Windpower Monthly Quotes Greg Jenner on Wind Companies' Interest in IPOs to Raise Low Cost Capital

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Partner Greg Jenner was quoted in Windpower Monthly in an article titled “Wind companies ready to brave the capital markets.” The article discusses the attractiveness to the wind energy sector in 2014 of initial public offerings (IPO) – prompted by a year in which there were six, with the companies raising nearly $2.3 billion from the public equity markets. Financial experts see this as a sign of the maturation of the industry, i.e., the companies are increasingly seen as being worthy of tapping into the public and institutional capital markets as opposed to the private equity markets, which they will need to be able to do to grow to their potential.

A majority of  2013’s IPOs were of a type generically dubbed yieldcos. They hold operating plants with long-term power contracts that generate a consistent cash flow paid out in dividends—often at rates that appeal to investors looking for income in today’s low-interest environment. In holding only operating assets, yieldcos avoid the more volatile project development and construction aspects of the business. "There's a lot of risk there that investors are not interested in taking on," says Jenner. "What the market is looking at with these yieldcos is essentially just a pure cash stream."

There are also challenges to the yieldco structure, among them the necessity of keeping portfolios large and diverse to minimize the risk to investors and continuing to build them to maintain value for shareholders. "The assets that yieldcos own are wasting assets. Their contracted cash streams will eventually go away," explains Jenner. "That means two things. One is they have to keep feeding the beast. They have to keep adding assets to keep up the income stream, or otherwise the value is going to go down. But in order to do that, they have to divert cash flow in order to build up reserves. So there's a tension that exists within the entity between paying out high dividends and making sure that they don't wither away."

Read ,“Wind companies ready to brave the capital markets” published on May 1, 2014. (Subscription required.)

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