Moody's Downgrades Terraform Power (TERP) and Terraform Global (GLBL) to B2 CFR on Parent Weakness, Negative Rating Outlook

Moody's today lowered the Corporate Family Rating (CFR) of Terraform Power Operating LLC (TPO) (Nasdaq: TERP) to B2 from Ba3 and the CFR of Terraform Global Operating LLC (TGO) (Nasdaq: GLBL) to B2 from B1. The unsecured debt rating at TPO and TGO were both lowered to B3 from B1 and B2, respectively. We also lowered the Speculative Grade Liquidity (SGL) rating of TPO to SGL-3 from SGL-2 and maintained the SGL-3 at TGO. The rating outlook on both entities is negative. TPO and TGO are subsidiaries of Terraform Power Inc(TERP) and Terraform Global Inc (GLBL), respectively, which are the publicly listed YieldCos.

Downgrades:

..Issuer: TerraForm Global Operating, LLC

.... Probability of Default Rating, Downgraded to B2-PD from B1-PD

.... Corporate Family Rating, Downgraded to B2 from B1

.... Speculative Grade Liquidity Rating, Affirmed SGL-3

....Senior Unsecured Regular Bond/Debenture, Downgraded to B3 (LGD 4) from B2 (LGD 4)

Outlook Actions: ....Outlook, Negative

..Issuer: TerraForm Power Operating LLC

.... Probability of Default Rating, Downgraded to B2-PD from Ba3-PD

.... Corporate Family Rating, Downgraded to B2 from Ba3

.... Speculative Grade Liquidity Rating, Downgraded to SGL-3 from SGL-2

....Senior Unsecured Regular Bond/Debentures, Downgraded to B3 (LGD 5) from B1(LGD 4)

Outlook Actions: ....Outlook, Negative RATINGS RATIONALE

The rating downgrades reflect the strained liquidity and financial position at parent Sun Edison Inc (SUNE, unrated) as well as additional capital raising requirements on TPO beyond what was originally expected to fund the pending Invenergy and Vivint acquisitions. This includes the obligation to infuse $388 million in equity into the planned Invenergy warehouse, originally expected to be owned by SUNE, as well as the Vivint interim agreement (still subject to final documentation), that obligates TPO to purchase up to 450-500 MW of rooftop assets from Vivint every year for the next 5 years. This obligation under the interim agreement is in contrast to the "call rights" arrangement TPO typically has with SUNE

"With these new capital commitments, we expect that TPO's leverage at the close of the Invenergy and Vivint acquisitions will exceed 7.0x on a Debt/EBITDA basis" said Swami Venkataraman, Vice-President, Senior Credit Officer at Moody's. "SUNE's tight liquidity and lack of access to capital, which likely led to the Invenergy Warehouse and Vivint interim agreement obligations being placed on TPO, is also a factor in bringing the ratings lower and in our maintenance of a negative outlook", he said.

At this point, the ratings at both TPO and TGO are arguably lower than they would be based purely on their standalone credit profiles because they also reflect the liquidity stress at and contagion risks from SUNE. Both TPO and TGO have certain ring-fencing protections in place that offer a potential buffer against a possible SUNE bankruptcy. In order for TPO and TGO to be voluntarily brought into a SUNE bankruptcy, independent directors on the boards of both companies need to affirmatively vote for such a filing. Moody's notes that both TPO and TGO continue to benefit from stable, contractual cash flows are not facing a near-term risk of insolvency because of their own operations.

However, given the substantial linkages with the parent, and the fact that TPO and TGO were formed primarily as vehicles to own and operate SUNE projects, it is possible that the outcome could be different if SUNE were to file for bankruptcy. The presence of independent directors does not always protect a subsidiary from being filed along with the parent.

In our opinion, the connection to SUNE was reinforced this morning by a number of changes announced to SUNE, TERP and GLBL's management team and board of directors. The changes will align SUNE closer to the strategy of using TERP and GLBL as dropdown vehicles for SUNE assets and away from acquisitions. And while the announced increase in the number of independent directors at TERP from three to four (out of seven directors) is a positive, we note that the new chairman of TERP and GLBL is from the board of SUNE and TERP's new CEO is also the CFO of SUNE. In our view, the stronger ties between TERP, GLBL and SUNE arguably increase the likelihood that the yieldcos could be drawn into a SUNE bankruptcy, if it were to occur.

Although SUNE reported $1.38 billion of cash on hand as of September 30, 2015, we estimate that about $700 million of this cash is at various projects currently under construction and a majority of this amount is not really free cash available to meet liquidity needs. Portions of this cash includes EPC profits retained temporarily at the projects by SUNE, which is normally the EPC contractor for all the projects it develops, which we believe is likely available for general liquidity if needed. When we factor in other liquidity demands on SUNE, such as$150-200 million in earnout payments to First Wind, an additional $200 million or so to repay a margin loan to Deutsche Bank, Q4 interest expense of about $50 million and $95 million for the exercise of a put option on the shares of GLBL by the South American company Renova, there is very little liquidity cushion at SUNE. This analysis does not yet incorporate whether SUNE's core development operations are a source or use of cash during this quarter.

In order to complete all pending transactions, we estimate that TPO needs to issue another $638 million of debt at the parent or project level, including the Invenergy warehouse. We think TPO maybe need to borrow on one or both of its bridge facilities extended by members of its bank group to satisfy a portion of this need, with the balance likely coming from project-level debt.

Liquidity

As incorporated in the SGL-3 rating, TGO currently has an adequate liquidity position. Out of the 1.4 GW of projects planned to be acquired at the time of the IPO, the company has closed 779 MW, 73 MW has fallen away and will no longer be acquired, 427 MW are currently pending lender or regulatory approvals and 128 MW are under construction. TGO has $1 billion of cash on hand as of September 30, 2015 and its $485 million revolver is unused. When the acquisitions are complete, we expect the company will have about $200 million of cash on hand and its revolver would remain unused. TPO currently has adequate liquidity, comprising of about $800 million of cash and an unused $725 million revolver. Proforma for the the Invenergy and Vivint acquisitions, TPO expects to have virtually zero cash on its balance sheet, although the revolving credit facility is expected to be unused. However, there is still some uncertainty about this given that TPO has not yet raised some of the long-term debt that it needs and may well end with its revolver partially utilized as well.

Outlook: The negative outlook primarily reflects the liquidity risks at SUNE and the possibility that TPO and TGO may be drawn into a SUNE bankruptcy, should it occur.

What could change the rating Up? In light of today's rating action at both issuers, limited near prospects exist for a rating upgrade. However, if SUNE is able to either successfully close or terminate its pending transactions, especially the

Vivint acquisition which appears to have been the catalyst for many of SUNE's current problems, a stable outlook on TPO and TGO could be considered. This would also require a high degree of certainty that SUNE will not file for bankruptcy and is able to successfully continue as a going concern. A stable outlook would also require that TPO and TGO are not saddled with additional financial obligations that pressure their financial profiles and that they continue to maintain adequate liquidity to support their operations

What could change the rating Down? Ratings at both TPO and TGO will be lowered further if we perceive an increase in the risk of a bankruptcy filing at SUNE. Moreover, we will assess how today's management changes at SUNE, TERP and GLBL impact strategies around the completion of near-term acquisitions, both companies' strategic direction, SUNE's liquidity profile and corporate governance, especially how TERP and GLBL's independent directors view and react to ongoing developments.

The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in October 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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