Note:—
(2)
|
Adjusted EBITDA is calculated as Adjusted EBITDA for each geography and business sector divided by revenue for each geography and business sector.
|
Recent Acquisitions
In January 2019, we entered into an agreement with Abengoa under the Abengoa ROFO Agreement for the acquisition of Tenes and paid $19.9 million as an advanced payment.
Closing of the acquisition was subject to conditions precedent which were not fulfilled. In accordance with the terms of the share purchase agreement, the advanced payment was converted into a secured loan to be reimbursed by Befesa Agua
Tenes, together with 12% per annum interest, through a full cash-sweep of all the dividends generated to be received from the asset. In October 2019, we received a first payment of $7.8 million through the cash sweep mechanism. On May 31,
2020, we entered into a new $4.5 million secured loan agreement with Befesa Agua Tenes . The loan must be reimbursed no later than May 31, 2032, together with 12% interest per annum, through a full cash-sweep of all the dividends
generated from the asset. In addition, the new agreement provides us with certain additional decisions rights, a call option over the shares of Befesa Agua Tenes at a price of $1 and a majority at the board of directors of Befesa Agua
Tenes. Therefore, we have concluded that we have control over Tenes since May 31, 2020 and as a result we have fully consolidated the asset from that date.
Additionally, on May 24, 2019, Atlantica and Algonquin formed AYES Canada, a vehicle to channel co-investment opportunities in which Atlantica holds the majority of voting
rights. AYES Canada’s first investment was in Amherst Island, a 75 MW wind plant in Canada owned by the project company Windlectric, Inc. (“Windlectric”). Atlantica invested $4.9 million and Algonquin invested $92.3 million, both through
AYES Canada, which in turn invested those funds in Amherst Island Partnership, the holding company of Windlectric.
On May 31, 2019, we entered into an agreement with Abengoa to acquire a 15% stake in Rioglass, a multinational manufacturer of solar components in order to secure certain
Abengoa obligations. The investment was $7 million, and it is classified as available for sale.
On August 2, 2019 we acquired a 30% stake in Monterrey, a 142 MW gas-fired engine facility including 130 MW installed capacity and 12 MW battery capacity. We paid $42
million for the total equity investment. The asset, located in Mexico, has been in operation since 2018 and represents our first investment in electric batteries. It has a U.S. dollar-denominated 20-year PPA with two international large
corporations engaged in the car manufacturing industry as well as a 20-year contract for the natural gas transportation from Texas with a U.S. energy company. The PPA also includes price escalation factors. The asset is the sole
electricity supplier for the off-takers, it has no commodity risk and also has the possibility to sell excess energy to the North-East region of the country. We have also entered into a ROFO agreement with the seller of the shares for the
remaining 70% stake in the asset.
On August 2, 2019, we closed the acquisition of ASI Operations, the company that performs the operation and maintenance services to Solana and Mojave plants. The
consideration paid was $6 million. Additionally, we have internalized part of the operation and maintenance activities contracted in two wind assets, maintaining a direct relationship with the supplier for the turbine maintenance services.
On October 22, 2019, we closed the acquisition of ATN Expansion 2, as previously announced, for a total equity investment of approximately $20 million. The offtaker is
Enel Green Power Peru. Transfer of the concession agreement is pending authorization from the Ministry of Energy in Peru. If this authorization were not to be obtained before December 2020, the transaction would be reversed with no
penalties to Atlantica.
In October 2018, we reached an agreement to acquire PTS, a natural gas transportation platform located in Mexico, close to ACT, the efficient natural gas plant. PTS has a
service agreement signed in October 2017, which is a “take-or-pay” 11-year term contract starting in 2020, with a possibility of an extension subject to the agreement of both parties. We initially acquired a 5% ownership in the project
and has an agreement to acquire an additional 65% stake subject to the asset entering into commercial operation, non-recourse project financing being closed and final approvals and customary conditions including the absence of material
adverse effects. We cannot guarantee that we will close this acquisition or that closing will occur on the terms originally agreed.
In 2019, we signed an option to acquire Liberty’s equity interest in Solana for approximately $300 million. Liberty is the tax equity investor in our Solana asset. The
option, which originally expired in April 2020, was extended until August 31, 2020. On July 17, 2020 we exercised the option to buy Solana’s tax equity investor and closing of the acquisition is expected to occur in August, subject to
customary conditions. Until now, we have paid $10 million for the option and the additional investment is estimated to be approximately $290 million. The price includes a performance earn-out based on the average annual net production of
the asset in the four calendar years with the highest annual net production during the five calendar years of 2020 through 2024.
On April 3, 2020 we made an investment in the creation of a renewable energy platform in Chile, together with financial partners, where we now own approximately a 35% stake
and have a strategic investor role. The first investment was the acquisition of a 55 MW solar PV plant in an area with excellent solar resource (Chile PV I). This asset, has been in operation since 2016, demonstrating a good operating track
record during that period while selling its production in the Chilean power market. We have concluded that we have control over the asset and we are fully consolidating it since the acquisition date. The platform intends to make further
investments in renewable energy in Chile and sign PPAs with credit worthy offtakers. Our initial contribution was approximately $4 million.
Recent Developments
The outbreak of the COVID-19 coronavirus disease (“COVID-19”) was declared a pandemic by the World Health Organization in March 2020 and continues to spread in some of our
key markets. The COVID-19 virus continues to evolve rapidly, and its ultimate impact is uncertain and subject to change. Governmental authorities have imposed or recommended measures or responsive actions, including quarantines of certain
geographic areas and travel restrictions. We have reinforced safety measures in all our assets while we continue to provide a reliable service to our clients. For example, we have implemented the use of additional protection equipment,
reinforced access control to our plants, reduced contact between employees, changed shifts, tested employees, identified and isolated potential cases together with their close contacts therewith and taken additional measures to increase
safety measures for our employees and operation and maintenance suppliers’ employees working at our assets. In addition, we have increased the purchase of spare parts and equipment required for operations, to manage potential disruptions in
the supply chain. Although we have not experienced any material impacts, we are having some delays in certain maintenance activities. Further, we have adopted additional precautionary measures intended to mitigate potential risks to our
employees, including temporarily requiring employees to work remotely in geographies with higher incidence where their work can be done from home, and suspending all non-essential travel. We have also reinforced our on-site and
cyber-security measures. Since May 2020, we have re-opened certain offices at partial capacity and under strict safety measures. We continue to monitor the situation closely in all assets and offices to take additional action if required.
To date, we have not experienced material operational or financial impacts as a result of the COVID-19. We have not experienced any disruptions in availability or production
in our assets due to COVID-19. Our businesses are considered an essential and critical activity in all our geographies, so we have continued operating our assets even in those countries where economic activity has been limited only to
essential business for a certain period of time. In addition, our assets generally have long-term contracts or regulated revenues.
In spite of all of the above, we cannot guarantee that the COVID-19 outbreak will not affect our operations and financial situation (see
“Part II—Item 1.A —Risk Factors”).
On March 23, 2020 we announced that our special committee concluded the review of the strategic alternatives by reaffirming our current strategy.
On April 3, 2020 we closed the secured 2020 Green Private Placement for €290 million (approximately $320 million). The private placement accrues interest at an annual 1.96%
interest, payable quarterly and has a June 2026 maturity. Net proceeds have been primarily used to repay the Note Issuance Facility 2017.
On April 8, 2020, Logrosan Solar Inversiones, S.A, the subsidiary-holding company of Solaben 1/6 and Solaben 2/3 entered into the Green Project Finance, a green project
financing agreement with ING Bank, B.V. and Banco Santander S.A. The lenders of the new facility have no recourse to Atlantica at the corporate level. After considering transaction costs and reserves, the Green Project Finance has resulted
in a net recap of $143 million that we expect to use to finance new investments in renewable assets. The Green Project Finance was issued in compliance with the 2018 Green Loan Principles and have an unqualified Second Party Opinion
delivered by Sustainalytics.
On July 8, 2020, we entered into the Note Issuance Facility 2020, a senior unsecured financing with Lucid Agency Services Limited, as agent, and a group of funds managed by
Westbourne Capital as purchasers of the notes to be issued thereunder for a total amount of approximately $158 million which is denominated in euros (€140 million). The Note Issuance Facility 2020 has a maturity of seven years from the
closing date. Closing of the transaction is conditional upon exercising the option to acquire the tax equity investor’s equity interest in Solana. Closing of the Note Issuance Facility 2020 is expected to occur prior to August 31, 2020,
subject to certain conditions. Atlantica cannot guarantee that closing conditions will be satisfied and that closing will occur.
On July 10, 2020, we entered into a non-recourse project debt refinancing of Helioenergy, one of the Spanish solar assets, by adding a new long dated tranche of debt from an
institutional investor. The new tranche bears an interest at a fixed rate of approximately 3% per annum and has a 15-year maturity. After transaction costs, net refinancing proceeds (net “recap”) are expected to be approximately $43
million.
In addition, on July 14, 2020, we entered into a non-recourse, project debt financing for approximately €326 million in relation to Helios, with institutional investors,
pursuant to a monoline guarantee. The new debt has a 17-year maturity and bears interest at a rate of approximately 2% per annum. This debt has refinanced the previous bank project debt with approximately €250 million outstanding and has
canceled legacy interest rate swaps. After transaction costs and cancelation of legacy swaps, net refinancing proceeds (net “recap”) were approximately $30 million.
On July 17, 2020, we issued $100 million aggregate principal amount of 4.00% Green Exchangeable Notes due 2025. On July 29, 2020, we closed an additional $15 million
aggregate principal amount of the Green Exchangeable Notes. The notes mature on July 15, 2025 and bear interest at a rate of 4.00% per annum. The initial exchange rate of the notes is 29.1070 ordinary shares per $1,000 principal amount of
notes, which is equivalent to an initial exchange price of $34.36 per ordinary share. Noteholders may exchange their notes at their option at any time prior to the close of business on the scheduled trading day immediately preceding April
15, 2025, only during certain periods and upon satisfaction of certain conditions. On or after April 15, 2025, noteholders may exchange their notes at any time. Upon exchange, the notes may be settled, at our election, into ordinary shares
of Atlantica, cash or a combination of both. The exchange rate is subject to adjustment upon the occurrence of certain events. We intend to use the proceeds from the Green Exchangeable Notes to refinance or finance, in whole or in part, the
acquisition of new or ongoing assets or projects which meet certain eligibility criteria in accordance with our Green Finance Framework.
On June 29, 2020, California’s Governor signed AB 85, suspending California Net Operating Losses (“NOL”) utilization and imposing a cap on the amount of business incentive
tax credits companies can utilize, effective for tax years 2020, 2021 and 2022. During these years, Mojave will not be able to use its NOLs to offset its state tax, which is set at approximately 8.9%. The years 2020 to 2022 will not be
considered in the calculation of NOLs expiration, resulting in a suspension rather than a cancellation or shortening of the period of utilization of such NOLs. We expect to utilize the accumulated NOLs from 2022 onwards. However, we expect
AB 85 will have a negative impact, which we estimate in the range of $6 to $7 million per year in distributions expected from Mojave from 2021 to 2023.
On July 31, 2020, our board of directors approved a dividend of $0.42 per share. The dividend is expected to be paid on September 15, 2020, to shareholders of record as of
August 31, 2020.
Potential implications of Abengoa developments
Abengoa, which is currently our largest supplier and used to be our largest shareholder, went through a restructuring process which started in November 2015 and ended in
March 2017 and obtained approval for a new restructuring in July 2019. In March 2020, Abengoa announced a COVID-19 related furlough of part of its employees in Spain, which does not affect those employees providing operation and maintenance
services to our plants. On May 19, 2020, Abengoa announced that it was working on a new viability plan that would include new financing under a COVID-19 mitigation program in Spain, as well as renegotiation of certain existing debt with
suppliers and lenders. As part of that plan Abengoa has requested we renegotiate certain obligations it has with us, principally with respect to Solana. Abengoa has stated that if this plan is not successful it could decide to file for
insolvency. We have contingency plans in place to replace Abengoa as the operation and maintenance supplier with respect to some assets if it is required in the future. However, we cannot guarantee that a potential insolvency filing by
Abengoa would not have a negative impact on us (see “Risk Factors—Risks Related to Our Relationship with Algonquin and Abengoa” in our Annual Report for further discussion of potential implications).
We expect Abengoa to continue to maintain its contractual obligations under the operation and maintenance agreements. However, a deterioration in the financial situation of
Abengoa or certain Abengoa subsidiaries may result in a material adverse effect on our operation and maintenance agreements. Abengoa and its subsidiaries provide operation and maintenance services for many of our assets. We cannot guarantee
that Abengoa will be able to continue performing under those agreements or with the same level of service. If Abengoa cannot continue performing current services, we may need to renegotiate contracts or change suppliers. This could result
in higher cost or different service levels.
In addition, the project financing arrangement of Kaxu contains cross-default provisions related to Abengoa such that debt defaults by Abengoa, subject to certain threshold
amounts and/or a restructuring process, could trigger a default under the Kaxu project financing arrangement. In March 2017, Atlantica obtained a waiver in its Kaxu project financing arrangement which waives any potential cross-defaults
with Abengoa up to that date, but it does not cover potential future cross-default events. If Abengoa reached an agreement for its debt restructuring, we may need to obtain a waiver when such restructuring is effective. In any case, we have
requested a pre-emptive waiver from Kaxu leaders to waive potential cross-defaults with Abengoa. As of June 30, 2020, we are not aware of any cross-default events with Abengoa.
A deterioration in the financial situation of Abengoa or the implementation of a new viability plan may also result in a material adverse effect on Abengoa’s and its
subsidiaries’ obligations, warranties and guarantees, and indemnities covering, for example, potential tax liabilities for assets acquired from Abengoa, or any other agreement. In Mexico, Abengoa owns a power plant that shares certain
infrastructure and has certain back-to-back obligations with ACT. A deterioration in Abengoa’s or this asset’s financial situation may also result in a material adverse effect on ACT or Atlantica. In addition, Abengoa represented in the
past that we would not be a guarantor of any obligation of Abengoa with respect to third parties. Abengoa agreed to indemnify us for any penalty claimed by third parties resulting from any breach in Abengoa’s representations. Considering
the current financial situation of Abengoa, we cannot guarantee that these indemnities will be maintained in the future. We refer to the Risk Factors section in the Annual Report.
Currency Presentation and Definitions
In this quarterly report, all references to “U.S. Dollar” and “$” are to the lawful currency of the United States.
Factors Affecting the Comparability of Our Results of Operations
Acquisitions
The results of operations of each acquisition have been consolidated since the date of their respective acquisition except for Monterrey and Amherst, which are recorded
under the equity method since their acquisition date. The acquisitions we have made since the beginning of 2019 and any other acquisitions we may make from time to time, will affect the comparability of our results of operations.
Factors Affecting Our Results of Operations
Interest rates
We incur significant indebtedness at the corporate and asset level. The interest rate risk arises mainly from indebtedness with variable interest rates.
Most of our debt consists of project debt. As of December 31, 2019, approximately 92% of our project debt has either fixed interest rates or has been hedged with swaps or
caps.
To mitigate interest rate risk, we primarily use long-term interest rate swaps and interest rate options which, in exchange for a fee, offer protection against a rise in
interest rates. We estimate that approximately 91% of our total interest risk exposure was fixed or hedged as of December 31, 2019. Nevertheless, our results of operations can be affected by changes in interest rates with respect to the
unhedged portion of our indebtedness that bears interest at floating rates, which typically bears a spread over EURIBOR or LIBOR.
Exchange rates
Our functional currency is the U.S. dollar, as most of our revenue and expenses are denominated or linked to U.S. dollars. All our companies located in North America,
South America and Algeria have their revenues, and financing contracts signed in, or indexed totally or partially to, U.S. dollars. Our solar power plants in Spain have their revenues and expenses denominated in euros, and Kaxu, our solar
plant in South Africa, has its revenue and expenses denominated in South African rand.
Our strategy is to hedge cash distributions from our Spanish assets. We hedge the exchange rate for the distributions from our Spanish assets after deducting
euro-denominated interest payments and euro-denominated general and administrative expenses. Through currency options, we have hedged 100% of our euro-denominated net exposure for the next 12 months and 75% of our euro-denominated net
exposure for the following 12 months. We expect to continue with this hedging strategy on a rolling basis.
Although we hedge cash-flows in euros, fluctuations in the value of the euro in relation to the U.S. dollar may affect our operating results. Impacts associated with
fluctuations in foreign currency are discussed in more detail under “Item 11—Quantitative and Qualitative Disclosure about Market Risk—Foreign exchange risk” in our Annual Report. In subsidiaries
with functional currency other than the U.S. dollar, assets and liabilities are translated into U.S. dollars using end-of-period exchange rates. Revenue, expenses and cash flows are translated using average rates of exchange. Fluctuations
in the value of the South African rand in relation to the U.S. dollar may also affect our operating results.
Apart from the impact of translation differences described above, the exposure of our income statement to fluctuations of foreign currencies is limited, as the financing
of projects is typically denominated in the same currency as that of the contracted revenue agreement. This policy seeks to ensure that the main revenue and expenses in foreign companies are denominated in the same currency, limiting our
risk of foreign exchange differences in our financial results.
In our discussion of operating results, we have included foreign exchange impacts in our revenue by providing constant currency revenue growth. The constant currency
presentation is not a measure recognized under IFRS and excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our
results of operations. We calculate constant currency amounts by converting our current period local currency revenue using the prior period foreign currency average exchange rates and comparing these adjusted amounts to our prior period
reported results. This calculation may differ from similarly titled measures used by others and, accordingly, the constant currency presentation is not meant to substitute for recorded amounts presented in conformity with IFRS as issued by
the IASB nor should such amounts be considered in isolation.
Key Performance Indicators
In addition to the factors described above, we closely monitor the following key drivers of our business sectors’ performance to plan for our needs, and to adjust our
expectations, financial budgets and forecasts appropriately.
Note:
Production in the renewable business sector decreased by 10.2% in the six-month period ended June 30, 2020, compared to the six-month period ended June 30, 2019. The
decrease was mainly driven by a decrease in production levels in our assets in Spain, where solar radiation was significantly lower than in the same period of the previous year. However, impact on revenue and Adjusted EBITDA was limited
since in Spain most of the revenue are based on capacity in accordance with existing regulation. Production also decreased in South Africa mainly due to an unscheduled outage due to the fire that occurred in the first quarter in the
electrical room of our Kaxu solar asset, which damaged the electric system. Production was stopped and after repairs, production has been progressively increasing and is now at or close to capacity. Damage and business interruption are
covered by our insurance, after customary deductibles. Production in our renewable assets in North America was stable compared to the same period of the previous year, with a 1.8% increase. In Solana, availability in the storage system was
lower than expected during the first half of 2020 due to certain leaks identified in the storage system in the first quarter. We have continued to analyze the cause of the leaks. Repairs and improvements are expected to be required over
time and will likely impact production in 2020 and 2021, with the exact scope and timing of repairs to be determined. Solana has a cash repair reserve account funded with approximately $40 million that we expect to use for this purpose.
However, we cannot guarantee that additional funding will not be required or that the repairs will be effective. In our wind assets, production increased by 9.6% due to good wind resource and stable performance of the assets.
In ACT, our efficient natural gas power asset, availability and production levels during the six-month period ended June 30, 2020 were higher than during the six-month
period ended June 30, 2019 due the scheduled major overhaul held in the first half of 2019, as scheduled.
Our transmission lines and water assets, the two other sectors where our revenues are based on availability, continue to achieve high availability levels.
Results of Operations
The table below illustrates our results of operations for the six-month periods ended June 30, 2020 and 2019.
Note:
Comparison of the Six-Month Periods Ended June 30, 2020 and 2019.
The significant variances or variances of the significant components of the results of operations are discussed in the following section.
Revenue
Revenue decreased by 7.7% to $465.7 million for the six-month period ended June 30, 2020, compared to $504.8 million for the six-month period ended June 30, 2019. The
decrease was partially due to the depreciation of the euro and the South African rand against the U.S. dollar. On a constant currency basis, revenue for the six-month period ended June 30, 2020 was $474.2 million, representing a decrease of
6.1% compared to the six-month period ended June 30, 2019. Although we hedge our net cash flow exposure to the euro, variations in the euro to U.S. dollar exchange rate affect our revenue and Adjusted EBITDA. The decrease in revenue was
primarily due to lower production in Kaxu caused by the unscheduled outage explained previously. Damage and business interruption are covered by insurance, after customary deductibles and insurance proceeds are recorded in “Other operating
income”. Revenue also decreased in Spain mainly due to lower solar resource in the first half of 2020 compared to the same period of the previous year and to lower electricity market prices in recent months in Spain, which partially
affected our revenues. In addition, revenue also decreased in ACT mainly due to a positive accounting impact recorded in 2019. In the first quarter of 2019 we recorded a one-time increase in revenue and Adjusted EBITDA of approximately $6
million with no impact in cash and with no corresponding amount in the same period of 2020. These effects were partially offset by an increase in revenues in our wind assets in South America and an increase in revenues resulting from our
recent acquisitions of transmission, water and solar assets. In our solar assets in North America, revenues increased by 3% in the six-month period ended June 30, 2020 when compared to the same period of the previous year.
Other operating income
The following table sets forth our other operating income for the six-month period ended June 30, 2020 and 2019:
Other operating income increased by 27.4% to $57.2 million for the six-month period ended June 30, 2020, compared to $44.9 million for the six-month period ended June 30,
2019. Increase in “Income from various services” was due to the following effects. In the first half of 2020 we have recorded a $13.7 million income corresponding to the compensation from our insurance company in Kaxu, which has already
been collected. We have recorded the portion of the compensation corresponding to the first half of the year, net of deductibles. In addition, in the first half of 2020 we have recorded $6.0 million insurance income received in Solana,
corresponding to events of previous years.
Grants represent the financial support provided by the U.S. government to Solana and Mojave and consist of ITC Cash Grant and an implicit grant related to the below market
interest rates of the project loans with the Federal Financing Bank.
Employee benefits expenses
Employee benefit expenses increased to $24.3 million for the six-month period ended June 30, 2020, compared to $10.8 million for the six-month period ended June 30, 2019.
The increase was primarily due to the internalization of operation and maintenance services in our U.S. solar assets, following the acquisition of ASI Operations on July 30, 2019. The operation and maintenance costs for these assets were
mainly recorded as “Other operating expenses” until July 30, 2019.
Depreciation, amortization and impairment charges
Depreciation, amortization and impairment charges increased by 29.3% to $194.0 million for the six-month period ended June 30, 2020, compared to $150.1 million for six-month
period ended June 30, 2019. The increase was mainly due to the increase in the impairment provision of ACT following IFRS 9. IFRS 9 requires impairment provisions to be based on the expected credit losses on financial assets rather than on
actual credit losses. ACT’s impairment provision for the first half of 2020 was $35.7 million following a worsening in our client’s credit risk metrics, while in the first half of 2019 there was an impairment reversal of $5.4 million.
Other operating expenses
The following table sets forth our other operating expenses for the six-month period ended June 30, 2020 and 2019:
Other operating expenses decreased by 4.9% to $126.1 million for the six-month period ended June 30, 2020, compared to $132.5 million for the six-month period ended June 30,
2019. The decrease was mainly due to lower operation and maintenance costs due to the internalization of the operation and maintenance services in our U.S. solar assets since July 30, 2019, as most of these expenses are now recorded in
“Employee benefit expenses” since that date. This decrease was partially offset by higher levies and duties in the first quarter of 2020 compared to the same period of the previous year. At the end of 2018, the Spanish government granted a
six-month exemption for the 7% electricity sales tax in our Spanish assets until April 2019, which reduced our costs in the first quarter of 2019. In addition, insurance expenses increased due to higher insurance premiums.
Operating profit
As a result of the above factors, operating profit for the six-month period ended June 30, 2020 decreased by 30.4% to $178.5 million, compared to $256.3 million for the
six-month period ended June 30, 2019.
Financial income and financial expense
Financial income
Financial income increased to $5.7 million for the six-month period ended June 30, 2020, compared to $0.5 million for the six-month
period ended June 30, 2019. Financial income primarily includes a non-monetary financial income of $3.9 million resulting from the refinancing of the project debt of Cadonal in the second quarter of 2020 (see Note 15).
Financial expense
The following table sets forth our financial expense for the six-month period ended June 30, 2020 and 2019:
Financial expense remained stable in the six-month period ended June 30, 2020 compared to the same period from previous year, amounting $210.1 million and $210.5 million
respectively.
Interest on other debt corresponds mainly to interest expense on the notes issued by ATS, ATN and Solaben Luxembourg, interest related to the investments from Liberty and
until May 2019, interest related to the 2019 Notes. The decrease was mainly due to the refinancing of the 2019 Notes with the proceeds of the Note Issuance Facility 2019, since interest for this facility is recorded under Loans from credit
entities.
Interest on Loans from credit entities slightly increased due to the interest from the Note Issuance Facility 2019 entered into in April 2019, which was partially offset by
lower interest in Kaxu as a result of the depreciation of the the South African rand against the U.S. dollar and lower interest in corporate financings due to refinancings and lower interest from loans indexed to LIBOR and JIBAR, since the
rates of reference was lower in the six-month period ended June 30, 2020 compared to the same period from previous year.
Losses from interest rate derivatives designated as cash flow hedges correspond primarily to transfers from equity to financial expense when the hedged item was impacting
the consolidated condensed income statement. The increase was due to the decrease in LIBOR and JIBAR and offsets the decrease in interest on Loans from credit entities.
Other financial income/(expense), net
Other financial income/(expense), net increased to a financial income of $2.8 million for the six-month period ended June 30, 2020, compared to a net financial expense of
$0.2 million for the six-month period ended June 30, 2019. The increase in Other financial income was mainly due to a one-time adjustment of $8.1 million with no cash impact in the current period resulting from the acquisition of a
long-term payable at a price lower than its accounting value. Other financial expense primarily include expenses for guarantees and letters of credit, wire transfers, other bank fees and other minor financial expenses.
Share of profit/(loss) of associates carried under the equity method
Share of profit of associates carried under the equity method decreased to $1.6 million loss in the six-month period ended June 30, 2020 compared to $3.4 million profit for
six-month period ended June 30, 2019. This includes mainly the results of Honaine and Monterrey, which are recorded under the equity method. The decrease was primarily due to the loss reported by Monterrey, which we started to record under
the equity method since its acquisition in August 2019.
Profit/(loss) before income tax
As a result of the factors mentioned above, we reported a loss before income taxes of $22.7 million for the six-month period ended June 30, 2020, compared to a profit before
income taxes of $49.8 million for the six-month period ended June 30, 2019.
Income tax
The effective tax rate for the periods presented has been established based on management’s best estimates. For the six-month period ended June 30, 2020, income tax amounted
to an expense of $3.5 million, with a loss before income tax of $22.7 million. For the six-month period ended June 30, 2019, income tax amounted to an expense of $27.0 million of expense, with a profit before income tax of $49.8 million.
The effective tax rate differs from the nominal tax rate mainly due to permanent differences and treatment of tax credits in some jurisdictions.
Profit attributable to non-controlling interests
Profit attributable to non-controlling interests was $2.0 million for the six-month period ended June 30, 2020 compared to $5.8 million for the six-month period ended June
30, 2019. Profit attributable to non-controlling interest corresponds to the portion attributable to our partners in the assets that we consolidate (Kaxu, Skikda, Solaben 2/3, Solacor 1/ 2, Seville PV, Chile PV I and Tenes) and the decrease
was mainly due to lower results in Kaxu and Skikda.
Loss / (profit) attributable to the parent company
As a result of the factors mentioned above, loss attributable to the parent company was $28.2 million for the six-month period ended June 30, 2020, compared to a profit of
$17.0 million for the six-month period ended June 30, 2019.
Segment Reporting
We organize our business into the following three geographies where the assets and concessions are located:
In addition, we have identified the following business sectors based on the type of activity:
As a result, we report our results in accordance with both criteria.
Revenue and Adjusted EBITDA by geography
The following table sets forth our revenue, Adjusted EBITDA and volumes for the six-month period ended June 30, 2020 and 2019, by geographic region:
Note:
(2)
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Adjusted EBITDA is calculated as Adjusted EBITDA for each geography and business sector divided by revenue for each geography and business sector.
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Note:
North America
Revenue decreased by 4% to $157.9 million for the six-month period ended June 30, 2020, compared to $164.5 million for the six-month period ended June 30, 2019. Adjusted
EBITDA decreased by 5.3% to $139.3 million for the six-month period ended June 30, 2020, compared to $147.1 million for the six-month period ended June 30, 2019. The decrease was mainly due to a decrease in revenues and Adjusted EBITDA in
our Efficient Natural Gas segment, primarily due to a one-time adjustment of approximately $6 million with no impact in cash recorded in ACT in the first quarter of 2019. Our ACT asset is accounted for under IFRIC 12 following the financial
asset model, and a change in future operation and maintenance costs in 2019 increased the value of the asset, resulting in a one-time increase in revenue and Adjusted EBITDA of approximately $6 million. In our solar assets in North America,
revenue and Adjusted EBITDA increased slightly, by 3% and 1% respectively, in the six-month period ended June 30, 2020 when compared to the same period of the previous year. Adjusted EBITDA margin decreased to 88.2% for the six-month period
ended June 30, 2020, compared to 89.4% for the six-month period ended June 30, 2019.
South America
Revenue increased by 8.5% to $75.0 million for the six-month period ended June 30, 2020, compared to $69.1 million for the six-month period ended June 30, 2019. The revenue
increase was primarily due to the contribution of Chile PV I, a solar asset recently acquired through the Chilean renewable energy platform created in the second quarter of 2020 and ATN Expansion 2, acquired in October 2019. Revenue also
increased due to higher production in our wind assets. Adjusted EBITDA increased by 4.0% to $59.8 million for the six-month period ended June 30, 2020, compared to $57.5 million for the six-month period ended June 30, 2019. Increase was
mainly due to the aforementioned events. Adjusted EBITDA margin decreased to 79.7% for the six-month period ended June 30, 2020, compared to 83.2% for the six-month period ended June 30, 2019 mainly due to lower than usual operation and
maintenance expenses in our transmission lines in the first quarter of 2019.
Revenue decreased by 14.2% to $232.8 million for the six-month period ended June 30, 2020, compared to $271.2 million for the
six-month period ended June 30, 2019. The decrease was partially due to the depreciation of the euro and the South African rand against the U.S. dollar. On a constant currency basis, revenue for the six-month month period ended June 30,
2020 was $241.2 million which represent a decrease of 11.1% compared to the six-month period ended June 30, 2019. Although we hedge our net cash flow exposure to the euro, variations in the euro to U.S. dollar exchange rate affect our
revenue and Adjusted EBITDA. The decrease in revenue was primarily due to lower production in Kaxu resulting from the unscheduled outage explained above. Damage and business interruption are covered by insurance, after customary
deductibles. Revenue also decreased in Spain mainly due to lower solar resource in the first half of 2020 compared to the same period of the previous year and to lower electricity market prices in recent months in Spain, which partially
affected our revenues. This decrease was partially offset by the contribution from Tenes, the water desalination plant that we started to fully consolidate in the second quarter of 2020. Adjusted EBITDA decreased by 14% to $173.5 for the
six-month period ended June 30, 2020 compared to $201.8 million for the six-month period ended June 30, 2019. On a constant currency basis, Adjusted EBITDA for the six-month month period ended June 30, 2020 was $181.4 million which
represent a decrease of 10.1% compared to the six-month period ended June 30, 2019. The decrease in Adjusted EBITDA was mainly due to the events described above and it was lower than the decrease in revenue because insurance proceeds are
recorded in “Other operating income”, not in revenues. Adjusted EBITDA margin remained stable at 74.5% for the six-month period ended June 30, 2020 and 74.4% for the six-month period ended June 30, 2019.
Revenue and Adjusted EBITDA by business sector
The following table sets forth our revenue, Adjusted EBITDA and volumes for the six-month period ended June 30, 2020 and 2019, by business sector:
Note:
(2)
|
Adjusted EBITDA is calculated as Adjusted EBITDA for each geography and business sector divided by revenue for each geography and business sector.
|
Note:
Renewable energy
Revenue decreased by 9.3% to $344.7 million for the six-month period ended June 30, 2020, compared to $380.1 million for the six-month period ended June 30, 2019. Adjusted
EBITDA decreased by 8.8% to $274.8 million for the six-month period ended June 30, 2020, compared to $301.4 million for the six-month period ended June 30, 2019. The decreases were partially due to the depreciation of the euro and the South
African rand against the U.S. dollar. On a constant currency basis, revenue and Adjusted EBITDA for the period ended June 30, 2020 was $353.1 million and $282.7 million, which represents a decreases of 7.1% and 6.2%, respectively, compared
to the six-month period ended June 30, 2019. Although we hedge our net cash flow exposure to the euro, variations in the euro to U.S. dollar exchange rate affect our revenue and Adjusted EBITDA. The decrease in revenue and Adjusted EBITDA
was primarily due to lower production in Kaxu, our South African asset, due to an unscheduled outage, as previously explained. We expect damage and business interruption to be covered by our insurance, after customary deductibles. Revenue
and Adjusted EBITDA also decreased due to lower solar resource in Spain in the first half of 2020 compared to the same period of the previous year and to lower electricity market prices in recent months in Spain, which partially affected
our revenues. The decrease was partially offset by the contribution of the recently acquired asset Chile PV I, a solar asset in Chile included within the new renewable energy platform recently created. In our renewable assets in North
America revenues and Adjusted EBITDA increased slightly in the six-month period ended June 30, 2020 when compared to the same period of the previous year, with 3% and 1% growth in revenues and Adjusted EBITDA, respectively.
Efficient natural gas
Revenue decreased by 15.7% to $52.0 million for the six-month period ended June 30, 2020, compared to $61.7 million for the six-month period ended June 30, 2019, while
Adjusted EBITDA decreased by 15.5% to $45.9 million for the six-month period ended June 30, 2020, compared to $54.3 million for the six-month period ended June 30, 2019. Adjusted EBITDA margin remained stable at 88.3% for the six-month
period ended June 30, 2020, from 88.0% for the six-month period ended June 30, 2019. Revenue and Adjusted EBITDA decreased mainly due to a one-time adjustment recorded in the first quarter of 2019 of approximately $6 million, with no impact
in cash in 2019 and with no corresponding amount in 2020. Our ACT asset is accounted for under IFRIC 12 following the financial asset model, and a decrease in 2019 in future operation and maintenance costs increased the value of the asset,
causing a one-time increase in revenue and Adjusted EBITDA in the first quarter of 2019. Additionally, revenues also decreased due to the lower revenue in the portion of the tariff related to the operation and maintenance services, driven
by lower operation and maintenance costs in 2020.
Electric transmission lines
Revenue increased by 4.5% to $53.4 million for the six-month period ended June 30, 2020, compared to $51.1 million for the six-month period ended June 30, 2019. The increase
in revenues was mainly due to the contribution of ATN Expansion 2 acquired in 2019. Adjusted EBITDA remained stable, amounting $43.2 million for the six-month period ended June 30, 2020 compared to $43.6 million for the six-month period
ended June 30, 2019, while Adjusted EBITDA margin decreased to 80.9% for the six-month period ended June 30, 2020 compared to 85.3% for the six-month period ended June 30, 2019. The decrease in Adjusted EBITDA margin was mainly due to lower
than usual operation and maintenance expenses in our transmission lines in the first quarter of 2019.
Water
Revenue increased by 31.9% to $15.6 million for the six-month period ended June 30, 2020, compared to $11.9 million for the six-month period ended June 30, 2019. Adjusted
EBITDA increased by 22.5% to $8.7 million for the six-month period ended June 30, 2020, compared to $7.1 million for the six-month period ended June 30, 2019. The increases were mainly due to the contribution from Tenes, the water
desalination plant that we started to consolidate in the second quarter of 2020. Adjusted EBITDA margin decreased to 55.8% for the six-month period ended June 30, 2020 from 59.7% for the six-month period ended June 30, 2019.
Liquidity and Capital Resources
The liquidity and capital resources discussion which follows contains certain estimates as of the date of this quarterly report of our sources and uses of liquidity
(including estimated future capital resources and capital expenditures) and future financial and operating results. These estimates, while presented with numerical specificity, necessarily reflect numerous estimates and assumptions made by
us with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to our businesses, all of which are difficult or impossible to predict and
many of which are beyond our control. These estimates reflect subjective judgment in many respects and thus are susceptible to multiple interpretations and periodic revisions based on actual experience and business, economic, regulatory,
financial and other developments. As such, these estimates constitute forward-looking information and are subject to risks and uncertainties that could cause our actual sources and uses of liquidity (including estimated future capital
resources and capital expenditures) and financial and operating results to differ materially from the estimates made here, including, but not limited to, our performance, industry performance, general business and economic conditions,
customer requirements, competition, adverse changes in applicable laws, regulations or rules, and the various risks set forth in this quarterly report and our Annual Report. See “Cautionary Statements
Regarding Forward Looking Statements.”
In addition, these estimates reflect assumptions of our management as of the time that they were prepared as to certain business decisions that were and are subject to
change. These estimates also may be affected by our ability to achieve strategic goals, objectives and targets over the applicable periods. The estimates cannot, therefore, be considered a guarantee of future sources and uses of liquidity
(including estimated future capital resources and capital expenditures) and future financial and operating results, and the information should not be relied on as such. None of us, or our board of directors, advisors, officers, directors or
representatives intends to, and each of them disclaims any obligation to, update, revise, or correct these estimates, except as otherwise required by law, including if the estimates are or become inaccurate (even in the short-term).
The inclusion of these estimates in this quarterly report should not be deemed an admission or representation by us or our board of directors that such information is viewed
by us or our board of directors as material information of ours. Such information should be evaluated, if at all, in conjunction with the historical financial statements and other information about us contained in this quarterly report.
None of us, or our board of directors, advisors, officers, directors or representatives has made or makes any representation to any prospective investor or other person regarding our ultimate performance compared to the information
contained in these estimates or that forecasted results will be achieved. In light of the foregoing factors and the uncertainties inherent in the information provided above, investors are cautioned not to place undue reliance on these
estimates. Our liquidity plans are subject to a number of risks and uncertainties, some of which are outside of our control. Macroeconomic conditions could limit our ability to successfully execute our business plans and, therefore,
adversely affect our liquidity plans. See “Item 3.D—Risk Factors” in our Annual Report.
Our principal liquidity and capital requirements consist of the following:
As a normal part of our business, depending on market conditions, we will from time to time consider opportunities to repay,
redeem, repurchase or refinance our indebtedness. Changes in our operating plans, lower than anticipated sales, increased expenses, acquisitions or other events may cause us to seek additional debt or equity financing in future periods.
There can be no guarantee that financing will be available on acceptable terms or at all. Debt financing, if available, could impose additional cash payment obligations and additional covenants and operating restrictions. In addition, any
of the items discussed in detail under “Item 3.D—Risk Factors” in our Annual Report and other factors may also significantly impact our liquidity.
Liquidity position
As of June 30, 2020, our cash and cash equivalents at the Company level were $272.7 million compared to $66.0 million as of December 31, 2019. Additionally, as of June 30,
2020, we had approximately $251 million available under our Revolving Credit Facility and therefore a total corporate liquidity of $529.7 million, compared to $407.0 million as of December 31, 2019.
In addition, as of June 30 cash at the project company level was $510.1 million, of which $323.4 million was restricted. As of December 31, 2019, our cash at the project
company level, including cash classified as short-term financial investments, was $531.5 million, of which $339.0 million were restricted.
Sources of liquidity
We expect our ongoing sources of liquidity to include cash on hand, cash generated from our operations, project debt arrangements, corporate debt and the issuance of
additional equity securities, as appropriate, and given market conditions. Our financing agreements consist mainly of the project-level financings for our various assets, including our recently closed Green Project Finance, and our
corporate debt financings, including our recently closed Green Exchangeable Notes, the Note Issuance Facility 2020, the 2020 Green Private Placement, the Note Issuance Facility 2019, the Revolving Credit Facility, a line of credit with a
local bank and our commercial paper program.
Green Exchangeable Notes
On July 17, 2020, we issued $100 million aggregate principal amount of 4.00% Green Exchangeable Notes due 2025. On July 29, 2020, we closed an additional $15 million
aggregate principal amount of the Green Exchangeable Notes. The Green Exchangeable Notes are the senior unsecured obligations of Atlantica Jersey, a wholly owned subsidiary of Atlantica, and fully and unconditionally guaranteed by Atlantica
on a senior, unsecured basis. The notes mature on July 15, 2025, unless earlier repurchased or redeemed by Atlantica or exchanged, and bear interest at a rate of 4.00% per annum, payable semi-annually in arrears on January 15 and July 15 of
each year, beginning on January 15, 2021.
Noteholders may exchange all or any portion of their notes at their option at any time prior to the close of business on the scheduled trading day immediately preceding
April 15, 2025, only during certain periods and upon satisfaction of certain conditions. On or after April 15, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, noteholders may
exchange any of their notes at any time, in multiples of $1,000 principal amount, at the option of the noteholder. Upon exchange, the notes may be settled, at our election, into ordinary shares of Atlantica, cash or a combination of both.
The initial exchange rate of the notes is 29.1070 ordinary shares per $1,000 principal amount of notes (which is equivalent to an initial exchange price of $34.36 per ordinary share). The exchange rate is subject to adjustment upon the
occurrence of certain events.
We intend to use the proceeds from the Green Exchangeable Notes to refinance or finance, in whole or in part, the acquisition of new or ongoing assets or projects which meet
certain eligibility criteria in accordance with our Green Finance Framework. The Green Exchangeable Notes comply with the Green Bond Principles and have a second party opinion by Sustainalytics.
Note Issuance Facility 2020
On July 8, 2020, we entered into the Note Issuance Facility 2020, a senior unsecured financing with Lucid Agency Services Limited, as agent, and a group of
funds managed by Westbourne Capital as purchasers of the notes to be issued thereunder for a total amount of approximately $158 million (€140 million).
The proceeds of the Note Issuance Facility 2020 are expected to be used to finance acquisitions and for general corporate purposes. Closing of the transaction was
conditional upon exercising the option to acquire Liberty Ownership Interest in Solana pursuant to that certain option agreement dated August 27, 2019. On July 17, 2020, we exercised the option to acquire the Liberty Ownership Interest in
Solana and on July 24, 2020, we delivered a purchase notice under the Note Issuance Facility 2020 setting forth August 13, 2020, as the proposed closing date. Closing of the Note Issuance Facility 2020 is subject to the satisfaction of
customary conditions for this type of transactions.
In case the transaction is closed, interest on the notes to be issued under the Note Issuance Facility 2020 is expected to accrue at a rate per annum equal to the sum of
3-month EURIBOR plus a margin of 5.25% with a floor of 0% for the EURIBOR.
The notes to be issued under the Note Issuance Facility 2020 are expected to be guaranteed on a senior unsecured basis by our subsidiaries Atlantica Infrastructures, S.L.U.,
ABY Concessions Peru S.A., ACT Holding, S.A. de C.V., ASHUSA Inc., ASUSHI Inc. and Atlantica Investments Limited. If the transaction closes and we fail to make payments on the notes issued under the Note Issuance Facility 2020, the
guarantors will be required to repay amounts outstanding on a joint and several basis.
The Note Issuance Facility 2020 contains covenants that, if the transaction closes, will limit certain of our and the guarantors’ activities. These negative covenants
include, among others, limitations on: (i) creation of liens, (ii) sales, transfers and other dispositions of property and assets, (iii) mergers, consolidations and other fundamental changes, (iv) providing new guarantees, and (v)
transactions with affiliates. Additionally, we are required to comply with a leverage ratio of our indebtedness to our cash available for distribution of 5.00:1.00 (which may be increased under certain conditions to 5.50:1.00 for a limited
period in the event we consummate certain acquisitions).
The Note Issuance Facility 2020 also contains customary events of default (subject in certain cases to customary grace and cure periods). Generally, if an event of default
occurs and is not cured within the time periods specified, the agent or the holders of more than 50% of the principal amount of the notes then outstanding may declare all of the notes issued under the Note Issuance Facility 2020 to be due
and payable immediately. In addition, the Note Issuance Facility 2020 includes a cross default with respect to our indebtedness, indebtedness of the guarantors thereunder and indebtedness of our material non-recourse subsidiaries
(project-subsidiaries). Pursuant to the Note Issuance Facility 2020, material non-recourse subsidiaries are those that, as of any date of termination, represent more than 25% of the cash available for distribution distributed in the
previous four fiscal quarters most recently ended prior to such date of determination.
2020 Green Private Placement
On March 20, 2020 we entered into a senior secured note purchase agreement with a group of institutional investors as purchasers providing for the 2020 Green Private
Placement. The transaction closed on April 3, 2020 and we issued notes for a total principal amount of €290 million (approximately $320 million), maturing in June 20, 2026 . Interest on the notes issued under the 2020 Green Private
Placement accrue at a rate per annum equal to 1.96%. If at any time the rating of such senior secured notes is below investment grade, the interest rate thereon would increase by 100 basis points until such notes are rated again investment
grade.
The 2020 Green Private Placement complies with the Green Bond Principles and has a second party opinion by Sustainalytics. The proceeds of the 2020 Green Private Placement
have been primarily used to repay in full and cancel all series of notes issued under the Note Issuance Facility 2017.
Note Issuance Facility 2019
On April 30, 2019, we entered into the Note Issuance Facility 2019, a senior unsecured financing with Lucid Agency Services Limited, as agent, and a group of funds managed
by Westbourne Capital as purchasers of the notes issued thereunder for a total amount of the euro equivalent of $300 million. The notes under the Note Issuance Facility 2019 were issued in May 2019 and are due on April 30, 2025. The Note
Issuance Facility 2019 includes an upfront fee of 2% paid upon drawdown. From their issue date to December 31, 2019 interest on the notes issued under the Note Issuance Facility 2019 accrued at a rate per annum equal to the sum of 3-month
EURIBOR plus a margin of 4.65%. The principal amount of the notes issued under the Note Issuance Facility 2019 was hedged with an interest rate swap, resulting in an all-in interest cost of 4.4%. Starting January 1, 2020, the applicable
margin for the determination of interest on the notes issued under the Note Issuance Facility 2019 decreased to 4.50% resulting in an all-in interest cost of 4.24%, following satisfaction of the requirements set forth in the Note Issuance
Facility 2019 for such margin decrease, including the effectiveness of the Royal Decree-law 17/2019 which approved a reasonable rate of return higher than 7% (see “—Regulation—Regulation in Spain.” in our Annual Report). The Note Issuance
Facility 2019 provides that we may elect to, subject to the satisfaction of certain conditions, capitalize interest on the notes issued thereunder for a period of up to two years from closing at our discretion, subject to certain
conditions. We elected to capitalize interest on the notes issued under the Note Issuance Facility 2019 for the upcoming quarters.
The proceeds of the notes issued under the Note Issuance Facility 2019 were used to prepay and subsequently cancel in full the 2019 Notes and for general corporate purposes.
Revolving Credit Facility
On May 10, 2018, we entered into a $215 million Revolving Credit Facility with a syndicate of banks with Royal Bank of Canada as administrative agent and Royal Bank of
Canada and Canadian Imperial Bank of Commerce, as issuers of letters of credit. This facility was increased by $85 million to $300 million in January 2019. In addition, on August 2, 2019 the facility was further increased by $125 million to
a total limit of $425 million and the maturity of a portion of loans in a principal amount of $387.5 million extended from December 31, 2022, with the remaining $37.5 million maturing on December 31, 2021. As of June 30, 2020, we had $174
million outstanding under the Revolving Credit Facility and $251 million available.
Loans under the facility accrue interest at a rate per annum equal to: (A) for Eurodollar rate loans, LIBOR plus a percentage determined by reference to our leverage ratio,
ranging between 1.60% and 2.25% and (B) for base rate loans, the highest of (i) the rate per annum equal to the weighted average of the rates on overnight U.S. Federal funds transactions with members of the U.S. Federal Reserve System
arranged by U.S. Federal funds brokers on such day plus 1/2 of 1.00%, (ii) the prime rate of the administrative agent under the Revolving Credit Facility and (iii) LIBOR plus 1.00%, in any case, plus a percentage determined by reference to
our leverage ratio, ranging between 0.60% and 1.00.
Note Issuance Facility 2017
On February 10, 2017, we entered into the Note Issuance Facility 2017, a senior secured note facility with Elavon Financial Services DAC, UK Branch, as agent, and a group of
funds managed by Westbourne Capital as purchasers of the notes issued thereunder for a total amount of €275 million (approximately $303.2 million), with three series of notes: series 1 notes worth €92 million mature in 2022; series 2 notes
worth €91.5 million mature in 2023; and series 3 notes worth €91.5 million mature in 2024. Interest on all series accrues at a rate per annum equal to the sum of 3-month EURIBOR plus 4.90%. We fully hedged the principal amount of the notes
issued under the Note Issuance Facility 2017 with a swap that fixed the interest rate at 5.50%. As of April 3, 2020, all series of notes issued under the Note Issuance Facility 2017 were repaid in full and canceled with the proceeds of the
2020 Green Private Placement.
Other Credit Lines
In July 2017, we signed a line of credit with a bank for up to €10.0 million (approximately $11.2 million) which is available in euros or U.S. dollars. On December 13, 2019,
the maturity date was extended to December 13, 2021. Amounts drawn accrue interest at a rate per annum equal to EURIBOR plus 2% or LIBOR plus 2%, depending on the currency. As of June 30, 2020, €9.0 million (approximately $10.1 million)
were drawn under this facility.
ESG-linked Financial Guarantee Line
In June 2019, we signed our first ESG-linked financial guarantee line with ING Bank, N.V. The guarantee line has a limit of approximately $39 million. The cost is linked to
Atlantica’s environmental, social and governance performance under Sustainalytics, a leading sustainable rating agency. The green guarantees will be exclusively used for renewable assets. We are using and expect to continue use this
guarantee line to progressively release restricted cash in some of our projects, providing additional financial flexibility.
Commercial Paper Program
On October 8, 2019, we filed a euro commercial paper program with the Alternative Fixed Income Market (MARF) in Spain. The program allows Atlantica to issue
short term notes over the next twelve months for up to €50 million, with such notes having a tenor of up to two years. As of June 30, 2020, we had €20.3 million
issued and outstanding under the Commercial Paper Program at an average cost of 0.77%.
Project debt refinancing
In addition to our corporate debt, we have closed three project debt financings or refinancings at the project level which represent additional sources of liquidity.
Green Project Finance
On April 8, 2020, Logrosan entered into the Green Project Finance with ING Bank, B.V. and Banco Santander S.A. The new facility has a notional of €140 million of which 25%
is progressively amortized over its 5-year term and the remaining 75% is expected to be refinanced at maturity. After considering transaction costs and reserves, the Green Project Finance has resulted in a net recap of approximately $143
million that we expect to use to finance new investments in renewable assets. The Green Project Finance is guaranteed by the shares of Logrosan and its lenders have no recourse to Atlantica corporate level. Interest accrue at a rate per
annum equal to the sum of 6-month EURIBOR plus a margin of 3.25% and we have hedged the EURIBOR with a 0% cap for the total amount and the entire life of the loan. The Green Project Finance permits cash distribution to shareholders twice
per year if Logrosan sub-holding company debt service coverage ratio is at least 1.60x and the debt service coverage ratio of the sub-consolidated group of Logrosan and the Solaben 1/6 and Solaben 2/3 assets is at least 1.20x. The Green
Project Finance was issued in compliance with the 2018 Green Loan Principles and have an unqualified Second Party Opinion delivered by Sustainalytics.
Helioenergy 1 / 2
On July 10, 2020, we entered into a non-recourse project debt refinancing of Helioenergy by adding a new long dated tranche of debt from an institutional investor. This new
tranche, which is additional to the existing project debt, accrues interest at a fixed interest rate of 3.00% per annum and is due on June 30, 2035. After transaction costs, net refinancing proceeds (net “recap”) were approximately $43
million.
Helios 1/ 2
On July 14, 2020, we entered into a senior secured note facility with a group of institutional investors as purchasers of the notes issued thereunder for
a total amount of €325.6 million ($365.8 million approximately). The notes were issued on July 23, 2020 and have a 17-year maturity. Interest on the notes accrue at a fixed rate per annum equal to 1.90%. Debt repayment is semiannual over
the 17-year tenor of the debt.
The proceeds of the new Helios project financing were used to fully prepay and cancel the previous bank mini-perm project debt with approximately €250
million outstanding and to cancel legacy interest rate swaps. After transaction costs and cancelation of legacy swaps, net refinancing proceeds (net “recap”) were approximately $30 million.
The refinancing has permitted an improvement in both cost and tenor. Coupon has decreased from approximately 4.2% with spread step-ups to 1.90% and
maturity has been extended from 2027 to 2037.
See “Item 5.B –Liquidity and Capital Resources – Financing Arrangements” in our Annual Report for further detail on our financing
arrangements.
Cash dividends to investors
We intend to distribute to holders of our shares a significant portion of our cash available for distribution less all cash expenses including corporate debt service and
corporate general and administrative expenses and less reserves for the prudent conduct of our business (including, among other things, dividend shortfall as a result of fluctuations in our cash flows), on an annual basis. We intend to
distribute a quarterly dividend to shareholders. Our board of directors may, by resolution, amend the cash dividend policy at any time. The determination of the amount of the cash dividends to be paid to holders of our shares will be made
by our board of directors and will depend upon our financial condition, results of operations, cash flow, long-term prospects and any other matters that our board of directors deem relevant.
Our cash available for distribution is likely to fluctuate from quarter to quarter and, in some cases, significantly as a result of the seasonality of our assets, the terms
of our financing arrangements, maintenance and outage schedules, among other factors. Accordingly, during quarters in which our projects generate cash available for distribution in excess of the amount necessary for us to pay our stated
quarterly dividend, we may reserve a portion of the excess to fund cash distributions in future quarters. In quarters in which we do not generate sufficient cash available for distribution to fund our stated quarterly cash dividend, if our
board of directors so determines, we may use retained cash flow from other quarters, as well as other sources of cash.
Acquisitions
In January 2019, we entered into an agreement with Abengoa under the Abengoa ROFO Agreement for the acquisition of Tenes and paid $19.9 million as an advanced payment.
Closing of the acquisition was subject to conditions precedent which were not fulfilled. In accordance with the terms of the share purchase agreement, the advanced payment was converted into a secured loan to be reimbursed by Befesa Agua
Tenes, together with 12% per annum interest, through a full cash-sweep of all the dividends generated to be received from the asset. In October 2019, the Company received a first payment of $7.8 million through the cash sweep mechanism.
On May 31, 2020, we entered into a new $4.5 million secured loan agreement with Befesa Agua Tenes. The Loan must be reimbursed no later than May 31, 2032, together with 12% interest per annum, through a full cash-sweep of all the
dividends generated from the asset. In addition, the new agreement provides us with certain additional decisions rights, a call option over the shares of Befesa Agua Tenes at a price of $1 and a majority at the board of directors of
Befesa Agua Tenes. Therefore, we have concluded that we have control over Tenes since May 31, 2020 and as a result we have fully consolidated the asset from that date.
Additionally, on May 24, 2019, Atlantica and Algonquin formed AYES Canada, a vehicle to channel co-investment opportunities in which Atlantica holds the majority of voting
rights. AYES Canada’s first investment was in Amherst Island, a 75 MW wind plant in Canada owned by the project company Windlectric, Inc. (“Windlectric”). Atlantica invested $4.9 million and Algonquin invested $92.3 million, both through
AYES Canada, which in turn invested those funds in Amherst Island Partnership, the holding company of Windlectric.
On May 31, 2019, we entered into an agreement with Abengoa to acquire a 15% stake in Rioglass, a multinational manufacturer of solar components in order to secure certain
Abengoa obligations. The investment was $7 million, and it is classified as available for sale.
On August 2, 2019 we acquired a 30% stake in Monterrey, a 142 MW gas-fired engine facility including 130 MW installed capacity and 12 MW battery capacity. We paid $42
million for the total equity investment. The asset, located in Mexico, has been in operation since 2018 and represents our first investment in electric batteries. It has a U.S. dollar-denominated 20-year PPA with two international large
corporations engaged in the car manufacturing industry as well as a 20-year contract for the natural gas transportation from Texas with a U.S. energy company. The PPA also includes price escalation factors. The asset is the sole
electricity supplier for the off-takers, it has no commodity risk and also has the possibility to sell excess energy to the North-East region of the country. We have also entered into a ROFO agreement with the seller of the shares for the
remaining 70% stake in the asset.
On August 2, 2019, we closed the acquisition of ASI Operations, the company that performs the operation and maintenance services to Solana and Mojave plants. The
consideration paid was $6 million. Additionally, we have internalized part of the operation and maintenance activities contracted in two wind assets, maintaining a direct relationship with the supplier for the turbine maintenance services.
In October 2019, we closed the acquisition of ATN Expansion 2, as previously announced, for a total equity investment of approximately $20 million. The offtaker is Enel
Green Power Peru. Transfer of the concession agreement is pending authorization from the Ministry of Energy in Peru. If this authorization were not to be obtained before December 2020, the transaction would be reversed with no penalties
to Atlantica.
In 2019, we signed an option to acquire Liberty’s equity interest in Solana for approximately $300 million. The option was due to expire on April 30, 2020. Liberty is the
tax equity investor in our Solana asset. In April 2020, we extended this option until August 31, 2020. Until now, we have paid $10 million for the option and we expect to pay up to an additional $290 million. The final price includes a
performance earn-out based on the average annual net production of the asset for the four calendar years with the highest annual net production during the five calendar years of 2020 through 2024. In July 17, 2020 we have exercised the
option to acquire the tax equity investor. Closing of the acquisition is expected to occur in August, subject to customary conditions.
In April 2020 we made an investment in the creation of a renewable energy platform in Chile, together with financial partners, where we now own approximately a 35% stake and
have a strategic investor role. The first investment was the acquisition of a 55 MW solar PV plant in an area with excellent solar resource (Chile PV I). This asset, has been in operation since 2016, demonstrating good operating track
record during that period while selling its production in the Chilean power market. We have concluded that we have control over the asset and we are fully consolidating it since the acquisition date. The platform intends to make further
investments in renewable energy in Chile and sign PPAs with credit worthy offtakers. Our initial contribution was approximately $4 million.
Cash flow
The following table sets forth cash flow data for the six-month period ended June 30, 2020 and 2019:
Note:
Net cash flows provided by/(used in) operating activities
Net cash provided by operating activities in the six-month period ended June 30, 2020 was $148.4 million, compared to $149.1 million in the six-month period ended June 30,
2019. The decrease was mainly due to a lower profit for the period adjusted by finance expense and non-monetary adjustments, mainly due to lower Adjusted EBITDA as we explain in “Segment reporting”. In addition, variation in working capital
was negative, although lower than in the same period of the previous year, mainly due to lower revenues in the second quarter in Spain and in the United States. In addition, interest payment was lower in the six-month period ended June 30,
2020 compared to the six-month period ended June 30, 2019 mainly due to lower interest at the corporate level and to the interest capitalization in one of our corporate debt financings.
Net cash provided by/(used in) investing activities
For the six-month period ended June 30, 2020, net cash provided by investing activities was $16.8 and corresponded mainly to $11.1 million from the acquisition of Tenes,
since the cash consolidated from the acquisition date is higher than the payment made under the agreement signed in May 2020. Investing cash flow for the six-month period ended June 30, 2020 also includes $7.4 million proceeds related to
the amounts Solana received under obligations from the EPC Contractor. From an accounting perspective, because this payment resulted from obligations under the EPC contract, the amount received was recorded as reducing the asset value and
was therefore classified as cash provided by investing activities. These effects were partially offset by the amount paid for the acquisition of Chile PV I.
For the six-month period ended June 30, 2019 net cash used by investing activities was $119.3 million and corresponded mainly to the payment of $97.2 million for the
investment in Amherst Island. Atlantica and Algonquin formed AYES Canada, a vehicle to channel co-investment opportunities and the first investment was in Amherst Island, a 75 MW wind plant in Canada. Atlantica invested $4.9 million and
Algonquin invested $92.3 million, both through AYES Canada. Since Atlantica controls AYES Canada under IFRS 10, we show in Net cash used in investing activities the total $97.2 million invested by AYES Canada in the project company and in
Net cash provided by financing activities the $92.3 million received from Algonquin by AYES Canada.
Net cash provided by/(used in) financing activities
For the six-month period ended June 30, 2020, net cash provided by financing activities was $71.9 million and corresponded mainly to the proceeds from the 2020 Green Private
Placement and the Green Project Finance, for a total amount of $468.3 million and to the withdrawal of approximately $90.0 million under the Revolving Credit Facility. This increase was partially offset by the repayment of $308.8 million of
the Note Issuance Facility 2017, the scheduled repayment of principal of our project financing agreements for an approximate amount of $116.6 million and $97.5 million of dividends paid to shareholders and non-controlling interest.
Net cash used in financing activities in the six-month period ended June 30, 2019 amounted to $84.4 million and corresponded principally to $433.9 million of principal debt
repayments, of which $259.7 million corresponded to the prepayment of the 2019 Notes, $124.2 million of project debt repayments and $50 million of revolving credit facility repayment. We also received $293.1 million net proceeds under the
Note Issuance Facility 2019, net of fees and paid $81.8 million of dividends to shareholders and non-controlling interest. As explained above, we also include $92.3 million corresponding to Algonquin’s participation in Amherst.
Quantitative and Qualitative Disclosure about Market Risk
Our activities are undertaken through our segments and are exposed to market risk, credit risk and liquidity risk. Risk is managed by our Risk Management and Finance
Departments in accordance with mandatory internal management rules. The internal management rules provide written policies for the management of overall risk, as well as for specific areas, such as exchange rate risk, interest rate risk,
credit risk, liquidity risk, use of hedging instruments and derivatives and the investment of excess cash.
Market risk
We are exposed to market risk, such as movement in foreign exchange rates and interest rates. All of these market risks arise in the normal course of business and we do not
carry out speculative operations. For the purpose of managing these risks, we use a series of swaps and options on interest rates and foreign exchange rates. None of the derivative contracts signed has an unlimited loss exposure.
Foreign exchange risk
The main cash flows from our subsidiaries are cash collections arising generally from long-term contracts with clients and regulated revenue and debt payments arising from
project finance repayment. Given that financing of the projects is always denominated in the same currency in which the contract with the client is signed, a natural hedge exists for our main operations.
Our functional currency is the U.S. dollar, as most of our revenue and expenses are denominated or linked to U.S. dollars. All our companies located in North America,
South America and Algeria have their revenues, and financing contracts signed in, or indexed totally or partially to, U.S. dollars. Our solar power plants in Spain have their revenue and expenses denominated in euros, and Kaxu, our solar
plant in South Africa, has its revenue and expenses denominated in South African rand.
Our strategy is to hedge cash distributions from our Spanish assets. We hedge the exchange rate for the distributions from our Spanish assets after deducting
euro-denominated interest payments and euro-denominated general and administrative expenses. Through currency options, we have hedged 100% of our euro-denominated net exposure for the next 12 months and 75% of our euro-denominated net
exposure for the following 12 months. We expect to continue with this hedging strategy on a rolling basis.
Although we hedge cash-flows in euros, fluctuations in the value of the euro in relation to the U.S. dollar may affect our operating results. In subsidiaries with
functional currency other than the U.S. dollar, assets and liabilities are translated into U.S. dollars using end-of-period exchange rates. Revenue, expenses and cash flows are translated using average rates of exchange. Fluctuations in
the value of the South African rand in relation to the U.S. dollar may also affect our operating results.
Apart from the impact of translation differences described above, the exposure of our income statement to fluctuations of foreign currencies is limited, as the financing
of projects is typically denominated in the same currency as that of the contracted revenue agreement. This policy seeks to ensure that the main revenue and expenses in foreign companies are denominated in the same currency, limiting our
risk of foreign exchange differences in our financial results.
Interest rate risk
Interest rate risks arise mainly from our financial liabilities at variable interest rate (less than 10% of our total project debt financing). We use interest rate swaps and
interest rate options (caps) to mitigate interest rate risk.
As a result, the notional amounts hedged as of June 30, 2020, contracted strikes and maturities, depending on the characteristics of the debt on which the interest rate risk
is being hedged, are very diverse, including the following:
In connection with our interest rate derivative positions, the most significant impact on our Annual Consolidated Financial Statements are derived from the changes in
EURIBOR or LIBOR, which represents the reference interest rate for the majority of our debt.
In relation to our interest rate swaps positions, an increase in EURIBOR or LIBOR above the contracted fixed interest rate would create an increase in our financial expense
which would be positively mitigated by our hedges, reducing our financial expense to our contracted fixed interest rate. However, an increase in EURIBOR or LIBOR that does not exceed the contracted fixed interest rate would not be offset by
our derivative position and would result in a net financial loss recognized in our consolidated income statement. Conversely, a decrease in EURIBOR or LIBOR below the contracted fixed interest rate would result in lower interest expense on
our variable rate debt, which would be offset by a negative impact from the mark-to-market of our hedges, increasing our financial expense up to our contracted fixed interest rate, thus likely resulting in a neutral effect.
In relation to our interest rate options positions, an increase in EURIBOR or LIBOR above the strike price would result in higher interest expenses, which would be
positively mitigated by our hedges, reducing our financial expense to our capped interest rate, whereas a decrease of EURIBOR or LIBOR below the strike price would result in lower interest expenses.
In addition to the above, our results of operations can be affected by changes in interest rates with respect to the unhedged portion of our indebtedness that bears interest
at floating rates.
In the event that EURIBOR and LIBOR had risen by 25 basis points as of June 30, 2020, with the rest of the variables remaining constant, the effect in the consolidated
income statement would have been an annual loss of $3.4 million and an annual increase in hedging reserves of $26.1 million. The increase in hedging reserves would be mainly due to an increase in the fair value of interest rate swaps
designated as hedges.
Credit risk
On January 29, 2019, PG&E, the off-taker for Atlantica with respect to the Mojave plant, filed for reorganization under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of California.
PG&E had paid all invoices corresponding to the electricity delivered after January 28, 2019. Since PG&E failed to assume the PPA within 180 days from the commencement of PG&E’s Chapter 11 proceeding, a technical event of
default was triggered under our Mojave project finance agreement in July 2019. On July 1, 2020, PG&E emerged from Chapter 11. In addition, PG&E paid to Mojave the portion of the invoice corresponding to the electricity delivered
for the period between January 1 and January 28, 2019. This invoice was overdue because the services relate to the prepetition period and any payment therefore required the approval by the Bankruptcy Court. With this, we believe that the
technical event of default under our Mojave project finance agreement, which was preventing cash distributions from Mojave to Atlantica, has been cured. We expect to receive a distribution from Mojave in the third quarter.
In addition, Eskom’s credit rating has continued to weaken and is currently CCC+ from S&P, B3 from Moody’s and B+ from Fitch. Eskom is the off-taker of our Kaxu solar
plant, a state-owned, limited liability company, wholly owned by the government of the Republic of South Africa. Eskom’s payment guarantees to our solar plant Kaxu are underwritten by the South African Department of Energy, under the terms
of an implementation agreement. The credit ratings of the Republic of South Africa as of the date of this report are BB/Ba1/BB by S&P, Moody’s and Fitch, respectively.
Furthermore, the credit rating of Pemex has also weakened and is currently BBB from S&P, Ba2 from Moody’s and BB- from Fitch. We have been experiencing significant
delays in collections from the second half of 2019. See “Item 3.D— Risk Factor— Counterparties to our off-take agreements may not fulfill their obligations and, as our contracts expire, we may not be able
to replace them with agreements on similar terms in light of increasing competition in the markets in which we operate” in our Annual Report.
In 2019 we entered into a political risk insurance agreement with the Multinational Investment Guarantee Agency for Kaxu. The insurance provides protection for breach of
contract up to $89.9 million in the event the South African Department of Energy does not comply with its obligations as guarantor. We have also increased coverage in our political risk insurance for our assets in Algeria with CESCE up to
$38.2 million, including 2 years dividend coverage. These insurance policies do not cover credit risk.
Liquidity risk
The objective of our financing and liquidity policy is to ensure that we maintain sufficient funds to meet our financial obligations as they fall due.
Project finance borrowing permits us to finance projects through project debt and thereby insulate the rest of our assets from such credit exposure. We incur project finance
debt on a project-by-project basis.
The repayment profile of each project is established on the basis of the projected cash flow generation of the business. This ensures that sufficient financing is available
to meet deadlines and maturities, which mitigates the liquidity risk.
COVID-19 and measures taken by governments are causing a significant disruption and volatility in the global financial markets. Debt and equity markets have been affected
and the number of transactions in the primary market has decreased. In addition, interest rates for new issuances and spreads with respect to treasury yields have increased significantly. Although no significant debt matures prior to 2025,
if we had to access capital markets for financing we may find difficulties in issuing new debt or equity. In addition, the cost of new financing is higher today than in the financial markets prior to the COVID-19. See “Part II—Item 1A—Risk Factors—The outbreak of COVID-19 could have a material adverse impact on our business, financial condition, liquidity, results of operations, cash flows, cash available for distribution and ability to
make cash distributions to its shareholders”.
Not Applicable
PART II. OTHER INFORMATION
A number of Abengoa’s subcontractors and insurance companies that issued bonds covering Abengoa’s obligations under such contracts in the U.S. have included some of the
non-recourse subsidiaries of Atlantica in the U.S. as co-defendants in claims against Abengoa. Generally, the subsidiaries of Atlantica have been dismissed as defendants at early stages of the processes. With respect to a claim addressed by
a group of insurance to a number of Abengoa’s subsidiaries and to Solana (Arizona Solar One) for Abengoa related losses of approximately $20 million that could increase, according to the insurance companies, up to a maximum of approximately
$200 million if all their exposure resulted in losses. Atlantica reached an agreement with all but one of the above-mentioned insurance companies, under which they agreed to dismiss their claims in exchange for payments of approximately
$4.3 million, which were paid in 2018. The insurance company that did not join the agreement has temporarily stopped legal actions against Atlantica, and Atlantica does not expect this particular claim to have a material adverse effect on
its business.
In addition, an insurance company covering certain Abengoa obligations in Mexico has claimed certain amounts related to a potential loss. This claim is covered by existing
indemnities from Abengoa. Nevertheless, Atlantica has reached an agreement under which Atlantica´s maximum theoretical exposure would in any case be limited to approximately $35 million, including $2.5 million to be held in an escrow
account. On January 2019, the insurance company executed $2.5 million from the escrow account and Abengoa reimbursed such amount according to the existing indemnities in force between Atlantica and Abengoa. The payments by Atlantica would
only happen if and when the actual loss has been confirmed, if Abengoa has not fulfilled their obligations and after arbitration, if the Company initiates it.
Atlantica is not a party to any other significant legal proceedings other than legal proceedings arising in the ordinary course of its business. Atlantica is party to
various administrative and regulatory proceedings that have arisen in the ordinary course of business. While Atlantica does not expect these proceedings, either individually or in the aggregate, to have a material adverse effect on its
financial position or results of operations, because of the nature of these proceedings Atlantica is not able to predict their ultimate outcomes, some of which may be unfavorable to Atlantica.
The outbreak of COVID-19 could have a material adverse impact on our business, financial condition, liquidity, results of operations, cash flows, cash
available for distribution and ability to make cash distributions to its shareholders.
The COVID-19 was declared a pandemic by the World Health Organization in March 2020 and continues to spread in some of our key markets. The COVID-19 virus continues to
evolve rapidly, and its ultimate impact is uncertain and subject to change. Governmental authorities have imposed or recommended measures or responsive actions, including quarantines of certain geographic areas and travel restrictions.
We cannot guarantee that the COVID-19 outbreak will not affect our operation and maintenance employees. Our operation and maintenance suppliers may also be affected by
COVID-19 and the broader economic downturn. In addition, we may experience delays in certain operation and maintenance activities or certain activities may take longer than usual, or, under a worst case scenario, a potential outbreak in one
of our assets may prevent our employees or our operation and maintenance suppliers’ employees from operating the plant. All these can hamper or prevent the operation and maintenance of our assets, which may result in a material adverse
effect on our business, financial condition, results of operations and cash flows. Furthermore, COVID-19 has caused travel restrictions and significant disruptions to global supply chains. A prolonged disruption could limit the availability
of certain parts required to operate our facilities and adversely impact the ability of our operation and maintenance suppliers. If we were to experience a shortage of or inability to acquire critical spare parts we could incur significant
delays in returning facilities to full operation, which could negatively impact our business, financial condition, results of operations and cash flows.
Further, we have adopted additional precautionary measures intended to mitigate potential risks to our employees, including temporarily requiring all employees to work
remotely where their work can be done from home, and suspending all non-essential travel which could negatively affect our business. Since May 2020, we have re-opened certain offices at partial capacity and under strict safety measures.
In addition, COVID-19 and measures taken by governments are causing a slowdown of broad sectors of the economy, a general reduction in demand, including demand for
commodities and a negative impact on prices of commodities, including electricity, oil and gas. In Spain, revenue received by our assets under the existing regulation depend to some extent on market prices for sale of electricity. During
the first half of 2020, electricity market prices have been lower than in the same quarter of previous years. If this decline in market prices persisted over time, it could have a material adverse effect on our business, financial
condition, results of operations and cash flows and the value of our renewable energy facilities may be impaired, or their useful life may be shortened.
The global outbreak has also caused significant disruption and volatility in the global financial markets, including the market price of our shares. Debt markets have also
been affected and there have been weeks with a very low number of new debt issuance transactions. Interest rates for new issuances and spreads with respect to treasury yields have increased significantly. A prolonged period of illiquidity
and disruptions in the equity and credit markets could limit our ability to refinance our debt maturities and to finance our potential acquisitions and execute on our growth strategy. Any prolonged and uncontained outbreak could result in
further disruptions in the general economy and illiquidity in the credit markets. In addition, the progression of and global response to the COVID-19 outbreak could increase the risk of delays in such plans or in obtaining the financing
required to close the acquisitions that we have announced.
Although our revenue are generally contracted or regulated, our clients may be affected by a reduced demand, lower commodity prices and the turmoil in the credit markets. A
reduced demand and low prices persisting over time could cause delays in collections, a deterioration in the financial situation of our clients or their bankruptcy. For example, the credit rating of Pemex has weakened and is currently BBB
from S&P, Ba2 from Moody’s and BB- from Fitch and its financial situation could worsen considering low oil prices in the last months. We have been experiencing significant delays in collections in ACT since the second half of 2019 and
we continue to monitor the situation closely. Our clients, including utilities, may face reduced revenue and may experience delays in collections from their own clients, as well as bad debt costs. Delays in collections from our clients can
cause delays in distributions from our assets, which can cause a negative impact on our cash available for distributions and on our business, financial condition, results of operations, and cash flows. If our off-takers are unable or
unwilling to fulfill their related contractual obligations, if they refuse to accept delivery of power delivered thereunder, if they otherwise terminate such agreements prior to the expiration thereof, if prices were re-negotiated under a
bankruptcy situation, or if they delay payments, then our business, financial condition, results of operations and cash flows may be materially adversely affected.
We could also experience commercial disputes with our clients, suppliers and partners related to implications of COVID-19 in contractual relations. All the risks referred
to can cause delays in distributions from our assets to the holding company level. In addition, we may experience delays in distributions due to logistic and bureaucratic difficulties to approve those distributions, which can negatively
affect our cash available for distributions, our business, financial condition and cash flows. If we were to experience delays in distributions due to the risks described above and this situation persisted over time, we may fail to comply
with financial covenants in our credit facilities and other financing agreements.
Additionally, many governments have implemented and will continue to implement stimulus measures to reduce the negative impact of COVID-19 in the economy. In many cases,
these measures will increase government spending which may translate into increased tax pressure on companies in the countries where we operate. Changes in corporate tax rates and/or other relevant tax laws may have a material adverse
effect on our business, financial condition, results of operations and cash flows.
We do not yet know the full extent of the virus’ potential effects on our business or the global economy as a whole. We continue to monitor the situation and adjust our
current policies and practices as more information and guidance become available.
Recent sales of unregistered securities
There have been no recent sales of unregistered securities other than as reported in this quarterly report on Form 6-k in connection with our offering of Green Exchangeable Notes due 2025. The
notes were resold to qualified institutional buyers by the initial purchasers pursuant to Rule 144A under the Securities Act. See “Item 2 —Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and
Capital Resources—Sources of Liquidity—Green Exchangeable Notes”.
Use of proceeds from the sale of registered securities
None.
Purchases of equity securities by the issuer and affiliated purchasers
None
None.
Not applicable.
Not Applicable.
The following exhibits are filed as part of this quarterly report:
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.