TERRAFORM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, unless otherwise noted)
1. NATURE OF OPERATIONS
Nature of Operations
TerraForm Global, Inc. and its subsidiaries (together, the “Company”) is a controlled affiliate of SunEdison, Inc. (together with its consolidated subsidiaries excluding the Company, "SunEdison"). TerraForm Global, Inc. is a holding company and its sole asset is an equity interest in TerraForm Global, LLC (“Global LLC”), a globally diversified renewable energy company that owns, through its subsidiaries, wind and solar power plants and long-term contractual arrangements to sell the electricity generated by such power plants to third parties. TerraForm Global, Inc. is the managing member of Global LLC and operates, controls and consolidates the business affairs of Global LLC.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
The Company's controlling shareholder, SunEdison, Inc., and certain of its affiliates voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code on April 21, 2016 (the “SunEdison Bankruptcy”). The Company believes that it has observed formalities and operating procedures to maintain its separate existence, that the Company's assets and liabilities can be readily identified as distinct from those of SunEdison and that the Company does not rely substantially on SunEdison for funding or liquidity and will have sufficient liquidity to support the Company's ongoing operations. As described more fully in Note 23. Subsequent Events - Entry into a Definitive Merger Agreement with Brookfield Asset Management Inc. and Note 23. Subsequent Events - SunEdison Bankruptcy and Settlement Agreement with SunEdison, the Company's contingency planning with respect to the SunEdison Bankruptcy has included and will include, among other things, establishing stand-alone information technology, accounting and other critical systems and infrastructure, directly hiring employees necessary to operate its business and establishing employee retention efforts, retaining third parties to provide operation and maintenance (“O&M”) and asset management services for the Company's power plants where it does not perform these services itself and the pursuit of strategic alternatives.
However, there is a risk that an interested party in the SunEdison Bankruptcy could request that the assets and liabilities of the Company be substantively consolidated with SunEdison and that the Company and/or its assets and liabilities be included in the SunEdison Bankruptcy. While it has not been requested to date and the Company believes there is no basis for substantive consolidation in its circumstances, there can be no assurance that substantive consolidation will not be requested in the future or that the bankruptcy court would not consider it. Substantive consolidation is an equitable remedy in bankruptcy that results in the pooling of assets and liabilities of the debtor and one or more of its affiliates solely for purposes of the bankruptcy case, including for purposes of distributions to creditors and voting on and treatment under a reorganization plan. Bankruptcy courts have broad equitable powers, and as a result, outcomes in bankruptcy proceedings are inherently difficult to predict.
To the extent the bankruptcy court were to determine that substantive consolidation was appropriate under the Company's facts and circumstances, the assets and liabilities of the Company could be made available to help satisfy the debt or contractual obligations of SunEdison.
There have also been covenant defaults under certain of the Company's project level financing arrangements, mainly because of delays in the delivery of project level audited financial statements and the SunEdison Bankruptcy, which resulted in defaults because SunEdison, Inc. and certain of its affiliates have been serving as O&M and asset management service providers or as guarantors under relevant contracts. The Company has been working diligently with its lenders to cure or waive instances of default, including through the completion of project level audits and the retention of replacement service providers. However, there can be no assurance that all remaining defaults will be cured or waived. All of the Company's project level financing arrangements are on a non-recourse basis, and therefore these defaults do not directly affect the financial position of the Company. However, if the remaining defaults are not cured or waived, this would continue to restrict the ability of the relevant project companies to make distributions to us, and may entitle certain project level lenders to demand repayment or enforce their security interests or other remedies.