%
interest in the Company. The Pattern Development Companies (Pattern Development 1.0, Pattern Energy Group 2 LP (Pattern Development 2.0) and their respective subsidiaries (other than the Company and the Company's subsidiaries)) are leading developers of renewable energy and transmission projects.
The Company consists of the consolidated operations of certain entities and assets contributed by, or purchased principally from, Pattern Development 1.0, except for purchases of Lost Creek, Post Rock and certain additional interests in El Arrayán, each as defined below, which were purchased from third-parties. Each of the Company's wind projects and certain assets are consolidated into the Company's subsidiaries which are organized by geographic location as follows:
|
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•
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Pattern US Operations Holdings LLC (which consists primarily of
100%
ownership of Hatchet Ridge Wind, LLC (Hatchet Ridge), Spring Valley Wind LLC (Spring Valley), Pattern Santa Isabel LLC (Santa Isabel), Ocotillo Express LLC (Ocotillo), Pattern Gulf Wind LLC (Gulf Wind) and Lost Creek Wind, LLC (Lost Creek), as well as the following consolidated controlling interest in Pattern Panhandle Wind LLC (Panhandle 1), Pattern Panhandle Wind 2 LLC (Panhandle 2), Post Rock Wind Power Project, LLC (Post Rock), Logan's Gap Wind LLC (Logan's Gap) and Fowler Ridge IV Wind Farm LLC (Amazon Wind Farm Fowler Ridge));
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•
|
Pattern Canada Operations Holdings ULC (which consists primarily of
100%
ownership of St. Joseph Windfarm Inc. (St. Joseph) and noncontrolling interests in South Kent Wind LP (South Kent), Grand Renewable Wind LP (Grand), K2 Wind Ontario Limited Partnership (K2), and SP Armow Wind Ontario LP (Armow) which are accounted for as unconsolidated investments); and
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|
•
|
Pattern Chile Holdings LLC (which includes a controlling interest in Parque Eólico El Arrayán SpA (El Arrayán) and controlling interest in Don Goyo Transmisi
ó
n S.A. (Don Goyo), a transmission asset of El Arrayán).
|
On April 21, 2017, the Company acquired controlling interests in the two wind projects that comprise the
324
megawatt (MW) Broadview Wind power facilities (Broadview) and associated independent
35
-mile
345
kV Western Interconnect transmission line (Western Interconnect) from Pattern Development 1.0 (Broadview Transaction). See Note 14,
Subsequent Events
in the Notes to Consolidated Financial Statements in this Form 10-Q, for further discussion.
2.
Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the results of wholly-owned and partially-owned subsidiaries in which the Company has a controlling interest with all significant intercompany accounts and transactions eliminated in consolidation.
Unaudited Interim Financial Information
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the interim financial information reflects all adjustments of a normal recurring nature, necessary for a fair presentation of the Company’s financial position at
March 31, 2017
, the results of operations and comprehensive income (loss) for the
three
months ended
March 31, 2017
and
2016
, respectively, and the cash flows for the
three
months ended
March 31, 2017
and
2016
, respectively. The consolidated balance sheet at
December 31, 2016
has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. This Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes contained in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016
.
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates, and such differences may be material to the financial statements.
Reclassification
Certain prior period balances have been reclassified to conform to the current period presentation in the Company’s consolidated financial statements and the accompanying notes.
The Company adopted the provisions of Accounting Standards Update (ASU) 2016-18
Statement of Cash Flows (Topic 230): Restricted Cash
as of December 31, 2016 and has revised its consolidated statements of cash flows for the three months ended March 31, 2016 to reflect amounts described as restricted cash and restricted cash equivalents included with cash and cash equivalents in the reconciliation of beginning of period and end of period total amounts shown on the consolidated statements of cash flows.
Reconciliation of Cash and Cash Equivalents and Restricted Cash as Presented on the Statements of Cash Flows
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.
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|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
March 31,
2016
|
December 31,
2015
|
Cash and cash equivalents
|
|
$
|
244,675
|
|
|
$
|
83,932
|
|
|
$
|
90,624
|
|
$
|
94,808
|
|
Restricted cash - current
|
|
8,493
|
|
|
11,793
|
|
|
10,282
|
|
14,609
|
|
Restricted cash
|
|
17,117
|
|
|
13,646
|
|
|
16,835
|
|
36,875
|
|
Cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows
|
|
$
|
270,285
|
|
|
$
|
109,371
|
|
|
$
|
117,741
|
|
$
|
146,292
|
|
Recently Issued Accounting Standards
Except for the evaluation of recently issued accounting standards set forth below, there have been no changes to the Company's evaluation of other recently issued accounting standards disclosed in Note 2,
Summary of Significant Accounting Policies,
in the Notes to Consolidated Financial Statements, contained in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016
.
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02,
Leases,
(ASU 2016-02) which requires lessees to recognize right-of-use assets and lease liabilities, for all leases, with the exception of short-term leases, at the commencement date of each lease. Under the new guidance, lessor accounting is largely unchanged. ASU 2016-02 simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and liabilities. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. The Company does not plan to early adopt, and accordingly, will adopt the new standard effective January 1, 2019. The amendments of this update should be applied using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented. The Company is in the initial stages of evaluating the impact of the new standard on its accounting policies, processes and system requirements. The Company has assigned internal resources in addition to the engagement of a third party service provider to assist in evaluation. The Company is also assessing the accounting impact of the ASU 2016-02 as it applies to its PPAs, land leases, office leases and equipment leases. As the Company progresses further in its analysis, the scope of this assessment could be expanded to review other types of contracts.
In May 2014, the FASB issued a new standard, ASU 2014-09, which creates ASC Topic 606
, Revenue from Contracts with Customers
and supersedes ASC Topic 605,
Revenue Recognition
(ASU 2014-09). The new standard replaces industry-specific guidance and establishes a single five-step model to identify and recognize revenue. The core principle of the new standard is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Additionally, the new standard requires the entity to disclose further quantitative and qualitative information regarding the nature and amount of revenues arising
from contracts with customers, as well as other information about the significant judgments and estimates used in recognizing revenues from contracts with customers. In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers
(Topic 606) Principal versus Agent Considerations (Reporting Revenue Gross versus Net
), which clarifies how to apply the implementation guidance on principal versus agent considerations related to the sale of goods or services to a customer as updated by ASU 2014-09. In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers
(
Topic 606
)
Identifying Performance Obligations and Licensing,
which clarifies two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas, as updated by ASU 2014-09.
In May 2016, the FASB issued ASU 2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
, which makes narrow scope amendments to Topic 606 including implementation issues on collectability, non-cash consideration and completed contracts at transition. In December 2016, the FASB issued ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
, which
make additional narrow scope amendments to Topic 606 including loan guarantee fees, impairment testing of contract costs, provisions for losses on construction-type and production-type contracts.
The new standard permits adoption by either using (i) the full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. The Company plans to adopt using the modified retrospective approach. The new standard is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted for annual reporting periods beginning after December 15, 2016. The Company does not plan to early adopt, and accordingly, will adopt the new standard effective January 1, 2018.
The Company is in the initial stages of evaluating the impact of the new standard on its accounting policies, processes and system requirements. The Company has assigned internal resources in addition to the engagement of a third party service provider to assist in evaluation. The Company is also assessing the accounting impact of the new standard as it applies certain elements of its revenue arrangements such as contracts that contain the sale of electricity and related renewable energy credits, contracts that contain volume variability, and contracts that contain modification clauses. The Company is assessing whether revenue agreements that contain the sale of both electricity and renewable energy credits, represent separate performance obligations pursuant to the new standard, which would require the transaction price to be allocated to each of the electricity and the renewable energy credit components based on their relative standalone selling prices. In addition, the Company is assessing if the use of the residual approach is appropriate in determining the standalone selling price for renewable energy credits in situations where the standalone selling price of renewable credits is highly variable or uncertain. Under the residual value approach, the standalone selling price of renewable energy credits would be determined by reference to the total transaction price of the revenue agreement less the sum of the observable standalone selling price of the electricity. Further, the Company is in the process of assessing the disclosure impacts of the new standard to the Company’s systems and processes over revenue recognition. As the Company progresses further in its analysis, the scope of this assessment could be expanded to include other contract elements that could have an accounting impact under the new standard.
The Company continues to assess the potential impacts of the new standard and cannot reasonably estimate quantitative information related to the impact of the new standard on its consolidated financial statements at this time.
3.
Property, Plant and Equipment
The following presents the categories within property, plant and equipment (in thousands):
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March 31,
|
|
December 31,
|
|
2017
|
|
2016
|
Operating wind farms
|
$
|
3,711,183
|
|
|
$
|
3,707,823
|
|
Furniture, fixtures and equipment
|
9,608
|
|
|
9,307
|
|
Land
|
141
|
|
|
141
|
|
Subtotal
|
3,720,932
|
|
|
3,717,271
|
|
Less: accumulated depreciation
|
(625,753
|
)
|
|
(582,109
|
)
|
Property, plant and equipment, net
|
$
|
3,095,179
|
|
|
$
|
3,135,162
|
|
The Company recorded depreciation expense related to property, plant and equipment of
$43.0 million
and
$42.7 million
for the
three
months ended
March 31, 2017
and 2016, respectively.
4.
Variable Interest Entities
The Company has determined that Logan's Gap, Panhandle 1, Panhandle 2, Post Rock and Amazon Wind Farm Fowler Ridge are variable interest entities (VIEs) in accordance with ASU 2015-02 primarily because the tax equity interests in these operating entities lack substantive kick-out and participating rights. The Company determined that as the managing member it is the primary beneficiary of each VIE by reference to the power and benefits criterion under Accounting Standards Codification (ASC) 810,
Consolidation
. The Company considered responsibilities within the contractual agreements, which grant it the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. Such activities include management of the wind farms' operations and maintenance, budgeting, policies and procedures. In addition, the Company has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs on the basis of the income allocations and cash distributions.
The following presents the carrying amounts of the consolidated VIEs' assets and liabilities included in the consolidated balance sheet (in thousands). Assets presented below are restricted for settlement of the consolidated VIEs' obligations and all liabilities presented below can only be settled using the VIE resources.
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March 31,
2017
|
|
December 31,
2016
|
Assets
|
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|
Current assets:
|
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|
|
Cash and cash equivalents
|
$
|
13,109
|
|
|
$
|
12,745
|
|
Restricted cash
|
4,295
|
|
|
4,291
|
|
Trade receivables
|
7,876
|
|
|
6,290
|
|
Prepaid expenses
|
3,914
|
|
|
4,468
|
|
Other current assets
|
1,194
|
|
|
1,456
|
|
Total current assets
|
30,388
|
|
|
29,250
|
|
|
|
|
|
Restricted cash
|
2,354
|
|
|
3,203
|
|
Property, plant and equipment, net
|
1,520,762
|
|
|
1,538,793
|
|
Finite-lived intangible assets, net
|
2,027
|
|
|
2,070
|
|
Other assets
|
13,582
|
|
|
13,622
|
|
Total assets
|
$
|
1,569,113
|
|
|
$
|
1,586,938
|
|
|
|
|
|
Liabilities
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and other accrued liabilities
|
$
|
5,193
|
|
|
12,635
|
|
Accrued construction costs
|
473
|
|
|
709
|
|
Accrued interest
|
75
|
|
|
77
|
|
Other current liabilities
|
1,551
|
|
|
2,090
|
|
Total current liabilities
|
7,292
|
|
|
15,511
|
|
|
|
|
|
Finite-lived intangible liability, net
|
53,796
|
|
|
54,663
|
|
Other long-term liabilities
|
23,420
|
|
|
20,081
|
|
Total liabilities
|
$
|
84,508
|
|
|
$
|
90,255
|
|
5.
Unconsolidated Investments
The Company's unconsolidated investments consist of the following for the periods presented below (in thousands):
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Percentage of Ownership
|
|
March 31,
|
|
December 31,
|
|
March 31,
|
|
December 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
South Kent
|
$
|
4,277
|
|
|
$
|
1,537
|
|
|
50.0
|
%
|
|
50.0
|
%
|
Grand
|
4,695
|
|
|
3,459
|
|
|
45.0
|
%
|
|
45.0
|
%
|
K2
|
95,899
|
|
|
97,051
|
|
|
33.3
|
%
|
|
33.3
|
%
|
Armow
|
127,864
|
|
|
131,247
|
|
|
50.0
|
%
|
|
50.0
|
%
|
Unconsolidated investments
|
$
|
232,735
|
|
|
$
|
233,294
|
|
|
|
|
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Basis Amortization of Unconsolidated Investments
The cost of the Company’s investment in the net assets of unconsolidated investments was higher than the fair value of the Company’s equity interest in the underlying net assets of its unconsolidated investments. The basis differences were attributable to property, plant and equipment and PPAs and are being amortized over the particular assets useful life. For the
three
months ended
March 31, 2017
and
2016
, the Company recorded basis difference amortization for its unconsolidated investments of
$2.8 million
and
$1.2 million
, respectively, in earnings in unconsolidated investments, net on the consolidated statements of operations.
Suspension of Equity Method Accounting
As discussed in Note 2
, Summary of Significant Accounting Policies
in the Company's 2016 Form-10K, the Company may suspend recognition of equity method earnings when the Company receives distributions in excess of the carrying value of its investment, and the Company is not liable for the obligations of the investee nor otherwise committed to provide financial support, the Company recognizes such excess distributions as equity method earnings in the period the distributions occur. Additionally, when the Company's carrying value in an unconsolidated investment is zero and the Company is not liable for the obligations of the investee nor otherwise committed to provide financial support, the Company will not recognize equity in earnings (losses) or equity in other comprehensive income of unconsolidated investments.
During the three months ended March 31, 2017, none of the Company's unconsolidated investments were in suspension. During the three months ended March 31, 2016, the Company's equity method balance for South Kent was zero. In accordance with ASC 323,
Investments - Equity Method and Joint Ventures
, the Company suspended recognition of South Kent's equity method earnings or losses until the fourth quarter of 2016 when South Kent's cumulative equity method earnings exceeded cumulative distributions received and cumulative equity method losses. As the Company has no explicit or implicit commitment to fund losses at the unconsolidated investments, the Company recorded distributions received in excess of the carrying amount of its unconsolidated investments as gains. For the three months ended March 31, 2016, earnings in unconsolidated investments, net as reported on the consolidated statements of operations attributable to South Kent included
$1.7 million
in distributions received in excess of the carrying amount of the Company's investment.
During the suspension period, the Company maintains a memo ledger that records the components of the suspended activity. As of March 31, 2016, the memo ledger balance was made up of distributions received in excess of the carrying amount of the Company's investment of
$1.7 million
.
Aggregate Financial Data for Unconsolidated Investees
The following summarizes the statements of operations, in aggregate, for the unconsolidated investees (in thousands):
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|
Three months ended March 31,
|
|
|
2017
|
|
2016
(1)
|
Revenue
|
|
$
|
100,359
|
|
|
$
|
72,416
|
|
Cost of revenue
|
|
29,589
|
|
|
22,427
|
|
Operating expenses
|
|
714
|
|
|
446
|
|
Other expense
|
|
22,841
|
|
|
38,090
|
|
Net income
|
|
$
|
47,215
|
|
|
$
|
11,453
|
|
|
|
(1)
|
Results for the three months ended March 31, 2016 does not include Armow, which was acquired in October 2016.
|
Significant Equity Method Investees
The following table presents summarized statements of operations information for the
three
months ended
March 31, 2017
and
2016
, in thousands, as required for the Company's significant equity method investees, South Kent, K2 and Armow pursuant to Regulation S-X Rule 10-01(b)(1):
South Kent
|
|
|
|
|
|
|
|
|
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|
|
Three months ended March 31,
|
|
|
2017
|
|
2016
|
Revenue
|
|
$
|
32,154
|
|
|
$
|
28,529
|
|
Cost of revenue
|
|
8,452
|
|
|
7,996
|
|
Operating expenses
|
|
189
|
|
|
189
|
|
Other expense
|
|
6,143
|
|
|
19,689
|
|
Net income
|
|
$
|
17,370
|
|
|
$
|
655
|
|
K2
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
2017
|
|
2016
|
Revenue
|
|
$
|
32,540
|
|
|
$
|
29,850
|
|
Cost of revenue
|
|
9,765
|
|
|
9,576
|
|
Operating expenses
|
|
—
|
|
|
—
|
|
Other expenses
|
|
7,180
|
|
|
7,177
|
|
Net income
|
|
$
|
15,595
|
|
|
$
|
13,097
|
|
Armow
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2017
|
|
2016
|
Revenue
(1)
|
$
|
21,208
|
|
|
N/A
|
Cost of revenue
(1)
|
6,113
|
|
|
N/A
|
Operating expenses
(1)
|
271
|
|
|
N/A
|
Other expenses
(1)
|
4,383
|
|
|
N/A
|
Net income
(1)
|
$
|
10,441
|
|
|
N/A
|
(1) Results for the three months ended March 31, 2016 does not include Armow, which was acquired in October 2016.
6.
Debt
The Company’s debt consists of the following for periods presented below (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Contractual Interest Rate
|
|
Effective Interest Rate
|
|
|
|
|
|
|
|
Maturity
|
Corporate-level
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facility
|
$
|
—
|
|
|
$
|
180,000
|
|
|
varies
|
|
(1)
|
varies
|
|
(1)
|
December 2018
|
2020 Notes
|
225,000
|
|
|
225,000
|
|
|
4.00
|
%
|
|
6.60
|
%
|
|
July 2020
|
2024 Notes
|
350,000
|
|
|
—
|
|
|
5.88
|
%
|
|
5.88
|
%
|
|
February 2024
|
Project-level
|
|
|
|
|
|
|
|
|
|
Fixed interest rate
|
|
|
|
|
|
|
|
|
|
El Arrayán EKF term loan
|
101,984
|
|
|
103,904
|
|
|
5.56
|
%
|
|
5.56
|
%
|
|
March 2029
|
Santa Isabel term loan
|
106,165
|
|
|
107,090
|
|
|
4.57
|
%
|
|
4.57
|
%
|
|
September 2033
|
Variable interest rate
|
|
|
|
|
|
|
|
|
|
Ocotillo commercial term loan
(2)
|
193,257
|
|
|
193,257
|
|
|
2.90
|
%
|
|
3.82
|
%
|
(3)
|
August 2020
|
Lost Creek term loan
|
100,145
|
|
|
103,846
|
|
|
3.07
|
%
|
|
6.51
|
%
|
(3)
|
September 2027
|
El Arrayán commercial term loan
|
92,713
|
|
|
94,458
|
|
|
4.17
|
%
|
|
5.70
|
%
|
(3)
|
March 2029
|
Spring Valley term loan
|
128,810
|
|
|
130,658
|
|
|
2.90
|
%
|
|
5.24
|
%
|
(3)
|
June 2030
|
Ocotillo development term loan
|
102,300
|
|
|
102,300
|
|
|
3.25
|
%
|
|
4.42
|
%
|
(3)
|
August 2033
|
St. Joseph term loan
(2)
|
163,674
|
|
|
162,356
|
|
|
2.57
|
%
|
|
3.85
|
%
|
(3)
|
November 2033
|
Imputed interest rate
|
|
|
|
|
|
|
|
|
|
Hatchet Ridge financing lease obligation
|
202,593
|
|
|
202,593
|
|
|
1.43
|
%
|
|
1.43
|
%
|
|
December 2032
|
|
1,766,641
|
|
|
1,605,462
|
|
|
|
|
|
|
|
Unamortized premium/discount, net
(4)
|
(15,917
|
)
|
|
(17,019
|
)
|
|
|
|
|
|
|
Unamortized financing costs
|
(30,329
|
)
|
|
(24,771
|
)
|
|
|
|
|
|
|
Total debt, net
|
$
|
1,720,395
|
|
|
1,563,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reflected on the consolidated balance sheets
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
$
|
—
|
|
|
$
|
180,000
|
|
|
|
|
|
|
|
Current portion of long-term debt, net of financing costs
|
50,715
|
|
|
48,716
|
|
|
|
|
|
|
|
Long term debt, net of financing costs
|
1,669,680
|
|
|
1,334,956
|
|
|
|
|
|
|
|
Total debt, net
|
$
|
1,720,395
|
|
|
$
|
1,563,672
|
|
|
|
|
|
|
|
|
|
(1)
|
Refer to Revolving Credit Facility for interest rate details.
|
|
|
(2)
|
The amortization for the Ocotillo commercial term loan and the St. Joseph term loan are through June 2030 and September 2036, respectively, which differs from the stated maturity date of such loans due to prepayment requirements.
|
|
|
(3)
|
Includes impact of interest rate derivatives. See Note
7
,
Derivative Instruments
, for discussion of interest rate derivatives.
|
|
|
(4)
|
Premium amount is related to the Lost Creek term loan and discount amount is related to the 2020 Notes.
|
Interest and commitment fees incurred and interest expense for debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2017
|
|
2016
|
Corporate-level interest, letter of credit and commitment fees incurred
|
$
|
7,115
|
|
|
$
|
5,053
|
|
Project-level interest, letter of credit and commitment fees incurred
(1)
|
12,361
|
|
|
13,088
|
|
Amortization of debt discount/premium, net
|
1,102
|
|
|
1,032
|
|
Amortization of financing costs
|
1,858
|
|
|
1,746
|
|
Other interest
|
119
|
|
|
142
|
|
Interest expense
|
$
|
22,555
|
|
|
$
|
21,061
|
|
|
|
(1)
|
Includes reclassification of realized gains (losses) on derivative instruments that qualifies as cash flow hedges from accumulated OCI into interest expense and the ineffective portion of the instruments.
|
Corporate Level Debt
Revolving Credit Facility
As of
March 31, 2017
,
$471.8 million
was available for borrowing under the
$500.0 million
Revolving Credit Facility. The Revolving Credit Facility is secured by pledges of the capital stock and ownership interests in certain of the Company’s holding company subsidiaries. The Revolving Credit Facility contains a broad range of covenants that, subject to certain exceptions, restrict the Company’s holding company subsidiaries' ability to incur debt, grant liens, sell or lease assets, transfer equity interests, dissolve, pay distributions and change its business. As of
March 31, 2017
, the Company's holding company subsidiaries were in compliance with covenants contained in the Revolving Credit Facility.
The loans under the Company's Revolving Credit Facility are either base rate loans or Eurodollar rate loans. The base rate loans accrue interest at the fluctuating rate per annum equal to the greatest of the (i) the prime rate, (ii) the federal funds rate plus
0.50%
and (iii) the Eurodollar rate that would be in effect for a Eurodollar rate loan with an interest period of one month plus
1.0%
, plus an applicable margin ranging from
1.25%
to
1.75%
(corresponding to applicable leverage ratios of the borrower). The Eurodollar rate loans accrue interest at a rate per annum equal to International Continental Exchange London Interbank Offered Rate (LIBOR), as published by Reuters plus an applicable margin ranging from
2.25%
to
2.75%
(corresponding to applicable leverage ratios of the borrower). Under the Revolving Credit Facility, the Company pays a revolving commitment fee equal to the average of the daily difference between revolving commitments and the total utilization of revolving commitments times
0.50%
. The Company also pays letter of credit fees.
As of
March 31, 2017
and
December 31, 2016
, letters of credit of
$28.2 million
and
$31.7 million
were issued under the Revolving Credit Facility.
Unsecured Senior Notes due 2024
In January 2017, the Company issued unsecured senior notes with an aggregate principal amount of
$350.0 million
(Unsecured Senior Notes or 2024 Notes). Net proceeds to the Company were approximately
$345.0 million
, after deducting the initial purchasers’ discount, commissions and transaction expenses. The 2024 Notes bear interest at a rate of
5.875%
per year, payable semiannually in arrears on February 1 and August 1, beginning on August 1, 2017 and maturing on February 1, 2024, unless repurchased or redeemed at an earlier date. The 2024 Notes are guaranteed on a senior unsecured basis by Pattern US Finance Company, one of the Company's subsidiaries.
Convertible Senior Notes due 2020
In July 2015, the Company issued
$225.0 million
aggregate principal amount of
4.00%
convertible senior notes due 2020 (Convertible Senior Notes or 2020 Notes). The 2020 Notes bear interest at a rate of
4.00%
per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2016. The 2020 Notes will mature on July 15, 2020. The 2020 Notes were sold in a private placement.
The 2020 Notes are guaranteed on a senior unsecured basis by a subsidiary of the Company and are general unsecured obligations of the Company. The obligations rank senior in rights of payment to the Company’s subordinated debt, equal in right of payment
to the Company’s unsubordinated debt and effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness.
The following table presents a summary of the equity and liability components of the 2020 Notes (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
Principal
|
$
|
225,000
|
|
|
$
|
225,000
|
|
Less:
|
|
|
|
Unamortized debt discount
|
(17,046
|
)
|
|
(18,196
|
)
|
Unamortized financing costs
|
(3,622
|
)
|
|
(3,894
|
)
|
Carrying value of convertible senior notes
|
$
|
204,332
|
|
|
$
|
202,910
|
|
Carrying value of the equity component
(1)
|
$
|
23,743
|
|
|
$
|
23,743
|
|
|
|
(1)
|
Included in the consolidated balance sheets as additional paid-in capital, net of
$0.7 million
in equity issuance costs.
|
7.
Derivative Instruments
The Company employs a variety of derivative instruments to manage its exposure to fluctuations in electricity prices, interest rates and foreign currency exchange rates. Energy prices are subject to wide swings as supply and demand are impacted by, among many other unpredictable items, weather, market liquidity, generating facility availability, customer usage, storage, and transmission and transportation constraints. Interest rate risk exists primarily on variable-rate debt for which the cash flows vary based upon movement in interest rates. Additionally, the Company is exposed to foreign currency exchange rate risk primarily from its business operations in Canada and Chile. The Company’s objectives for holding these derivative instruments include reducing, eliminating and efficiently managing the economic impact of these exposures as effectively as possible. The Company does not hedge all of its electricity price risk, interest rate risks, and foreign currency exchange rate risks, thereby exposing the unhedged portions to changes in market prices.
As of
March 31, 2017
, the Company had other energy-related contracts that did not meet the definition of a derivative instrument or qualified for the normal purchase normal sale scope exception and were therefore exempt from fair value accounting treatment.
The following tables present the fair values of the Company's derivative instruments on a gross basis as reflected on the Company’s consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
Current
|
|
Long-Term
|
|
Current
|
|
Long-Term
|
Fair Value of Designated Derivatives
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
282
|
|
|
$
|
8,634
|
|
|
$
|
18,393
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Undesignated Derivatives
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
2,077
|
|
|
$
|
2,783
|
|
|
$
|
3,117
|
|
Energy derivative
|
|
17,563
|
|
|
20,996
|
|
|
—
|
|
|
—
|
|
Foreign currency forward contracts
|
|
535
|
|
|
30
|
|
|
460
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
|
$
|
18,098
|
|
|
$
|
23,385
|
|
|
$
|
11,877
|
|
|
$
|
21,553
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
Current
|
|
Long-Term
|
|
Current
|
|
Long-Term
|
Fair Value of Designated Derivatives
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
40
|
|
|
$
|
8,289
|
|
|
$
|
21,058
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Undesignated Derivatives
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
1,788
|
|
|
$
|
3,238
|
|
|
$
|
3,463
|
|
Energy derivative
|
|
16,209
|
|
|
24,707
|
|
|
—
|
|
|
—
|
|
Foreign currency forward contracts
|
|
1,369
|
|
|
177
|
|
|
391
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
|
$
|
17,578
|
|
|
$
|
26,712
|
|
|
$
|
11,918
|
|
|
$
|
24,521
|
|
The following table summarizes the notional amounts of the Company's outstanding derivative instruments (in thousands except for MWh):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit of Measure
|
|
March 31,
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
Designated Derivative Instruments
|
|
|
|
|
|
|
Interest rate swaps
|
|
USD
|
|
$
|
360,849
|
|
|
$
|
365,443
|
|
Interest rate swaps
|
|
CAD
|
|
$
|
196,200
|
|
|
$
|
196,425
|
|
|
|
|
|
|
|
|
Undesignated Derivative Instruments
|
|
|
|
|
|
|
Interest rate swaps
|
|
USD
|
|
$
|
255,292
|
|
|
$
|
257,389
|
|
Energy derivative
|
|
MWh
|
|
1,061,077
|
|
|
1,201,691
|
|
Foreign currency forward contracts
|
|
CAD
|
|
$
|
136,500
|
|
|
$
|
95,800
|
|
Derivatives Designated as Hedging Instruments
Cash Flow Hedges
The Company has interest rate swap agreements to hedge variable rate project-level debt. Under these interest rate swaps, the projects make fixed-rate interest payments and the counterparties to the agreements make variable-rate interest payments. For interest swaps that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the period or periods during which a cash settlement occurs. The designated interest rate swaps have remaining maturities ranging from approximately
10.5 years
to
19.5 years
.
The following table presents the pre-tax effect of the derivative instruments designated as cash flow recognized in accumulated other comprehensive loss, as well as amounts reclassified to earnings for the following periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
Description
|
|
2017
|
|
2016
|
Losses recognized in accumulated OCI
|
|
Effective portion of change in fair value
|
|
$
|
(580
|
)
|
|
$
|
(23,420
|
)
|
Losses reclassified from accumulated OCI into:
|
|
|
|
|
|
|
Interest expense
|
|
Derivative settlements
|
|
$
|
(2,570
|
)
|
|
$
|
(3,204
|
)
|
Interest expense
|
|
Ineffective portion
|
|
$
|
(11
|
)
|
|
$
|
(89
|
)
|
The Company estimates that
$6.4 million
in accumulated other comprehensive income (loss) will be reclassified into earnings over the next twelve months.
Derivatives Not Designated as Hedging Instruments
The following table presents gains and losses on derivatives not designated as hedges (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Statement Line Item
|
|
|
|
Three months ended March 31,
|
Derivative Type
|
|
|
Description
|
|
2017
|
|
2016
|
Interest rate derivatives
|
|
Loss on undesignated derivatives, net
|
|
Change in fair value, net of settlements
|
|
$
|
1,090
|
|
|
$
|
(8,881
|
)
|
Interest rate derivatives
|
|
Loss on undesignated derivatives, net
|
|
Derivative settlements
|
|
$
|
(968
|
)
|
|
$
|
(1,326
|
)
|
Energy derivative
|
|
Electricity sales
|
|
Change in fair value, net of settlements
|
|
$
|
(2,358
|
)
|
|
$
|
(4,825
|
)
|
Energy derivative
|
|
Electricity sales
|
|
Derivative settlements
|
|
$
|
6,015
|
|
|
$
|
6,733
|
|
Foreign currency forward contracts
|
|
Loss on undesignated derivatives, net
|
|
Change in fair value, net of settlements
|
|
$
|
(1,094
|
)
|
|
$
|
(3,961
|
)
|
Foreign currency forward contracts
|
|
Loss on undesignated derivatives, net
|
|
Derivative settlements
|
|
$
|
324
|
|
|
$
|
537
|
|
Interest Rate Swaps
The Company has interest rate swap agreements to hedge variable rate project-level debt. Under these interest rate swaps, the projects make fixed-rate interest payments and the counterparties to the agreements make variable-rate interest payments. For interest rate swaps that are not designated and do not qualify as cash flow hedges, the changes in fair value are recorded in loss on undesignated derivatives, net in the consolidated statements of operations as these hedges are not accounted for under hedge accounting. The undesignated interest rate swaps have remaining maturities ranging from approximately
4.0 years
to
13.3 years
.
Energy Derivative
In 2010, Gulf Wind acquired an energy derivative instrument to manage its exposure to variable electricity prices over the life of the arrangement. The energy price swap fixes the price for a predetermined volume of production (the notional volume) over the life of the swap contract, through
April 2019
, by locking in a fixed price per MWh. The notional volume agreed to by the parties is approximately
504,220
MWh per year. The energy derivative instrument does not meet the criteria required to adopt hedge accounting. As a result, changes in fair value are recorded in electricity sales in the consolidated statements of operations.
As a result of the counterparty's credit rating downgrade, the Company received cash collateral related to the energy derivative agreement. The Company does not have the right to pledge, invest, or use the cash collateral for general corporate purposes. As of
March 31, 2017
, the Company has recorded a current asset of
$42.0 million
to funds deposited by counterparty and a current liability of
$42.0 million
to counterparty deposit liability representing the cash collateral received and corresponding obligation to return the cash collateral, respectively. The cash was deposited into a separate custodial account for which the Company is not entitled to the interest earned on the cash collateral.
Foreign Currency Forward Contracts
The Company has established a currency risk management program. The objective of the program is to mitigate the foreign exchange rate risk arising from transactions or cash flows that have a direct or underlying exposure in non-U.S. dollar denominated currencies in order to reduce volatility in the Company’s cash flow, which may have an adverse impact to the Company's short-term liquidity or financial condition. A majority of the Company’s power sale agreements and operating expenditures are transacted in U.S. dollars, with a growing portion transacted in currencies other than the U.S. dollar, primarily the Canadian dollar. The Company enters into foreign currency forward contracts at various times to mitigate the currency exchange rate risk on Canadian dollar denominated cash flows. These instruments have remaining maturities ranging from
two
to
twenty-four
months. The foreign currency forward contracts are considered non-designated derivative instruments and are not used for trading or speculative purposes. As a result, changes in fair value and settlements are recorded in loss on undesignated derivatives, net in the consolidated statements of operations.
8.
Accumulated Other Comprehensive Loss
The following tables summarize the changes in the accumulated other comprehensive loss balance, net of tax, by component (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
|
|
Effective Portion of Change in Fair Value of Derivatives
|
|
Proportionate Share of Equity Investee’s OCI
|
|
Total
|
Balances at December 31, 2015
|
$
|
(48,285
|
)
|
|
$
|
(13,462
|
)
|
|
$
|
(12,131
|
)
|
|
$
|
(73,878
|
)
|
Other comprehensive income (loss) before reclassifications
|
10,862
|
|
|
(20,697
|
)
|
|
(7,414
|
)
|
|
(17,249
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
2,902
|
|
|
1,253
|
|
|
4,155
|
|
Net current period other comprehensive income (loss)
|
10,862
|
|
|
(17,795
|
)
|
|
(6,161
|
)
|
|
(13,094
|
)
|
Balances at March 31, 2016
|
$
|
(37,423
|
)
|
|
$
|
(31,257
|
)
|
|
$
|
(18,292
|
)
|
|
$
|
(86,972
|
)
|
Less: accumulated other comprehensive loss attributable to noncontrolling interest, March 31, 2016
|
—
|
|
|
(1,353
|
)
|
|
—
|
|
|
(1,353
|
)
|
Accumulated other comprehensive loss attributable to Pattern Energy, March 31, 2016
|
$
|
(37,423
|
)
|
|
$
|
(29,904
|
)
|
|
$
|
(18,292
|
)
|
|
$
|
(85,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
|
|
Effective Portion of Change in Fair Value of Derivatives
|
|
Proportionate Share of Equity Investee’s OCI
|
|
Total
|
Balances at December 31, 2016
|
$
|
(43,500
|
)
|
|
$
|
(12,751
|
)
|
|
$
|
(6,498
|
)
|
|
$
|
(62,749
|
)
|
Other comprehensive income (loss) before reclassifications
|
2,463
|
|
|
(541
|
)
|
|
(2,160
|
)
|
|
(238
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
2,319
|
|
|
2,861
|
|
|
5,180
|
|
Net current period other comprehensive income
|
2,463
|
|
|
1,778
|
|
|
701
|
|
|
4,942
|
|
Balances at March 31, 2017
|
$
|
(41,037
|
)
|
|
$
|
(10,973
|
)
|
|
$
|
(5,797
|
)
|
|
$
|
(57,807
|
)
|
Less: accumulated other comprehensive loss attributable to noncontrolling interest, March 31, 2017
|
—
|
|
|
(315
|
)
|
|
—
|
|
|
(315
|
)
|
Accumulated other comprehensive loss attributable to Pattern Energy, March 31, 2017
|
$
|
(41,037
|
)
|
|
$
|
(10,658
|
)
|
|
$
|
(5,797
|
)
|
|
$
|
(57,492
|
)
|
Amounts reclassified from accumulated other comprehensive loss into net income (loss) for the effective portion of change in fair value of derivatives is recorded to interest expense in the consolidated statements of operations. Amounts reclassified from accumulated other comprehensive loss into net income (loss) for the Company’s proportionate share of equity investee’s other comprehensive loss is recorded to earnings in unconsolidated investments, net in the consolidated statements of operations.
9.
Fair Value Measurements
The Company’s fair value measurements incorporate various factors, including the credit standing and performance risk of the counterparties, the applicable exit market, and specific risks inherent in the instrument. Nonperformance and credit risk adjustments on risk management instruments are based on current market inputs when available, such as credit default hedge spreads. When such information is not available, internal models may be used.
Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to valuation of these assets or liabilities are set forth below. Transfers between levels are recognized at the end of each quarter. The Company did not recognize any transfers between levels during the periods presented.
Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuations technique and the risk inherent in the inputs to the model.
Financial Instruments
The carrying value of financial instruments classified as current assets and current liabilities approximates their fair value, based on the nature and short maturity of these instruments, and they are presented in the Company’s financial statements at carrying cost. The fair values of cash and cash equivalents and restricted cash are classified as Level 1 in the fair value hierarchy. Certain other assets and liabilities were measured at fair value upon initial recognition and unless conditions give rise to an impairment, are not remeasured.
Financial Instruments Measured at Fair Value on a Recurring Basis
The Company’s financial assets and liabilities which require fair value measurement on a recurring basis are classified within the fair value hierarchy as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
2,359
|
|
|
$
|
—
|
|
|
$
|
2,359
|
|
Energy derivative
|
—
|
|
|
|
|
|
38,559
|
|
|
38,559
|
|
Foreign currency forward contracts
|
—
|
|
|
565
|
|
|
—
|
|
|
565
|
|
|
$
|
—
|
|
|
$
|
2,924
|
|
|
$
|
38,559
|
|
|
$
|
41,483
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
32,927
|
|
|
$
|
—
|
|
|
$
|
32,927
|
|
Foreign currency forward contracts
|
—
|
|
|
503
|
|
|
—
|
|
|
503
|
|
|
$
|
—
|
|
|
$
|
33,430
|
|
|
$
|
—
|
|
|
$
|
33,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
1,828
|
|
|
$
|
—
|
|
|
$
|
1,828
|
|
Energy derivative
|
—
|
|
|
—
|
|
|
40,916
|
|
|
40,916
|
|
Foreign currency forward contracts
|
—
|
|
|
1,546
|
|
|
—
|
|
|
1,546
|
|
|
$
|
—
|
|
|
$
|
3,374
|
|
|
$
|
40,916
|
|
|
$
|
44,290
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
36,048
|
|
|
$
|
—
|
|
|
$
|
36,048
|
|
Foreign currency forward contracts
|
—
|
|
|
391
|
|
|
—
|
|
|
391
|
|
|
$
|
—
|
|
|
$
|
36,439
|
|
|
$
|
—
|
|
|
$
|
36,439
|
|
Level 2 Inputs
Derivative instruments subject to re-measurement are presented in the financial statements at fair value. The Company's interest rate swaps were valued by discounting the net cash flows using the forward LIBOR curve with the valuations adjusted by the Company’s credit default hedge rate. The Company’s foreign currency forward contracts were valued using the income approach based on the present value of the forward rates less the contract rates, multiplied by the notional amounts.
Level 3 Inputs
The fair value of the energy derivative instrument is determined based on a third-party valuation model. The methodology and inputs are evaluated by management for consistency and reasonableness by comparing inputs used by the third-party valuation provider to another third-party pricing service for identical or similar instruments and also agreeing inputs used in the third-party valuation model to the derivative contract for accuracy. Any significant changes are further evaluated for reasonableness by obtaining additional documentation from the third-party valuation provider.
The energy derivative instrument is valued by discounting the projected net cash flows over the remaining life of the derivative instrument using forward electricity prices which are derived from observable prices, such as forward gas curves, adjusted by a non-observable heat rate for when the contract term extends beyond a period for which market data is available. The significant unobservable input in calculating the fair value of the energy derivative instrument is forward electricity prices. Significant increases or decreases in this unobservable input would result in a significantly lower or higher fair value measurement.
The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements were as follows (in thousands, for fair value):
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Fair Value
|
|
Valuation Technique
|
|
Significant Unobservable Inputs
|
|
Range
|
Energy derivative
|
|
$38,559
|
|
Discounted cash flow
|
|
Forward electricity prices
|
|
$14.75 - $82.09
(1)
|
|
|
|
|
|
|
Discount rate
|
|
1.15% - 1.62%
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Fair Value
|
|
Valuation Technique
|
|
Significant Unobservable Inputs
|
|
Range
|
Energy derivative
|
|
$40,916
|
|
Discounted cash flow
|
|
Forward electricity prices
|
|
$15.83 - $81.76
(1)
|
|
|
|
|
|
|
Discount rate
|
|
1.00% - 1.52%
|
|
|
(1)
|
Represents price per MWh
|
The following table presents a reconciliation of the energy derivative contract measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
2017
|
|
2016
|
Balances, beginning of period
|
|
$
|
40,916
|
|
|
$
|
63,683
|
|
Total gains included in electricity sales
|
|
3,658
|
|
|
1,908
|
|
Settlements
|
|
(6,015
|
)
|
|
(6,733
|
)
|
Balances, end of period
|
|
$
|
38,559
|
|
|
$
|
58,858
|
|
During the
three
months ended
March 31, 2017
and 2016, the Company recognized an unrealized loss on the energy derivative of
$2.4 million
and
$4.8 million
, respectively, which were recorded to electricity sales on the consolidated statements of operations.
Financial Instruments Not Measured at Fair Value
The following table presents the carrying amount and fair value and the fair value hierarchy of the Company’s financial liabilities that are not measured at fair value in the consolidated balance sheets, but for which fair value is disclosed (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
As reflected on the balance sheet
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current portion
|
$
|
1,720,395
|
|
|
$
|
—
|
|
|
$
|
1,733,294
|
|
|
$
|
—
|
|
|
$
|
1,733,294
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current portion
|
$
|
1,383,672
|
|
|
$
|
—
|
|
|
$
|
1,382,038
|
|
|
$
|
—
|
|
|
$
|
1,382,038
|
|
Long-term debt is presented on the consolidated balance sheets, net of financing costs, discounts and premiums. The fair value of variable interest rate long-term debt is approximated by its carrying cost. The fair value of fixed interest rate long-term debt is estimated based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied, using the net present value of cash flow streams over the term using estimated market rates for similar instruments and remaining terms.
10.
Stockholders' Equity
Common Stock
On May 9, 2016, the Company entered into an Equity Distribution Agreement with RBC Capital Markets, LLC, KeyBanc Capital Markets Inc. and Morgan Stanley & Co. LLC (collectively, the Agents). Pursuant to the terms of the Equity Distribution Agreement, the Company may offer and sell shares of the Company’s Class A common stock, par value
$0.01
per share, from time to time through the Agents, as the Company’s sales agents for the offer and sale of the shares, up to an aggregate sales price of
$200.0 million
. The Company intends to use the net proceeds from the sale of the shares for general corporate purposes, which may include the repayment of indebtedness and the funding of acquisitions and investments. For the
three
months ended
March 31, 2017
, the Company did not sell any shares under the Equity Distribution Agreement. As of March 31, 2017, approximately
$170.8 million
in aggregate offering price remained available to be sold under the agreement.
Dividends
The following table presents cash dividends declared on Class A common stock for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
Per Share
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
2017:
|
|
|
|
|
|
|
|
First Quarter
|
$
|
0.4138
|
|
|
February 24, 2017
|
|
March 31, 2017
|
|
April 28, 2017
|
Noncontrolling Interests
The following table presents the balances for noncontrolling interests by project (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2017
|
|
2016
|
El Arrayán
|
$
|
31,807
|
|
|
$
|
32,237
|
|
Logan's Gap
|
178,605
|
|
|
180,092
|
|
Panhandle 1
|
186,864
|
|
|
190,415
|
|
Panhandle 2
|
173,063
|
|
|
170,139
|
|
Post Rock
|
175,385
|
|
|
178,676
|
|
Amazon Wind Farm Fowler Ridge
|
139,828
|
|
|
139,687
|
|
Noncontrolling interest
|
$
|
885,552
|
|
|
$
|
891,246
|
|
The following table presents the components of total noncontrolling interest as reported in stockholders’ equity and the consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
Accumulated Loss
|
|
Accumulated Other Comprehensive Loss
|
|
Noncontrolling Interest
|
Balances at December 31, 2015
|
$
|
972,241
|
|
|
$
|
(27,426
|
)
|
|
$
|
(553
|
)
|
|
$
|
944,262
|
|
Distributions to noncontrolling interests
|
(3,917
|
)
|
|
—
|
|
|
—
|
|
|
(3,917
|
)
|
Other
|
(465
|
)
|
|
—
|
|
|
—
|
|
|
(465
|
)
|
Net loss
|
—
|
|
|
(5,378
|
)
|
|
—
|
|
|
(5,378
|
)
|
Other comprehensive income, net of tax
|
—
|
|
|
—
|
|
|
(800
|
)
|
|
(800
|
)
|
Balances at March 31, 2016
|
$
|
967,859
|
|
|
$
|
(32,804
|
)
|
|
$
|
(1,353
|
)
|
|
$
|
933,702
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2016
|
$
|
954,242
|
|
|
$
|
(62,614
|
)
|
|
$
|
(382
|
)
|
|
$
|
891,246
|
|
Distributions to noncontrolling interests
|
(2,647
|
)
|
|
—
|
|
|
—
|
|
|
(2,647
|
)
|
Net loss
|
—
|
|
|
(3,114
|
)
|
|
—
|
|
|
(3,114
|
)
|
Other comprehensive income, net of tax
|
—
|
|
|
—
|
|
|
67
|
|
|
67
|
|
Balances at March 31, 2017
|
$
|
951,595
|
|
|
$
|
(65,728
|
)
|
|
$
|
(315
|
)
|
|
$
|
885,552
|
|
11.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net earnings (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the reportable period. Diluted earnings (loss) per share is computed by adjusting basic earnings (loss) per share for the effect of all potential common shares unless they are anti-dilutive. For purpose of this calculation, potentially dilutive securities are determined by applying the treasury stock method to the assumed exercise of in-the-money stock options and the assumed vesting of outstanding restricted stock awards (RSAs) and release of deferred restricted stock units (RSUs). Potentially dilutive securities related to convertible senior notes are determined using the if-converted method.
The Company's vested deferred RSUs have non-forfeitable rights to dividends prior to release and are considered participating securities. Accordingly, they are included in the computation of basic and diluted loss per share, pursuant to the two-class method. Under the two-class method, distributed and undistributed earnings allocated to participating securities are excluded from net
earnings (loss) attributable to common stockholders for purposes of calculating basic and diluted earnings (loss) per share. However, net losses are not allocated to participating securities since they are not contractually obligated to share in the losses of the Company.
For the
three
months ended
March 31, 2017
and 2016, the Company excluded
8.0 million
and
8.0 million
, respectively, of potentially dilutive securities from the diluted earnings (loss) per share calculation as their effect is anti-dilutive.
The computations for Class A basic and diluted loss per share are as follows (in thousands except share data):
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2017
|
|
2016
|
Numerator for basic and diluted loss per share:
|
|
|
|
Net earnings (loss) attributable to Pattern Energy
|
$
|
5,653
|
|
|
$
|
(23,670
|
)
|
Less: earnings allocated to participating securities
|
(23
|
)
|
|
(10
|
)
|
Net earnings (loss) attributable to common stockholders
|
$
|
5,630
|
|
|
$
|
(23,680
|
)
|
|
|
|
|
Denominator for earnings (loss) per share:
|
|
|
|
Weighted average number of shares:
|
|
|
|
Class A common stock - basic
|
87,062,612
|
|
|
74,437,998
|
|
Add dilutive effect of:
|
|
|
|
Restricted stock awards
|
57,759
|
|
|
—
|
|
Restricted stock units
|
10,909
|
|
|
—
|
|
Class A common stock - diluted
|
87,131,280
|
|
|
74,437,998
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
Class A common stock:
|
|
|
|
Basic and diluted
|
$
|
0.06
|
|
|
$
|
(0.32
|
)
|
|
|
|
|
Dividends declared per Class A common share
|
$
|
0.41
|
|
|
$
|
0.38
|
|
12.
Commitments and Contingencies
Commitments
Service and maintenance agreement
In March 2017, the Company entered into revised Long-term Service Agreements (LTSAs) at certain of its projects pursuant to which the turbine manufacturer will continue to provide routine and corrective maintenance service, but the Company has become responsible for a portion of the maintenance and repairs, including on major component parts. The following table presents the reduction in fixed contract commitments, from that disclosed in the Company's 2016 Form 10-K, as a result of the revised LTSAs and payments made during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Thereafter
|
|
Total
|
Service and maintenance agreements December 31, 2016
|
$53,534
|
|
$40,908
|
|
$34,206
|
|
$31,374
|
|
$31,983
|
|
$118,198
|
|
$310,203
|
Payments as of March 31, 2017
|
(13,507
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,507
|
)
|
Change in service and maintenance agreements
|
(11,886
|
)
|
|
(12,228
|
)
|
|
(12,084
|
)
|
|
(11,950
|
)
|
|
(12,190
|
)
|
|
(41,877
|
)
|
|
(102,215
|
)
|
Service and maintenance agreements as of March 31, 2017
|
$
|
28,141
|
|
|
$
|
28,680
|
|
|
$
|
22,122
|
|
|
$
|
19,424
|
|
|
$
|
19,793
|
|
|
$
|
76,321
|
|
|
$
|
194,481
|
|
Letters of Credit
Power Sale Agreements
The Company owns and operates wind power projects, and has entered into various long-term power sale agreements that terminate from
2019
to
2039
. The terms of these agreements generally provide for the annual delivery of a minimum amount of electricity at fixed prices and in some cases include price escalation over the term of the agreement. Under the terms of these agreements, as of
March 31, 2017
, the Company issued irrevocable letters of credits to guarantee its performance for the duration of the agreements totaling
$107.0 million
.
Project Finance and Lease Agreements
The Company has various project finance and lease agreements which obligate the Company to provide certain reserves to enhance its credit worthiness and facilitate the availability of credit. As of
March 31, 2017
, the Company issued irrevocable letters of credit totaling
$105.0 million
which includes letters of credit issued under the Revolving Credit Facility to ensure performance under the various project finance and lease agreements.
Contingencies
Turbine Operating Warranties and Service Guarantees
The Company has various turbine availability warranties from its turbine manufacturers and service guarantees from its service and maintenance providers. Pursuant to these guarantees, if a turbine operates at less than minimum availability during the guarantee measurement period, the service provider is obligated to pay, as liquidated damages at the end of the warranty measurement period, an amount for each percent that the turbine operates below the minimum availability threshold. In addition, pursuant to certain of these guarantees, if a turbine operates at more than a specified availability during the guarantee measurement period, the Company has an obligation to pay a bonus to the service provider at the end of the warranty measurement period. As of
March 31, 2017
, the Company recorded liabilities of
$1.9 million
associated with bonuses payable to the turbine manufacturers and service providers.
Legal Matters
From time to time, the Company has become involved in claims and legal matters arising in the ordinary course of business. Management is not currently aware of any matters that will have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
Indemnity
The Company provides a variety of indemnities in the ordinary course of business to contractual counterparties and to its lenders and other financial partners. The Company is party to certain indemnities for the benefit of project finance lenders and tax equity partners of certain projects. These consist principally of indemnities that protect the project finance lenders from, among other things, the potential effect of any recapture by the U.S. Department of the Treasury of any amount of the Cash Grants previously received by the projects and eligibility of production tax credits and certain legal matters, limited to the amount of certain related costs and expenses.
13.
Related Party Transactions
Management Fees
The Company provides management services and receives a fee for such services under agreements with its joint venture investees, South Kent, Grand, K2, and Armow, in addition to various Pattern Development 1.0 subsidiaries and equity method investments. The Company reclassified its presentation of management service fees received from related party revenue, as disclosed in prior periods, to other revenue on the consolidated statements of operations.
Management Services Agreement and Shared Management
The Company has entered into a Multilateral Management Services Agreement (MSA) with the Pattern Development Companies, which provides for the Company and the Pattern Development Companies to benefit, primarily on a cost-reimbursement basis, from the parties’ respective management and other professional, technical and administrative personnel, all of whom report to the Company’s executive officers. Costs and expenses incurred at the Pattern Development Companies or their respective subsidiaries on the Company's behalf will be allocated to the Company. Conversely, costs and expenses incurred at the Company or its respective subsidiaries on the behalf of a Pattern Development Company will be allocated to the respective Pattern Development Company.
Pursuant to the MSA, certain of the Company’s executive officers, including its Chief Executive Officer (shared PEG executives), also serve as executive officers of the Pattern Development Companies and devote their time to both the Company and the Pattern Development Companies as is prudent in carrying out their executive responsibilities and fiduciary duties. The shared PEG executives have responsibilities for both the Company and the respective Pattern Development Companies and, as a result, these individuals do not devote all of their time to the Company’s business. Under the terms of the MSA, each of the respective Pattern Development Companies is required to reimburse the Company for an allocation of the compensation paid to such shared PEG executives reflecting the percentage of time spent providing services to such Pattern Development Company. The Company reclassified its presentation of related party receivables and payables as disclosed in prior periods to be presented within other current assets and other current liabilities on the consolidated balance sheets, respectively. In addition, the Company reclassified its presentation of reimbursements received by the Pattern Development Companies under the MSA from related party income, as disclosed in prior periods, to a reduction to general and administrative expense on the consolidated statements of operations. The MSA costs incurred by the company are included in related party general and administrative on the consolidated statements of operations.
Related
Party Transactions
The table below presents amounts due from and to related parties as included in the consolidated balance sheets for the following periods (in millions):
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Other current assets:
|
|
|
|
Amounts due from Pattern Development 1.0
|
$
|
1.0
|
|
|
$
|
0.4
|
|
Amounts due from Pattern Development 2.0
|
0.5
|
|
|
0.2
|
|
Amounts due from unconsolidated investments
|
0.6
|
|
|
0.5
|
|
Total due from related parties
|
$
|
2.1
|
|
|
$
|
1.1
|
|
|
|
|
|
Other current liabilities:
|
|
|
|
Amounts due to Pattern Development 1.0
|
$
|
2.2
|
|
|
$
|
1.3
|
|
Total due to related parties
|
$
|
2.2
|
|
|
$
|
1.3
|
|
The table below presents revenue, reimbursement and (expenses) recognized for management fees and the MSA, as included in the statements of operations for the following periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
Related Party Agreement
|
|
Financial Statement Line Item
|
|
2017
|
|
2016
|
Management fees
|
|
Other revenue
|
|
$
|
2,224
|
|
|
$
|
1,215
|
|
MSA reimbursement
|
|
General and administrative
|
|
$
|
1,791
|
|
|
$
|
1,007
|
|
MSA costs
|
|
Related party general and administrative expense
|
|
$
|
(3,426
|
)
|
|
$
|
(1,897
|
)
|
14
.
Subsequent Events
On May 4, 2017, the Company declared an increased dividend for the first quarter, payable on
July 31, 2017
, to holders of record on
June 30, 2017
, in the amount of
$0.4180
per Class A share, or $
1.672
on an annualized basis. This is a
1.0%
increase from the first quarter of 2017.
On April 21, 2017, the Company acquired an
84%
initial cash flow interest in Broadview and
99%
ownership interest in Western Interconnect from Pattern Development 1.0. The total purchase consideration of
$269 million
included
$215 million
of cash paid at closing and
$54 million
of Western Interconnect construction debt which was converted to term debt immediately after the acquisition. The Grady project is a wind project on the identified ROFO list being separately developed by Pattern Development 2.0 which is expected to begin full construction not earlier than 2018, and which intends to interconnect through Western Interconnect. Following the commencement of commercial operations of the Grady project, at which time the Grady project will begin making transmission service payments to Western Interconnect, the Company will make a further contingent post-closing payment which is currently estimated to be approximately
$18.3 million
.