Additionally, covenant defaults may occur in the future under the indenture governing the Company's 9.75% senior notes due 2022 (the “Senior Notes”) in the event of further delays in the filing of the Company's periodic reports with the SEC. There can be no assurance that the Company will be able to file its periodic reports (including the Company's Form 10-Q for the quarter ended March 31, 2017 or any quarters thereafter) with the SEC within the periods currently required under the indenture governing the Senior Notes or that holders of the Senior Notes will agree to any required extension of financial statement filing dates on acceptable terms or at all. A default on the Senior Notes would permit the trustee or the holders of at least 25% in aggregate principal amount of notes outstanding to accelerate the Senior Notes. The Company would likely not have sufficient liquidity to meet this obligation, which could have a material adverse effect on its business, results of operations, financial condition and ability to pay dividends.
The risk of substantive consolidation of the Company with SunEdison and inclusion in the SunEdison Bankruptcy, as well as the risk of future covenant defaults under the indenture governing the Senior Notes, raise substantial doubt about the Company’s ability to continue as a going concern.
Basis of Presentation
Certain solar power plants in the Company’s current portfolio have been contributed from SunEdison (also referred to as “dropdown”) and are reflected in the accompanying consolidated balance sheets at SunEdison’s historical cost. When solar power plants are contributed or acquired from SunEdison, the Company is required to recast its historical financial statements to reflect the assets and liabilities of the acquired solar power plants for the period it was owned by SunEdison in accordance with rules applicable to transactions between entities under common control. See Note 3 - Transactions Between Entities Under Common Control.
For all periods prior to the Company's initial public offering on August 5, 2015 (“IPO”), the accompanying consolidated financial statements reflect the operations of SunEdison Emerging Markets Co. (the "Predecessor"), which consisted of the assets that the Company acquired from SunEdison and third parties prior to and concurrently with the closing of the IPO, and were prepared using SunEdison’s historical basis in these assets and liabilities. For all periods subsequent to the IPO, the accompanying consolidated financial statements represent the results of TerraForm Global, Inc., which consolidates Global LLC through its controlling interest.
The historical financial statements of the Predecessor include allocations of certain SunEdison corporate expenses and income tax expense. Management believes the assumptions and methodology underlying the allocation of general corporate overhead expenses are reasonable. Subsequent to the IPO, corporate expenses represent those costs allocated to the Company under the MSA, as more fully described in Note 19 - Related Parties.
The Company's Consolidated Statements of Operations for prior years have been adjusted to conform to the current year’s presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"), the Company used estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements. Such estimates also affect the reported amounts of revenues, expenses and cash flows during the reporting period. To the extent there are material differences between the estimates and actual results, the Company's future results of operations would be affected.
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP. They include the results of wholly owned and partially owned subsidiaries in which the Company has a controlling interest with all significant intercompany accounts and transactions eliminated. When the Company is the primary beneficiary of a variable interest entity (“VIE”) in power plants, they are consolidated.
Variable Interest Entities
The Company consolidates VIEs when the Company is the primary beneficiary. The primary beneficiary of a VIE is the party that has the power to direct the activities that most significantly impact the performance of the entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity.