It has been known for months that First Solar (NASDAQ: FSLR) wanted to sell its stake in the yieldco 8point3 Energy Partners (NASDAQ: CAFD) as it shifts gears from building solar projects to selling components. But Sunpower (NASDAQ: SPWR), First Solar's co-sponsor in the yieldco, had left all of its options open, including keeping its stake and replacing First Solar.
After comments during SunPower's earnings report, we know a little more about what 8point3 Energy Partners' future will look like.
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A sale is in the works
There were three options for 8point3 Energy Partners once First Solar announced its intention to sell. First Solar could just sell its stake and SunPower could stay on, both sponsors could sell and be replaced by another company keeping shares public, or the entire yieldco could be bought out. We know from SunPower's earnings call that the first option is now off the table.
Buyers have indicated that they would want control of 8point3 Energy Partners, so SunPower would need to sell as well. And indications are that it's more than willing to do so.
What this does is put a number of potential buyers in play for 8point3 Energy Partners. I've said in the past that AES (NYSE: AES) or Duke Energy (NYSE: DUK) would be natural buyers because a yieldco would allow them to drop wind and solar assets down to a captive subsidiary. Another yieldco like NextEra Energy Partners (NYSE: NEP) could also make sense because it could buy the high yield of 8point3 Energy Partners with its lower yield stock.
Now that we know an all out sale is on the table, we could also see a pension fund, private equity fund, or even some large family offices looking for long-term cash flow show interest in the yieldco. They wouldn't keep it public, but would instead value the long-term contracted cash flows, even if they come with a single digit rate of return.
How much could 8point3 Energy Partners fetch in a sale?
A potential sale price of 8point3 Energy Partners is currently unknown. But the stock currently has a 7.2% dividend yield, which we can compare to TerraForm Power's implied dividend yield of 7.1% to 9.4% based on estimated 2017 cash available for distribution (CAFD) and the yieldco's buyout price. TerraForm Power was much weaker operationally, so 8point3 Energy Partners should get a premium over that yield.
First Solar has also said that 8point3 Energy Partners isn't able to pay as much for solar projects as it can sell them for on the open market, implying that buyers have a lower cost of capital than the yieldco. If the company is sold it should get a premium over today's price.
I think a reasonable range for a sale would be a 7% rate of return on project level CAFD of $140 million for the year or more. After you pull out the $717 million in debt, an equity value of $1.28 billion, or $16.22 per share is around what the yieldco would sell for on the low end. The price could go significantly higher depending on how a buyer values the assets.
Given First Solar's 15.4 million shares and SunPower's 28.88 million shares of the yieldco, the solar manufacturers could get $359 million and $468.5 million in cash from a sale, respectively. And that's assuming the $16.22 sale price and no premium because of incentive distribution rights they own.
If comments from First Solar and SunPower are correct, the sale of 8point3 Energy Partners could come at a nice premium to today's stock price and could put hundreds of millions more in their coffers. It could be a win-win for everyone.
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