Moody's Investor Service (Moody's) downgraded TerraForm AP Acquisition Holdings, LLC's (TerraForm AP) rating on its senior secured debt to Ba3 from Ba2 and changed the outlook to negative.

..Issuer: TerraForm AP Acquisition Holdings, LLC

Downgrades:

....Senior Secured Bank Credit Facility, Downgraded to Ba3 from Ba2

Outlook Actions:

....Outlook, Changed To Negative From Stable

RATINGS RATIONALE

TerraForm AP's downgrade to Ba3 from Ba2 incorporates our view that the diminished financial strength at TerraForm Power (TERP, not rated) and its subsidiary, TerraForm Power Operating, LLC's (TPO: B2, negative) greatly reduces the prospects for future sales by TerraForm AP to TERP under the call rights agreement. Asset sale proceeds under the call rights agreement were originally intended to rapidly pay down TerraForm AP's debt resulting in full debt repayment by the end of 2019. With the rapid debt pay down, consolidated financial metrics were expected to rise well above 10% FFO to debt and 1.6x debt service coverage ratio (DSCR) under the Moody's Case. Without any asset sales, which we now believe is the more appropriate scenario, proforma financial metrics at TerraForm AP are not expected to materially improve through at least 2020 and stay at around 6% FFO to Debt and 1.4x DSCR under the Moody's Case with around 60% of the debt outstanding at maturity.

The negative outlook incorporates the family contagion that exist among TPO, TERP, and its parent, SunEdison, Inc (SUNE, not rated) driven in large part by liquidity concerns at SUNE which have impacted the credit quality at its subsidiaries, TERP and TPO. In that vein, we downgraded TPO's Corporate Family Rating (CFR) to B2 from Ba3 based upon the significant credit deterioration at SUNE and the interlocking relationships across the SUNE family (See press release dated November 23, 2015 on moodys.com under TerraForm Power Operating, LLC). TerraForm AP is exposed to contagion risks associated with two these entities since SUNE indirectly owns 100% of TerraForm AP's common equity and the project has contractual links with them. In addition to the call rights agreement that provided TERP the option to purchase assets from TerraForm AP, SUNE affiliates provide asset management and non-turbine operations and maintenance and services for TerraForm AP's assets. That said, we recognize third party preferred equity holders (PREPP) have invested $150 million in TerraForm AP that provide significant ring fencing like protections since these third party equity investors must approve of major actions like a bankruptcy filing of TerraForm AP. Without the PREPP investors providing ring fencing like protections, TerraForm AP's ratings would likely be lower.

The rating could be downgraded further if severe credit deterioration at TERP, TPO, or SUNE gives rise to an increased prospect that TerraForm AP's ring fencing like features will be challenged, altered, or not work as expected. The rating could also be downgraded if TerraForm AP incurs substantial operating issues or has financial metrics lower than expected.

TerraForm AP's outlook could stabilize if TPO and SUNE's credit quality stabilizes. The outlook could also stabilize if additional comfort is gained that the ring fencing like protections work as anticipated and TerraForm AP demonstrates financial and operating performance according to expectations.

The principal methodology used in these ratings was Power Generation Projects published in December 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.