F-1/A 1 d832817df1a.htm AMENDMENT NO.1 TO FORM F-1 Amendment No.1 to Form F-1
Table of Contents

As filed with the Securities and Exchange Commission on January 12, 2015

Registration No. 333-200848

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Abengoa Yield plc

(Exact name of Registrant as Specified in its Charter)

 

 

Not Applicable

(Translation of Registrant’s name into English)

 

 

 

England and Wales   4911   Not applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

Great West House, GW1, 17th floor

Great West Road

Brentford, United Kingdom TW8 9DF

Tel.: +44 207 098 4384

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Abengoa Solar LLC

1250 Simms St., #101

Lakewood, CO 80401

Tel.: (303) 928 8500

Attn.: Christopher B. Hansmeyer

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of communications, including communications sent to agent for service, should be sent to:

 

Jeffrey C. Cohen, Esq.

Linklaters LLP

1345 Avenue of the Americas

New York, New York 10105

Phone: (212) 903-9000

 

Michael J. Willisch, Esq.

Davis Polk & Wardwell LLP

Paseo de la Castellana, 41

28046 Madrid

Phone: + 34 91 768 9610

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

Non-accelerated filer

 

x  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

 

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. The selling shareholder may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated January 12, 2015.

9,200,000 Ordinary Shares

 

LOGO

(Incorporated in England and Wales)

Ordinary Shares

$        per share

 

 

The selling shareholder named in this prospectus is offering 9,200,000 ordinary shares of Abengoa Yield plc, or the Company. We will not receive any of the proceeds from the sale of these shares.

Our ordinary shares are traded on the NASDAQ Global Select Market under the symbol “ABY.” On January 9, 2015, the last reported sale price of our ordinary shares was $29.16 per share.

We are a “controlled company” within the meaning of the corporate governance standards of the NASDAQ Global Select Market.

We are an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, and, as such, are allowed to provide in this prospectus more limited disclosures than an issuer that would not so qualify. In addition, for as long as we remain an emerging growth company, we will qualify for certain limited exceptions from the Sarbanes-Oxley Act of 2002. See “Risk Factors—Risks Related to Ownership of our Shares—We are an “emerging growth company” and may elect to comply with reduced public company reporting requirements, which could make our shares less attractive to investors” and “Summary—JOBS Act.”

 

 

Investing in our shares involves risks. See “Risk Factors” beginning on page 24 of this prospectus.

Neither the Securities and Exchange Commission, or the Commission, nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Public Offering price

   $                   $               

Underwriting discounts

   $        $    

Proceeds to the selling shareholder, before expenses

   $        $    

The underwriters expect to deliver the ordinary shares to purchasers on or about         through the book-entry facilities of The Depository Trust Company.

To the extent that the underwriters sell more than 9,200,000 ordinary shares, the underwriters have the option to purchase up to an additional 1,380,000 ordinary shares from the selling shareholder at the public offering price less the underwriting discount. We will not receive any proceeds from the exercise of the underwriters’ option to purchase additional shares.

 

Citigroup   BofA Merrill Lynch
HSBC   Banco Santander

The date of this prospectus is                 , 2015.


Table of Contents

TABLE OF CONTENTS

 

     Page  

Enforcement of Civil Liabilities

     ii   

Definitions

     ii   

Presentation of Financial Information

     iv   

Presentation of Industry and Market Data

     vi   

Cautionary Statements Regarding Forward-Looking Statements

     viii   

Summary

     1   

The Offering

     18   

Summary Financial Information

     19   

Risk Factors

     24   

Use of Proceeds

     51   

Price Range of Our Ordinary Shares

     52   

Capitalization

     53   

Cash Dividend Policy

     54   

Unaudited Pro Forma Financial Information

     57   

Selected Financial Information

     63   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     67   

Business

     99   

Regulation

     129   

Management

     164   

Related Party Transactions

     170   

Principal and Selling Shareholder

     179   

Description of Share Capital

     180   

Shares Eligible for Future Sale

     196   

Description of Certain Indebtedness

     197   

Taxation

     199   

Underwriting

     205   

Expenses of the Offering

     211   

Legal Matters

     212   

Experts

     213   

Where You Can Find More Information

     214   

Index to Financial Statements

     F-1   

We are responsible for the information contained in this prospectus and in any free-writing prospectus we prepare or authorize. We have not authorized anyone to provide you with different information, and we take no responsibility for any other information others may give you. We and the selling shareholder, are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.

 

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ENFORCEMENT OF CIVIL LIABILITIES

We are a public limited company organized under the laws of England and Wales. A majority of our directors and officers and certain other persons named in this prospectus reside outside the United States and all or a significant portion of the assets of the directors and officers and certain other persons named in this prospectus and a significant portion of our assets is located outside the United States.

As a result, it may not be possible for U.S. investors to effect service of process within the United States upon these persons or to enforce against them or against us in U.S. courts judgments predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in the United Kingdom and in Spain, either in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated on the U.S. federal securities laws.

DEFINITIONS

Unless otherwise specified or the context requires otherwise in this prospectus:

 

   

references to “2019 Notes” refer to the 7.000% Senior Notes due 2019 in an aggregate principal amount of $255 million issued on November 17, 2014, as further described in “Summary—Recent Developments” and “Description of Certain Indebtedness—2019 Notes;”

 

   

references to “Abengoa” refer to Abengoa, S.A., together with its subsidiaries, unless the context otherwise requires;

 

   

references to “Abengoa ROFO Assets” refer to all of the future contracted assets in renewable energy, conventional power, electric transmission and water of Abengoa that are in operation, and any other renewable energy, conventional power, electric transmission and water asset that is expected to generate contracted revenue and that Abengoa has transferred to an investment vehicle that are located in the United States, Canada, Mexico, Chile, Peru, Uruguay, Brazil, Colombia and the European Union, and four additional assets in other selected regions, including a pipeline of specified assets that we expect to evaluate for acquisition in 2015, 2016 and beyond, for which Abengoa will provide us a right of first offer to purchase if offered for sale by Abengoa or an investment vehicle to which Abengoa has transferred them;

 

   

references to “ACBH” refer to Abengoa Concessoes Brasil Holding S.A., a subsidiary holding company of Abengoa that is engaged in the development, construction, investment and management of contracted concessions in Brazil, comprised mostly of transmission lines;

 

   

references to “Annual Combined Financial Statements” refer to the audited annual combined financial statements as of and for the years ended December 31, 2013 and 2012 (which include a statement of financial position as of January 1, 2012 of our accounting predecessor), including the related notes thereto, prepared in accordance with IFRS as issued by the IASB (as such terms are defined herein), included in this prospectus;

 

   

references to “BOOT” refer to build-own-operate-transfer arrangements;

 

   

references to “cash available for distribution” refer to the cash distributions received by the Company from its subsidiaries minus all cash expenses of the Company, including debt service and transaction costs;

 

   

references to “COD” refer to the commercial operation date of the applicable facility;

 

   

references to “Consolidated Condensed Interim Financial Statements” refer to our unaudited consolidated condensed interim financial statements as of September 30, 2014 and for the nine-month periods ended September 30, 2014 and 2013, prepared in accordance with International Accounting Standard 34 as issued by the IASB (as such term is defined herein), included in this prospectus;

 

   

references to “Credit Facility” refer to the credit facility of up to $125 million dated December 3, 2014 entered into by us, as the borrower, and our subsidiaries Abengoa Concessions Infrastructures, S.L.U.,

 

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or ACIN, Abengoa Concessions Peru, S.A., or ACP, ACT Holding, S.A. de C.V., or ACTH, Abengoa Solar Holdings USA Inc, or ASHUSA, and Abengoa Solar US Holdings Inc., or ASUSHI, as guarantors, with HSBC Bank plc, as administrative agent, HSBC Corporate Trust Company (UK) Limited, as collateral agent and Banco Santander, S.A., Bank of America, N.A., Citigroup Global Markets Limited, HSBC Bank plc and RBC Capital Markets, as joint lead arrangers and joint bookrunners, as further described in “Summary—Recent Developments” and “Description of Certain Indebtedness—Credit Facility;”

 

   

references to “CSP” refer to Concentrating Solar Power;

 

   

references to “DOE” refer to the U.S. Department of Energy;

 

   

references to “EPC” refer to engineering, procurement and construction;

 

   

references to “euro” or “€” are to the single currency of the participating member states of the European and Monetary Union of the Treaty Establishing the European Community, as amended from time to time;

   

references to “Exchange Act” refer to the U.S. Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated by the Commission thereunder;

 

   

references to “Executive Services Agreement” refer to the agreement we entered into with Abengoa on June 13, 2014 pursuant to which Abengoa has arranged for a team of executives to provide executive management services to us until June 2015;

 

   

references to the “First Dropdown Assets” refer to (i) a Concentrating Solar Power plant in Spain, Solacor 1/2, with a capacity of 100 MW; (ii) a Concentrating Solar Power plant in Spain, PS10/20, with a capacity of 31 MW; and (iii) one on-shore wind farm in Uruguay, Cadonal, with a capacity of 50 MW, as further described in “Summary—First Dropdown Assets” and “Business—First Dropdown Assets;”

 

   

references to “FPA” refer to the U.S. Federal Power Act;

 

   

references to “Further Adjusted EBITDA” have the meaning set forth in “Presentation of Financial Information—Non-GAAP Financial Measures;”

 

   

references to the “Governance MOU” refer to the memorandum of understanding we entered into with Abengoa on December 9, 2014 pursuant to which we and Abengoa agreed to work jointly on certain governance related matters;

 

   

references to “gross capacity” refers to the maximum, or rated, power generation capacity, in MW, of a facility or group of facilities, without adjusting by our percentage of ownership interest in such facility as of the date of this prospectus;

 

   

references to “GW” refer to gigawatts;

 

   

references to “IFRIC 12” refer to International Financial Reporting Interpretations Committee’s Interpretation 12—Service Concessions Arrangements;

 

   

references to “IFRS as issued by the IASB” refer to International Financial Reporting Standards as issued by the International Accounting Standards Board;

 

   

reference to “IPO” refer to our initial public offering of ordinary shares in June 2014;

 

   

references to “IPP” refer to independent power producers;

 

   

references to “ITC” refer to investment tax credits;

 

   

references to “membership interest” refer to ownership interest in the applicable entity, including such economic interest and right, if any, to participate in the management of the business and affairs of the entity, including the right, if any, to vote on, consent to or otherwise participate in any decision or action of or by the members of the entity and the right to receive information concerning the business and affairs of the entity, in each case to the extent expressly provided in the relevant operating agreement;

 

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references to “M ft3” refer to million cubic feet;

 

   

references to “MW” refer to megawatts;

 

   

references to “MWh” refer to megawatt hours;

 

   

references to “Non-Recourse Debt” refer to certain of our projects and significant investments, including capital expenditures typically relating to concessions or contracted asset agreements, under loan agreements and related documents which require the loans to be repaid solely from the revenue of the project being financed thereby and provide that the repayment of the loans (and interest thereon) is secured solely by the shares, physical assets, contracts and cash flow of that project company;

 

   

references to “O&M” refer to operations and maintenance services provided at our various facilities;

 

   

references to “operation” refer to the status of projects that have reached COD (as defined above);

 

   

references to “PPA” refer to the power purchase agreements through which our power generating assets have contracted to sell energy to various off-takers;

 

   

references to “pre-construction” refer to the status of projects for which a PPA is in place and for which financing arrangements are in the process of being implemented;

 

   

references to “PV” refer to photovoltaic;

 

   

references to “ROFO Agreement” refer to the agreement we entered into with Abengoa on June 13, 2014, as amended and restated on December 9, 2014, that provides us a right of first offer to purchase any of the Abengoa ROFO Assets offered for sale by Abengoa or an investment vehicle to which Abengoa has transferred them, as further amended and restated from time to time;

 

   

references to “RPS” refer to renewable portfolio standards adopted by 29 U.S. states and the District of Columbia that require a regulated retail electric utility to procure a specific percentage of its total electricity delivered to retail customers in the respective state from eligible renewable generation resources, such as solar or wind generation facilities, by a specific date;

 

   

references to “Support Services Agreement” refer to the agreement we entered into with Abengoa on June 13, 2014, pursuant to which Abengoa and certain of its affiliates provide certain administrative and support services to us and some of our subsidiaries;

 

   

references to “t” and “tons” are to metric tons (one metric ton being equal to 1,000 kilograms or 2,205 pounds);

 

   

references to “TWh” refer to terawatt hours;

 

   

references to “UTE” refer to Administracion Nacional de Usinas y Transmisiones Electricas, the Republic of Uruguay’s state-owned electricity company;

 

   

references to “U.K.” refer to the United Kingdom;

 

   

references to “U.S.” or “United States” refer to the United States of America; and

 

   

references to “we,” “us,” “our” and the “Company” refer to Abengoa Yield plc and its subsidiaries, unless the context otherwise requires.

PRESENTATION OF FINANCIAL INFORMATION

The selected financial information as of September 30, 2014 and for the nine-month periods ended September 30, 2014 and 2013 is derived from, and qualified in its entirety by reference to, our Consolidated Condensed Interim Financial Statements, which are included elsewhere in this prospectus and prepared in accordance with IFRS as issued by the IASB.

 

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The selected financial information as of and for the years ended December 31, 2013 and 2012 and as of January 1, 2012 is derived from, and qualified in its entirety by reference to, our Annual Combined Financial Statements, which are included elsewhere in this prospectus and prepared in accordance with IFRS as issued by the IASB. Our Annual Combined Financial Statements reflect the combination of certain of the assets and associated liabilities that Abengoa contributed to us immediately prior to the consummation of our IPO.

For purposes of the Annual Combined Financial Statements, the term “Abengoa Yield” represents the accounting predecessor, or the combination of the assets and associated liabilities that Abengoa contributed to us immediately prior to the consummation of our IPO. For all periods subsequent to our IPO, the Consolidated Condensed Interim Financial Statements represent our and our subsidiaries’ consolidated results.

Certain numerical figures set out in this prospectus, including financial data presented in millions or thousands and percentages describing market shares, have been subject to rounding adjustments, and, as a result, the totals of the data in this prospectus may vary slightly from the actual arithmetic totals of such information. Percentages and amounts reflecting changes over time periods relating to financial and other data set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are calculated using the numerical data in our Consolidated Condensed Interim Financial Statements and our Annual Combined Financial Statements or the tabular presentation of other data (subject to rounding) contained in this prospectus, as applicable, and not using the numerical data in the narrative description thereof.

Non-GAAP Financial Measures

This prospectus contains non-GAAP financial measures including Further Adjusted EBITDA.

Further Adjusted EBITDA is calculated as profit/(loss) for the period attributable to the parent company, after adding back loss/(profit) attributable to non-controlling interest from continued operations, income tax expense/(benefit), share of profit/(loss) of associates carried under the equity method, finance expense net, depreciation, amortization and impairment charges of entities included in the Consolidated Condensed Interim Financial Statements and the Annual Combined Financial Statements, and dividends received from our preferred equity investment in ACBH. Further Adjusted EBITDA for the nine-month period ended September 30, 2014 includes preferred dividends received from ACBH for the first time during the third quarter of 2014. Adjusted EBITDA previously reported in our financial statements included elsewhere in this prospectus is identical to Further Adjusted EBITDA, except that Adjusted EBITDA excludes dividends received from our preferred equity investment in ACBH.

We present non-GAAP financial measures because we believe that they and other similar measures are widely used by certain investors, securities analysts and other interested parties as supplemental measures of performance and liquidity. The non-GAAP financial measures may not be comparable to other similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results as reported under IFRS as issued by the IASB. Non-GAAP financial measures and ratios are not measurements of our performance or liquidity under IFRS as issued by the IASB and should not be considered as alternatives to operating profit or profit for the year or any other performance measures derived in accordance with IFRS as issued by the IASB or any other generally accepted accounting principles or as alternatives to cash flow from operating, investing or financing activities.

Some of the limitations of these non-GAAP measures are:

 

   

they do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

   

they do not reflect changes in, or cash requirements for, our working capital needs;

 

   

they may not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal payments, on our debts;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often need to be replaced in the future and Further Adjusted EBITDA does not reflect any cash requirements that would be required for such replacements;

 

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some of the exceptional items that we eliminate in calculating Further Adjusted EBITDA reflect cash payments that were made, or will be made in the future; and

 

   

the fact that other companies in our industry may calculate Further Adjusted EBITDA differently than we do, which limits their usefulness as comparative measures.

In our discussion of operating results, we have included foreign exchange impacts in our revenue by providing constant currency revenue growth. The constant currency presentation is a non-GAAP financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations. We calculate constant currency amounts by converting our current period local currency revenue using the prior period foreign currency average exchange rates and comparing these adjusted amounts to our prior period reported results. This calculation may differ from similarly titled measures used by others and, accordingly, the constant currency presentation is not meant to substitute for recorded amounts presented in conformity with IFRS as issued by the IASB nor should such amounts be considered in isolation.

Pro Forma Financial Information

We present in this prospectus unaudited pro forma financial information consisting of our unaudited pro forma consolidated condensed income statement for the nine-month period ended September 30, 2014 and our unaudited pro forma combined income statements for the years ended December 31, 2013 and 2012, as well as our unaudited pro forma consolidated condensed statement of financial position as of September 30, 2014 to give effect to: (i) the consolidation of Mojave, (ii) the preferred equity investment in ACBH, (iii) the issuance of the 2019 Notes and the drawdown in full of the Credit Facility and (iv) the acquisition of the First Dropdown Assets from Abengoa.

Unaudited pro forma financial information has been derived from, and should be read in conjunction with, the Consolidated Condensed Interim Financial Statements and the Annual Combined Financial Statements, included elsewhere in this prospectus.

PRESENTATION OF INDUSTRY AND MARKET DATA

In this prospectus, we rely on, and refer to, information regarding our business and the markets in which we operate and compete. The market data and certain economic and industry data and forecasts used in this prospectus were obtained from internal surveys, market research, governmental and other publicly available information, independent industry publications and reports prepared by industry consultants. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We believe that these industry publications, surveys and forecasts are reliable but we have not independently verified them, and there can be no assurance as to the accuracy or completeness of the included information.

Certain market information and other statements presented herein regarding our position relative to our competitors are not based on published statistical data or information obtained from independent third parties, but reflect our best estimates. We have based these estimates upon information obtained from our customers, trade and business organizations and associations and other contacts in the industries in which we operate. The underwriters do not make any representation or warranty as to the accuracy or completeness of these statements.

Elsewhere in this prospectus, statements regarding our contracted concessions activities, our position in the industries and geographies in which we operate are based solely on our experience, our internal studies and estimates and our own investigation of market conditions.

 

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All of the information set forth in this prospectus relating to the operations, financial results or market share of our competitors has been obtained from information made available to the public in such companies’ publicly available reports and independent research, as well as from our experience, internal studies, estimates and investigation of market conditions. We have not funded, nor are we affiliated with, any of the sources cited in this prospectus. Neither we nor the underwriters have independently verified the information and cannot guarantee its accuracy.

All third-party information, as outlined above, has to our knowledge been accurately reproduced and, as far as we are aware and are able to ascertain, no facts have been omitted which would render the reproduced information inaccurate or misleading, but there can be no assurance as to the accuracy or completeness of the included information.

 

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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. These forward-looking statements include, but are not limited to, all statements other than statements of historical facts contained in this prospectus, including, without limitation, those regarding our future financial position and results of operations, our strategy, plans, objectives, goals and targets, future developments in the markets in which we operate or are seeking to operate or anticipated regulatory changes in the markets in which we operate or intend to operate. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “is likely to,” “may,” “plan,” “potential,” “predict,” “projected,” “should” or “will” or the negative of such terms or other similar expressions or terminology.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements speak only as of the date of this prospectus and are not guarantees of future performance and are based on numerous assumptions. Our actual results of operations, financial condition and the development of events may differ materially from (and be more negative than) those made in, or suggested by, the forward-looking statements. Investors should read the section entitled “Risk Factors” and the description of our segments and business sectors in the section entitled “Business” for a more complete discussion of the factors that could affect us. Important risks, uncertainties and other factors that could cause these differences include, but are not limited to:

 

   

Changes in general economic, political, governmental and business conditions globally and in the countries in which we do business;

 

   

Difficult conditions in the global economy and in the global market and uncertainties in emerging markets where we have international operations;

 

   

Decreases in government expenditure budgets, reductions in government subsidies or adverse changes in laws affecting our businesses and growth plan;

 

   

Challenges in achieving growth and making acquisitions due to our dividend policy;

 

   

Decline in public acceptance or support of energy from renewable sources;

 

   

Inability to identify and/or consummate future acquisitions, whether the Abengoa ROFO Assets or otherwise, on favorable terms or at all;

 

   

Legal challenges to regulations, subsidies and incentives that support renewable energy sources;

 

   

Extensive governmental regulation in a number of different jurisdictions, including stringent environmental regulation;

 

   

Changes in prices, including increases in the cost of energy, natural gas, oil and other operating costs;

 

   

Counterparty credit risk and failure of counterparties to our offtake agreements to fulfill their obligations;

 

   

Inability to replace expiring or terminated offtake agreements with similar agreements;

 

   

New technology or changes in industry standards;

 

   

Inability to manage exposure to credit, interest rates, foreign currency exchange rates, supply and commodity price risks;

 

   

Reliance on third-party contractors and suppliers;

 

   

Risks associated with acquisitions and investments;

 

   

Deviations from our investment criteria for future acquisitions and investments;

 

   

Failure to maintain safe work environments;

 

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Effects of catastrophes, natural disasters, adverse weather conditions, climate change, unexpected geological or other physical conditions, or criminal or terrorist acts at one or more of our plants;

 

   

Insufficient insurance coverage and increases in insurance cost;

 

   

Litigation and other legal proceedings;

 

   

Reputational risk, including damage to the reputation of Abengoa;

 

   

Revocation or termination of our concession agreements;

 

   

Inability to adjust regulated tariffs or fixed-rate arrangements as a result of fluctuations in prices of raw materials, exchange rates, labor and subcontractor costs;

 

   

Variations in market electricity prices;

 

   

Lack of electric transmission capacity and potential upgrade costs to the electric transmission grid;

 

   

Disruptions in our operations as a result of our not owning the land on which our assets are located;

 

   

Failure of our newly-constructed assets or assets under construction to perform as expected;

 

   

Failure to receive dividends from all project and investments;

 

   

Variations in meteorological conditions;

 

   

Disruption of the fuel supplies necessary to generate power at our conventional generation facilities;

 

   

Loss of senior management and key personnel and our reliance on Abengoa to supply administrative, financial, executive and other support services to us;

 

   

Changes to our relationship with Abengoa;

 

   

Failure to meet certain covenants under our financing arrangements;

 

   

Changes in our tax position and greater than expected tax liability; and

 

   

Various other factors, including those factors discussed under “Risk Factors” and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” herein.

We caution that the important factors referenced above may not be all of the factors that are important to investors. Unless required by law, we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or developments or otherwise.

 

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SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our shares. Before investing in our shares, you should read carefully this entire prospectus for a more complete understanding of our business and this offering, including the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our Annual Combined Financial Statements and our Consolidated Condensed Interim Financial Statements included elsewhere in this prospectus.

About Abengoa Yield

We are a dividend growth-oriented company formed to serve as the primary vehicle through which Abengoa (MCE: ABG SM, ABG.B/P SM /NASDAQ: ABGB) owns, manages and acquires renewable energy, conventional power and electric transmission lines and other contracted revenue-generating assets in operation, initially focused on North America (the United States and Mexico), South America (Peru, Chile, Uruguay and Brazil) and Europe (Spain). We intend to expand this presence to selected countries in Africa and the Middle East.

We own 13 assets, comprising 891 MW of renewable energy generation, 300 MW of conventional power generation and 1,018 miles of electric transmission lines, as well as an exchangeable preferred equity investment in ACBH. Each of the assets we own has a project-finance agreement in place. All of our assets have contracted revenues (regulated revenues in the case of our Spanish assets) with low-risk off-takers and collectively have a weighted average remaining contract life of approximately 25 years as of September 30, 2014.

We intend to take advantage of favorable trends in the power generation and electric transmission sectors globally, including energy scarcity and a focus on the reduction of carbon emissions. To that end, we believe that our cash flow profile, coupled with our scale, diversity and low-cost business model, offers us a lower cost of capital than that of a traditional engineering and construction company or independent power producer and provides us with a significant competitive advantage with which to execute our growth strategy.

With this business model, our objective is to pay a consistent and growing cash dividend to holders of our shares that is sustainable on a long-term basis. We expect to target a payout ratio of 90% of our cash available for distribution and will seek to increase such cash dividends over time through organic growth and as we acquire assets with characteristics similar to those in our current portfolio.

We are focused on high-quality, newly-constructed and long-life facilities with creditworthy counterparties that we expect will produce stable, long-term cash flows. We have signed an exclusive agreement with Abengoa, which we refer to as the ROFO Agreement, which provides us with a right of first offer on any proposed sale, transfer or other disposition of any of Abengoa’s contracted renewable energy, conventional power, electric transmission or water assets in operation and located in the United States, Canada, Mexico, Chile, Peru, Uruguay, Brazil, Colombia and the European Union, as well as four assets in selected countries in Africa, the Middle East, Asia and Australia. We refer to the contracted assets subject to the ROFO Agreement as the “Abengoa ROFO Assets.” See “Related Party Transactions—Right of First Offer.”

On November 18, 2014, we completed the acquisition of Solacor 1/2 through a 30-year usufruct rights contract over the related shares (which includes an option to purchase such shares for one euro during a four-year term); on December 4, 2014, we completed the acquisition of PS10/20; and on December 29, 2014, we completed the acquisition of Cadonal. Together, these three First Dropdown Assets, which we agreed in September 2014 to acquire from Abengoa under the ROFO Agreement, comprise an aggregate of 131 MW of Concentrating Solar Power generation and 50 MW of wind power generation. See “Business—Our Operations—

 

 

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Renewable Energy” for a description of such assets. The total aggregate consideration for the First Dropdown Assets was $312 million (which consideration was determined in part by converting the portion of the purchase price of Solacor 1/2 and PS 10/20 denominated in euros into U.S. dollars based on the exchange rate on the date on which the payment was made).

Pursuant to our cash dividend policy, we intend to pay a cash dividend each quarter to holders of our shares. Our quarterly dividend for the third quarter of 2014, paid in December 2014, was set at $0.2592 per share, or $1.04 per share on an annualized basis. See “Cash Dividend Policy.”

Based on the acquisition opportunities available to us, which include the Abengoa ROFO Assets, to the extent offered for sale by Abengoa, or any investment vehicle to which Abengoa has transferred them, as well as any third-party acquisitions we pursue, we believe that we will have the opportunity to grow our cash available for distribution in a manner that would allow us to increase our cash dividends per share over time. Prospective investors should read “Cash Dividend Policy” and “Risk Factors,” including the risks and uncertainties related to our forecasted results, acquisition opportunities and growth plan, in their entirety.

Upon consummation of this offering, assuming the full exercise of the underwriters’ option to purchase additional shares, Abengoa will beneficially own approximately 51.1% of our shares and, assuming no exercise of the underwriters’ option to purchase additional shares, Abengoa will beneficially own approximately 52.8% of our shares.

Current Operations

We own a diversified portfolio of renewable energy, conventional power and electric transmission line contracted assets in North America (the United States and Mexico), South America (Peru, Chile, Uruguay and Brazil), and Europe (Spain). Our portfolio consists of seven renewable energy assets, a cogeneration facility and several electric transmission lines, all of which are fully operational. In addition, we own an exchangeable preferred equity investment in ACBH, a subsidiary holding company of Abengoa that is engaged in the development, construction, investment and management of contracted concessions in Brazil, consisting mostly of electric transmission lines. All of our assets have contracted revenues (regulated revenues in the case of our Spanish assets) with low-risk off-takers and collectively have a weighted average remaining contract life of approximately 25 years as of September 30, 2014. We expect that the majority of our cash available for distribution over the next four years will be in U.S. dollars, indexed to the U.S. dollar or in euros. We intend to use currency hedging contracts to maintain a ratio of 90% of our cash available for distribution denominated in U.S. dollars. Over 90% of our project-level debt is hedged against changes in interest rates through an underlying fixed rate on the debt instrument or through interest rate swaps, caps or similar hedging instruments.

 

 

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The following table provides an overview of our current assets (excluding our exchangeable preferred equity investment in ACBH), following completion of the acquisition of the First Dropdown Assets:

 

Assets

  Type   Ownership   Location   Currency(1)   Capacity
(Gross)
  Status   Off-taker   Counterparty Credit
Rating(2)
  COD   Contract
Years Left

Solana

  Renewable

(CSP)

  100%

Class B(3)

  Arizona
(USA)
  U.S. dollars   280
MW
  Operational   APS   A-/A3/BBB+   4Q 2013   29

Mojave

  Renewable

(CSP)

  100%   California
(USA)
  U.S. dollars   280
MW
  Operational   PG&E   BBB/A3/BBB+   4Q 2014   25

Palmatir

  Renewable

(Wind)

  100%   Uruguay   U.S. dollars   50
MW
  Operational   UTE   BBB-/Baa2/BBB-(4)   2Q 2014   20

Cadonal

  Renewable
(Wind)
  100%   Uruguay   U.S. dollars   50
MW
  Operational   UTE   BBB-/Baa2/BBB-(4)   4Q 2014   20

Solaben 2/3(5)

  Renewable
(CSP)
  70%(6)   Spain   Euro   2x50
MW
  Operational   Whole-sale
market/Spanish
Electric System
  BBB/Baa2/BBB+   2Q 2012 &
4Q 2012
  24

Solacor 1/2(7)

  Renewable
(CSP)
  74%(8)   Spain   Euro   100
MW
  Operational   Whole-sale
market /Spanish
electric system
  BBB/Baa2/BBB+   2Q 2012 &
4Q 2012
  24

PS10/20(9)

  Renewable
(CSP)
  100%   Spain   Euro   31
MW
  Operational   Whole-sale
market /Spanish
electric system
  BBB/Baa2/BBB+   1Q 2007 &
2Q 2009
  20

ACT

  Conventional
Power
  100%   Mexico   U.S. dollars   300
MW
  Operational   Pemex   BBB+/A3/BBB+   2Q 2013   19

ATN

  Transmission
Line
  100%   Peru   U.S. dollars   362
Miles
  Operational   Peru   BBB+/A3/BBB+   1Q 2011   27

ATS

  Transmission
Line
  100%   Peru   U.S. dollars   569
Miles
  Operational   Peru   BBB+/A3/BBB+   1Q 2014   30

Quadra 1

  Transmission
Line
  100%   Chile   U.S. dollars   43
Miles
  Operational   Sierra Gorda   N/A   2Q 2014   21

Quadra 2

  Transmission
Line
  100%   Chile   U.S. dollars   38
Miles
  Operational   Sierra Gorda   N/A   1Q 2014   21

Palmucho

  Transmission
Line
  100%   Chile   U.S. dollars   6
Miles
  Operational   Endesa Chile(10)   BBB+/Baa2/BBB+   4Q 2007   23

 

(1)

Certain contracts denominated in U.S. dollars are payable in local currency.

(2)

Reflects the counterparty’s issuer credit ratings issued by Standard & Poor’s Ratings Services, or S&P, Moody’s Investors Service Inc., or Moody’s, and Fitch Ratings Ltd, or Fitch.

(3)

On September 30, 2013, Liberty Interactive Corporation agreed to invest $300 million in Class A shares of Arizona Solar Holding, the holding company of the Solana CSP plant, in exchange for a share of the dividends and the taxable loss generated by Solana. See note 1 to our Annual Combined Financial Statements.

(4)

Refers to the credit rating of Uruguay, as UTE is unrated.

(5)

Solaben 2 and Solaben 3 are separate special purpose vehicles with separate agreements, but they are treated as a single platform.

(6)

Itochu Corporation, a Japanese trading company, holds 30% of the shares in each of Solaben 2 and Solaben 3. We hold a 30-year right of usufruct over the remaining shares of Solaben 2 and Solaben 3 and a call option to purchase such shares for one euro during a four-year term.

(7)

Solacor 1 and Solacor 2 are separate special purpose vehicles with separate agreements, but they are treated as a single platform.

(8)

JGC Corporation, a Japanese engineering company, holds 26% of the shares in each of Solacor 1 and Solacor 2. We hold a 30-year right of usufruct over the remaining shares of Solacor 1 and Solacor 2 and a call option to purchase such shares for one euro during a four-year term.

(9)

PS10 and PS20 are separate special purpose vehicles with separate agreements, but they are treated as a single platform.

(10)

Refers to Empresa Nacional de Electricidad, S.A, or Endesa Chile, which is owned by the Enel Group.

 

 

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Our assets and operations are organized into the following three business sectors:

Renewable Energy: Our renewable energy assets include two Concentrating Solar Power plants in the United States, Solana and Mojave, each with a gross capacity of 280 MW and located in Arizona and California, respectively. Solana is a party to a PPA with Arizona Public Service Company and Mojave is a party to a PPA with Pacific Gas & Electric Company. Solana reached its Commercial Operations Date, or COD, on October 9, 2013 and Mojave reached COD on December 1, 2014.

Additionally, we own the following two onshore wind farms in Uruguay: Palmatir and Cadonal, each with a gross capacity of 50 MW. Each wind farm is subject to a 20-year U.S. dollar-denominated PPA with a state-owned utility company in Uruguay. Palmatir reached COD in May 2014 and Cadonal reached COD in December 2014.

Finally, we own the following Concentrating Solar Power plants in Spain with a total gross capacity of 231 MW: (i) a 30-year usufruct of the economic and political rights over the shares of Solaben 2/3, in operation since 2012 (with an option to purchase such shares for one euro during a four-year term), (ii) a 30-year usufruct of the economic and political rights over the shares of Solacor 1/2, in operation since 2012 (with an option to purchase such shares for one euro during a four-year term) and (iii) and PS10/20, in operation since 2007 and 2009, respectively. All such projects receive market and regulated revenues under the economic framework for renewable energy projects in Spain.

Conventional Power: Our conventional power asset consists of ACT, a 300 MW cogeneration plant in Mexico. ACT is a party to a 20-year take-or-pay contract with Petroleos Mexicanos S.A. de C.V., or Pemex, for the sale of electric power and steam. Pemex also supplies the natural gas required for the plant at no cost to ACT, which insulates the project from natural gas price variations.

Electric Transmission: Our electric transmission assets consist of (i) two lines in Peru, ATN and ATS, spanning a total of 931 miles; (ii) three lines in Chile, Quadra 1, Quadra 2 and Palmucho, spanning a total of 87 miles; and (iii) an exchangeable preferred equity investment in ACBH, a subsidiary holding company of Abengoa that is engaged in the development, construction, investment and management of contracted concessions in Brazil, comprised mostly of transmission lines.

Peru. ATN and ATS are core lines in the Peruvian electric transmission system. Each line is subject to a U.S. dollar-denominated 30-year contract with the Ministry of Energy of the Government of Peru that is indexed to the U.S. Finished Goods Less Food and Energy Index. ATN reached COD in 2011 and ATS reached COD in January 2014.

Chile. Quadra 1 and Quadra 2 are two electric transmission lines that are subject to a concession contract with Sierra Gorda SCM, a mining company owned by Sumitomo Corporation, Sumitomo Metal Mining and KGHM Polska Mietz. Quadra 1 and Quadra 2 have been in operation since December 2013 and January 2014, respectively. Quadra 1 reached COD in April 2014 and Quadra 2 reached COD in March 2014. The concession contract is denominated in U.S. dollars and has a remaining term of 21 years. Palmucho is a six-mile electric transmission line and substation subject to a private concession agreement with a utility, Endesa Chile, with a remaining term of 23 years. Palmucho reached COD in October 2007.

Brazil. In addition to the assets listed above, we own a preferred equity investment in ACBH, a subsidiary holding company of Abengoa that is engaged in the development, construction, investment and management of contracted concessions in Brazil, consisting mostly of electric transmission lines (see “Business—Our Operations—Electric Transmission—Exchangeable Preferred Equity Investment in Abengoa Concessoes Brasil Holding” for details on the transmission assets held by ACBH).

 

 

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This preferred equity investment grants us the following rights:

 

   

During the five-year period commencing on July 1, 2014, we have the right to receive, in four quarterly installments, a preferred dividend of $18.4 million per year.

 

   

Following the initial five-year period, we will have the option to (i) remain as preferred equity holder receiving the first $18.4 million in dividends per year that ACBH is able to distribute or (ii) exchange the preferred equity for ordinary shares of specific project companies owned by ACBH.

Our Growth Strategy

We intend to grow our cash available for distribution and, in turn, dividend per share, by optimizing the operations of our existing assets and acquiring new contracted revenue-generating assets in operation from Abengoa under the ROFO Agreement, and assets from parties other than Abengoa. Abengoa has informed us of its intention, which is reflected in the ROFO Agreement, that we serve as its primary vehicle for owning, managing and acquiring contracted assets in our primary geographies (North America, Chile, Peru, Uruguay, Brazil, Colombia and the European Union), and four assets that we have agreed with Abengoa in other selected regions. We believe Abengoa will assist us in pursuing such acquisitions by presenting acquisition opportunities to us. In general, we expect to acquire only assets that are developed and operational, and we expect Abengoa to continue to pursue construction and development opportunities for its own account. Under the ROFO Agreement, Abengoa is not obligated to sell any of the Abengoa ROFO Assets to us by any date or at all. Abengoa may offer and sell to third parties assets that are not yet contracted revenue assets in operation. As a result, we do not know when, if ever, Abengoa will offer us any assets for acquisition. In addition, in the event that Abengoa elects to sell Abengoa ROFO Assets, Abengoa will not be required to accept any offer we make for any such Abengoa ROFO Asset.

We will leverage the ability of Abengoa to develop, build and operate assets in our target sectors and secure contracted assets that we expect to generate accretive growth for our shareholders once purchased by us. We intend to use the following investment guidelines in evaluating prospective acquisitions in order to successfully execute our accretive growth strategy:

 

   

high quality off-takers, with long-term contracted revenue, ideally longer than 20 years;

 

   

project financing in place at each project;

 

   

operations and maintenance contract in place at each project;

 

   

management and operational systems and processes at our level, while leveraging Abengoa’s support and capabilities;

 

   

focus on regions and countries that provide growth opportunities while balancing security and risk considerations, which regions and countries include the United States, Canada, Mexico, Chile, Peru, Uruguay, Brazil, Colombia and the European Union, as well as selected countries in Africa and the Middle East; and

 

   

preference for U.S. dollar-denominated revenues, in the absence of which, we will implement a cost-effective, ad-hoc hedging policy that will support stability of cash flows.

 

 

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The ROFO Agreement provides us with a right of first offer to acquire the Abengoa ROFO Assets. The following table presents the projects that, based on their maturity stage and cash generation profile, we expect Abengoa to propose to us for evaluation for acquisition in 2015 and 2016:

 

Expected
ROFO
Assets

 

Type

  Ownership   Location   Currency(1)   Capacity   Status   Offtaker   Counterparty
Credit Ratings(2)
  COD/
Expected
COD
  Contract
Years
Left

2015

                                       
Shams  

Renewable (CSP)

  20%   U.A.E.   U.S. dollar(3)   100 MW   Operational   Abu Dhabi   AA/Aa2/AA   3Q 2013   25
Honaine  

Water

  25.5%   Algeria   U.S. dollar   7M
ft3/day
  Operational   Sonatrach   N/A   2012   23
Skikda  

Water

  37%(4)   Algeria   U.S. dollar   3.5M
ft3/day
  Operational   Sonatrach   N/A   2009   20
ATN2  

Transmission Line

  40%(4)   Peru   U.S. dollar   81 Miles   Construction   Las
Bambas
  N/A   2Q 2015   25
                   

2016

                                       
3T  

Conventional Power

  100%   Mexico   U.S. dollar   220 MW   Construction   Several   N/A   4Q 2016   20-25
ATN3  

Transmission Line

  40%   Peru   U.S. dollar   220 Miles   Construction   Peru   BBB+/A3/BBB+   4Q 2016   30
Helioenergy 1/2  

Renewable (CSP)

  50%   Spain   Euro   2x50 MW   Operational   Spain   BBB/
Baa2/BBB+
  2011   23
SPP1  

Conventional Power

  51%   Algeria   Euro   150 MW   Operational   Sonatrach   N/A   3Q 2011   22

 

(1)

Certain contracts denominated in U.S. dollars are payable in local currency.

(2)

Reflects the counterparty’s issuer credit ratings issued by S&P, Moody’s and Fitch.

(3)

Shams’ revenues are denominated in United Arab Emirates dirham, which has been pegged to the U.S. dollar since 1997.

(4)

Abengoa controls Skikda and ATN2.

We expect that, pursuant to the ROFO Agreement, Abengoa will from time to time present us with acquisition opportunities that are expected to fulfill our investment guidelines. If Abengoa offers an Abengoa ROFO Asset to us, we will have 60 days to complete due diligence and negotiate the acquisition of the asset. If we do not agree to purchase the applicable asset after such period, Abengoa will be free to pursue the sale with other potential buyers. Under the ROFO Agreement, Abengoa will not be obligated to sell any of the Abengoa ROFO Assets to us by any date or at all. As a result, we do not know when, if ever, Abengoa will offer any assets for acquisitions. In addition, in the event that Abengoa elects to sell Abengoa ROFO Assets, Abengoa will not be required to accept any offer we make for any such Abengoa ROFO Asset. Abengoa also may, following the completion of good-faith negotiations with us during the 60-day period mentioned above, choose to sell Abengoa ROFO Assets to a third party or not to sell the assets at all. However, if we do not reach an agreement, any sale to a third party within 30 months following such 60-day period must be on terms and conditions generally no less favorable to Abengoa than those offered to us. After such 30-month period, the asset will cease to be an Abengoa ROFO Asset. We will pay Abengoa a fee of 1% of the equity purchase price of any Abengoa ROFO Asset that we acquire as consideration for Abengoa granting us the right of first offer.

 

 

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In addition to the potential acquisition targets for 2015 and 2016 listed above, the following table presents some of the longer term opportunities that Abengoa may present to us for acquisition in the future:

 

Other Possible ROFO
Assets

 

Type

 

Location

 

Capacity

 

Status

Palen

  Renewable (CSP)   United States   150 MW   Development

Pahrump

  Renewable (PV)   United States   90 MW   Development

San Antonio Vista Ridge

  Water   United States   50 million gallons/day   Development

Norte III

  Conventional   Mexico   924 MW   Development

Zapotillo

  Water   Mexico   112 Miles   Pre-Construction

CSP Cerro Dominador

  Renewable (CSP)   Chile   110 MW   Development

PV Atacama

  Renewable (PV)   Chile   100 MW   Development

Leasing (Nicefield)

  Renewable (Wind)   Uruguay   70 MW   Pre-Construction

Manaus

  Transmission Line   Brazil   364 Miles   Operational

Norte

  Transmission Line   Brazil   1,476 Miles   Construction

ATE IV-VIII

  Transmission Line   Brazil   354 Miles   Operational

ATE XVI-XXIV

  Transmission Line   Brazil   3,863 Miles   Pre-Construction

Ashalim

  Renewable (CSP)   Israel   110 MW   Pre-Construction

Kaxu

  Renewable (CSP)   South Africa   100 MW   Construction

Khi

  Renewable (CSP)   South Africa   50 MW   Construction

Xina

  Renewable (CSP)   South Africa   100 MW   Pre-Construction

Tenes

  Water   Algeria   7M ft3/day   Construction

Nungua

  Water   Ghana   2.1M ft3/day   Construction

Our agreements with Abengoa do not prohibit Abengoa from acquiring or operating contracted assets that fulfill our principles or selling any such assets prior to operation to third parties. See “Risk Factors—Risks Related to our Relationship with Abengoa” and “Related Party Transactions—Project-Level Management and Administration Agreements” for further information.

First Dropdown Assets

Pursuant to the terms and conditions of the ROFO Agreement with Abengoa, in September 2014 we agreed to purchase from Abengoa three renewable energy assets, or the First Dropdown Assets. The total aggregate consideration for the First Dropdown Assets was $312 million (which consideration was determined in part by converting the portion of the purchase price of Solacor 1/2 and PS 10/20 denominated in euros into U.S. dollars based on the exchange rate on the date on which the payment was made). The First Dropdown Assets were financed with the proceeds of the 2019 Notes and with a portion of the proceeds of the Credit Facility. See “Description of Certain Indebtedness—2019 Notes” and “Description of Certain Indebtedness—Credit Facility.”

As of the date of this prospectus, we have completed the acquisition of the First Dropdown Assets, as follows: (i) the 30-year usufruct of the economic and political rights over the shares of a Concentrating Solar Power plant in Spain, Solacor 1/2, with a capacity of 100 MW (with an option to purchase such shares for one euro during a four-year term), (ii) a Concentrating Solar Power plant in Spain, PS10/20, with a capacity of 31 MW, and (iii) an on-shore wind farm in Uruguay, Cadonal, with a capacity of 50 MW. See “Business—Our Operations—Renewable Energy” for a description of such assets.

 

 

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Our Business Strategy

Our primary business strategy is to grow the cash dividends that we intend to pay to holders of our shares over time while ensuring the ongoing stability of our business. Our plan for executing this strategy includes the following key components:

Focus on stable, long-term contracted renewable energy, conventional power generation and electric transmission lines. We intend to focus on owning and operating these types of assets, for which we possess deep know-how, extensive experience and proven systems and management processes, as well as the critical mass to benefit from operating efficiencies and scale. We expect that this will allow us to maximize value and cash flow generation going forward. We intend to maintain a diversified portfolio in the future, as we believe these technologies will undergo significant growth in our targeted geographies.

Maintain geographic diversification across two principal geographic areas. Our focus on two main markets, North America and South America, helps to ensure exposure to markets in which we believe the renewable energy, conventional power and electric transmission sectors will continue growing significantly. In addition, we may also explore additional acquisition opportunities outside of our two main geographies. We believe that a strategic exposure to international markets will allow us to pursue greater growth opportunities and achieve higher returns than if we only focus on assets located in the United States.

Increase cash available for distribution and dividends by optimizing our existing assets. Some of our assets are newly operational and we believe that we can increase the cash flow generation of these assets through further management and optimization initiatives and in some cases through repowering. Our Palmatir facility reached COD in May 2014 and is expected to generate increased cash flows. Finally, Mojave achieved COD on December 1, 2014, whereby we obtained a new revenue-generating asset that we expect will result in a significant increase to our cash flow generation. See “Risk Factors—Risks Related To Our Assets—Certain of our facilities are newly constructed and may not perform as expected.”

Increase cash available to grow our dividend per share through the acquisition of new assets in renewable energy, conventional power and electric transmission. We expect the ROFO Agreement with Abengoa will provide us with access to a number of acquisition opportunities that will allow us to achieve accretive growth over the next few years. This, together with the fact that Abengoa acts as a greenfield developer, should allow us to access a large pipeline of contracted assets going forward, to the extent Abengoa wishes to sell such assets. Additionally, we intend to analyze other potential acquisitions from third parties. We believe that our know-how and operating expertise in our key markets together with a critical mass of assets in several geographic areas and the access to capital provided by being a listed company will permit us to successfully realize our growth plans.

Increase cash flow generation by expanding into water assets. We believe that contracted water assets, which include desalination plants, water treatment facilities and transportation facilities, constitute a high-growth market. Moreover, the water market offers attractive acquisition opportunities and is one in which Abengoa enjoys a strong market position. The assets we expect Abengoa to offer to us under the ROFO Agreement include six water assets, two of which are in operation. We expect these assets to help us achieve growth and potentially achieve a critical mass if we acquire any of them from Abengoa pursuant to the ROFO Agreement.

Enjoy a shareholder-oriented financial strategy. We intend to focus on maximizing the cash generation potential of the assets currently held in our portfolio. With cash received from our contracted assets, we intend to distribute quarterly dividends of substantially all cash available following the deduction of a provision to allow for the prudent management of our business. We expect that Abengoa, as our controlling shareholder, will seek to actively support our strategy to maximize dividend distribution, subject to the boundaries of prudent management.

 

 

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Foster a low-risk approach. We intend to maintain, over time, a portfolio of contracted assets with a low-risk profile due to creditworthy offtake counterparties, long-term contracted revenues, over 90% of cash available for distribution in, indexed or hedged to the U.S. dollar and proven technologies in which we have deep expertise and significant experience, located in countries where we believe conditions to be stable and safe.

Additionally, our policies and management systems include thorough risk analysis and risk management processes that we apply whenever we acquire an asset, and which we review monthly throughout the life of the asset. Our policy is to insure all of our assets whenever economically feasible.

Maintain financial strength and flexibility. We intend to maintain a solid financial position through a combination of cash on hand and credit facilities. This prudent strategy provides the required flexibility to maintain our dividend throughout the year in spite of the inherent seasonality of our business. Additionally, conservative cash management may help us to mitigate any unexpected downturns that reduce our cash flow generation.

Our Competitive Strengths

We believe that we are well positioned to execute our business strategies because of the following competitive strengths:

Stable and predictable long-term U.S. and international cash flows with attractive tax profiles. We believe that our young asset portfolio has a highly stable, predictable cash flow profile consisting of predominantly long-life electric power generation and electric transmission assets that generate revenues under long-term fixed priced contracts or pursuant to regulated rates with creditworthy counterparties and with long-term O&M contracts in place. Additionally, our facilities have minimal to no fuel risk. The offtake agreements for our assets have a weighted average remaining duration of approximately 25 years (based on the relevant technical indicator by type of asset), providing long-term cash flow stability. Additionally, our business strategy and hedging policy is intended to ensure a minimum of 90% of cash available for distribution in or indexed to the U.S. dollar. Furthermore, due to the fact that we are a U.K. resident company we should benefit from a more favorable treatment than would apply if we were a corporation in the United States when receiving dividends from our subsidiaries that hold our international assets because they should generally be exempt from U.K. taxation due to the U.K.’s distribution exemption. Based on our current portfolio of assets, which include renewable assets that benefit from an accelerated tax depreciation schedule, and current tax regulations in the jurisdictions in which we operate, we do not expect to pay significant income tax for a period of at least 10 years due to existing net operating losses, or NOLs, except for ACT in Mexico, where we do not expect to pay significant income taxes until the fifth or sixth year after our IPO (which was consummated in June 2014) once we use existing NOLs. See “Risk Factors—Risks Related to Taxation—Our future tax liability may be greater than expected if we do not utilize Net Operating Losses, or NOLs, sufficient to offset our taxable income,” “Risk Factors—Risks Related to Taxation—Our ability to use U.S. NOLs to offset future income may be limited” and “Risk Factors—Risks Related to Taxation—Changes in our tax position can significantly affect our reported earnings and cash flows.” Furthermore, based on our current portfolio of assets, we believe that there is minimal repatriation risk in the jurisdictions in which we operate. See “Risk Factors—Risks Related to Our Business and the Markets in Which We Operate—We have international operations and investments, including in emerging markets that could be subject to economic, social and political uncertainties.”

Experienced and incentivized management team. Our management team has significant and valuable expertise in developing, financing, operating and managing renewable energy, conventional power and electric transmission assets. We believe their financial and tax management skills will help us achieve our financial targets and continue to grow on a cash accretive basis over the medium- to long-term. Additionally, we intend to encourage our executives to ensure that they focus on stable, long-term cash flow generation that will benefit all of our shareholders.

 

 

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Our relationship and our agreements with Abengoa. We believe our relationship with Abengoa, including Abengoa’s expressed intention to remain our core shareholder over the long-term, provides us with significant benefits, including managerial and operational expertise and a sustainable source of future growth opportunities based on Abengoa’s greenfield development capabilities and construction expertise. Moreover, Abengoa provides us with a significant pipeline of opportunities in our targeted sectors and geographies and has announced that it is analyzing ways to increase its development capabilities and we have amended our ROFO Agreement to take account of this development. Abengoa usually targets an internal rate of return for its projects that is higher than the expected cost of our equity, thus both parties could benefit from the sale of assets by Abengoa to us.

Specifically, the various agreements we have in place with Abengoa allow us to access:

 

   

Abengoa Management and Operational Expertise. We will monitor and oversee operations in each asset and will continue implementing Abengoa standards required in key areas like reporting, management, quality, health and safety and compliance.

 

   

Abengoa Asset Development Track Record. Over the last 10 years, Abengoa has successfully developed approximately 2,000 MW of renewable power assets, 673 MW of conventional power plants and over 7,700 miles of electric transmission lines.

 

   

Abengoa Financing Experience. Over the last 10 years, Abengoa has financed through non-recourse project financing more than $15 billion worth of projects, mostly in North America and South America as well as in Europe, Africa, the Middle East, Asia and Australia. We expect that we will realize significant benefits from Abengoa’s financing and structuring expertise as well as its relationships with financial institutions and other lenders.

 

   

Abengoa Construction Expertise. Abengoa has built approximately 2,275 renewable and 7,800 conventional MW of power generation facilities (renewable and conventional), over 21,800 miles of electric transmission lines and water desalination plants with capacity in excess of 329 million cubic feet per day, as well as many infrastructure assets in other markets. Many of these projects have been built for third parties pursuant to the standards of these third parties. Abengoa was recently ranked by Engineering News Record as the largest international power facility contractor (previously ranked among the top three during the preceding five years) and the largest electric transmission contractor for the seventh consecutive year.

 

   

Abengoa Operation and Maintenance Expertise. Abengoa currently provides operation and maintenance services to renewable energy plants with an aggregate capacity of approximately 1,000 MW, conventional power plants with an aggregate capacity of approximately 1,000 MW, approximately 7,700 miles of electric transmission lines and water treatment facilities with an aggregate capacity of 21.7 million of cubic feet per day.

 

   

Abengoa Technical Expertise in Our Key Technologies and Presence in Our Key Geographies. Abengoa has deep know-how and expertise in the technologies that we use in our assets and has an important presence and experience in our key geographies.

Geographically diverse multi-technology portfolio. Our portfolio of assets uses technologies that we expect to benefit from long-term trends in the electricity sector. Our renewable energy generation assets generate low or no emissions and serve markets where we expect growth in demand in the future. Additionally, our electric transmission lines connect electricity systems to key areas in their respective markets and we expect significant electric transmission investment in our geographies. As a result, we believe that we may be able to benefit from opportunities to repower some of our assets during the lives of our existing PPAs and to extend the terms of those contracts after current PPAs expire. We expect our well-diversified portfolio of assets by technology and geography to maintain cash flow stability.

 

 

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Our Agreements with Abengoa

We describe below some agreements that we have entered into with Abengoa. For a more comprehensive discussion of our agreements with Abengoa and certain of its affiliates, please see “Related Party Transactions.” For a discussion of the risks related to our relationship with Abengoa, please see “Risk Factors—Risks Related to Our Relationship with Abengoa” and “Risk Factors—Risks Related to Our Indebtedness.”

Support Services Agreement. We have entered into a Support Services Agreement under which Abengoa has agreed to provide certain management and administrative services to us and some of our subsidiaries. These services include accounting and administrative services for us and most of our subsidiaries, legal support in certain countries, IT services, human resources management services and technical support, among others. Pursuant to the Support Services Agreement, we pay a support services fee equal to approximately $625,000 per quarter to Abengoa. The support services fee is subject to an inflation-based adjustment annually since January 1, 2015 at an inflation factor based on the year-over-year changes in the U.S. consumer price index, or U.S. CPI. It is also subject to adjustments following the consummation of future acquisitions (in an amount to be mutually agreed upon by the parties). The Support Services Agreement does not have a fixed term. We can terminate the Support Services Agreement at any time with 180 days’ written notice to Abengoa, subject to approval by a majority of our independent directors. See “Related Party Transactions—Support Services Agreement.” In addition, some of our assets have entered into operations and administrative agreements with affiliates of Abengoa for their operating and administrative needs, which will remain in effect after the consummation of this offering and which are described in “Related Party Transactions—Project-Level Management and Administration Agreements.”

Executive Services Agreement. Under the Executive Services Agreement, Abengoa provides 10 senior managers that deliver executive management services to us and some of our subsidiaries. This executive team devotes a majority of its time to our business activities, but it also manages other Abengoa contracted assets to optimize them and facilitate their offer for sale to us in the future. We pay an executive management fee of approximately $500,000 per quarter. Our expectation is that we will directly employ the executives no later than June 2015. Following their transfer to us, these executives will continue to dedicate some of their time to managing assets owned by Abengoa, and we will charge a percentage of their compensation and related costs back to Abengoa.

ROFO Agreement. Abengoa has agreed to grant us a right of first offer on any proposed sale, transfer or other disposition of any of their contracted renewable energy, conventional power, electric transmission or water assets in operation and located in the United States, Canada, Mexico, Chile, Peru, Uruguay, Brazil, Colombia and the European Union for a period of five years following our IPO. Moreover, we and Abengoa agreed on a list of four additional assets in other selected regions that will be included among the Abengoa ROFO Assets. In addition, we have a “negotiation call” right under which we can require Abengoa to negotiate in good faith for the sale to us of any Abengoa ROFO Asset that has been in operation for 18 months. We can extend the term of the agreement as many times as desired for subsequent three-year periods, provided we have completed at least one acquisition in the last two years of the preceding term after having been offered at least four acquisition opportunities. Under the terms of the ROFO Agreement, Abengoa has agreed to negotiate with us in good faith, for a period of 60 days, to reach an agreement with respect to any proposed sale of an asset for which we have a right of first offer. Under the ROFO Agreement, however, Abengoa will not be obligated to sell the assets and, therefore, we do not know when, if ever, these assets will be offered to us. Moreover, Abengoa may offer and sell to third parties assets that are not yet contracted revenue assets in operation. In addition, in the event that Abengoa elects to sell any Abengoa ROFO Assets, Abengoa will not be required to accept any offer we make or, following the completion of good faith negotiations with us and subject to certain exceptions, may choose to sell Abengoa ROFO Assets to a third party or not sell the assets at all. However, any sale to a third party within 30 months of Abengoa and us failing to reach agreement during such 60-day period in relation to transfer of an Abengoa ROFO Asset must be on terms and conditions generally no less favorable to Abengoa than those

 

 

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offered by Abengoa to us. After such 30-month period, the asset will cease to be an Abengoa ROFO Asset. We will pay Abengoa a fee of 1% of the equity purchase price of any Abengoa ROFO Asset that we acquire as consideration for Abengoa granting us the right of first offer. See “—Recent Developments” and “Related Party Transactions—Right of First Offer.”

Financial Support Agreement. We have entered into a Financial Support Agreement under which Abengoa has agreed to facilitate a new $50 million revolving credit line and maintain any guarantees and letters of credit that have been provided by it on behalf of or for the benefit of us and our affiliates for a period of five years. As of the date of this prospectus, the total amount of the credit line remains undrawn.

Conflicts of Interest. Abengoa and certain of its subsidiaries provide certain services to us and may offer to sell us assets. In order to protect our shareholders from potential conflicts of interest, Abengoa has covenanted that it will transfer our executive management team to us no later than June 2015. In addition, we have a corporate governance model which provides that Abengoa representatives on our board of directors may not vote on matters that would represent a conflict of interest. See “Related Party Transactions—Procedures for Review, Approval and Ratification of Related Party Transactions; Conflicts of Interest” for a discussion of the risks associated with our organizational and ownership structure and corporate strategy for mitigating such risks.

Governance Memorandum of Understanding. On December 9, 2014, we entered into a Governance Memorandum of Understanding, or Governance MOU, with Abengoa pursuant to which we and Abengoa agreed to work jointly for a period of seven months to amend our corporate governance regulations to (i) ensure that no shareholder (including Abengoa) may elect a majority or even half of our directors even if it owns a majority of our shares, (ii) expand the list of strategic matters that require approval by our board of directors, including significant investments, acquisitions, divestitures and indebtedness, and (iii) ensure that Abengoa will not be entitled to exercise more than 40% of the voting rights in relation to us. See “—Recent Developments” and “Related Party Transactions—Governance MOU.”

Call Option Agreement. On December 9, 2014, we entered into a 12% call option agreement with Abengoa, or the Call Option Agreement, pursuant to which we have the option, exercisable by us or through any of our subsidiaries during a 10-month period starting on the closing date of this offering, to purchase from Abengoa up to $100 million in equity or subordinated debt of additional operational contracted assets at a yield of 12%, such yield being based on a set of projections of recurrent cash available for distribution generated by the relevant asset to be agreed between the parties (or decided by external arbitration if an agreement is not reached between us and Abengoa during a period of time). This agreement has a one-year term starting on the date of closing of this offering, although the relevant acquisitions may be completed afterwards. We will pay Abengoa a fee of 1% of the equity purchase price of any asset that we acquire through the Call Option Agreement, which is the same fee applicable to the acquisition of any Abengoa ROFO Assets made pursuant to the ROFO Agreement. Incremental cash available for distribution from acquisitions performed under this agreement is not included in the guidance announced by us on November 14, 2014. See “—Recent Developments” and “Related Party Transactions—Call Option Agreement.”

Material Tax Considerations

Based on our current portfolio of assets and current tax regulations in the United Kingdom and our key operating jurisdictions, including the United States, Mexico, Peru and Spain, we expect not to pay significant income taxes for at least the next ten years due to the fact that we expect to be able to utilize certain tax assets, including net operating losses, or NOLs, and NOL carryforwards to offset future taxable income, except for ACT in Mexico, where we do not expect to pay significant income taxes until the fifth or sixth year after our IPO (which was consummated in June 2014) once we use existing NOLs. Additionally, due to the fact that we are a UK resident company we should benefit from a more favorable treatment than would apply if we were a

 

 

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corporation in the United States when receiving dividends from our subsidiaries that hold our international assets because they should generally be exempt from UK taxation due to the UK’s distribution exemption. The risks associated with our tax assets include the potential that our NOLs may not offset our taxable income, limitations on our ability to use U.S. NOLs and changes in tax rates or tax laws. See “Risk Factors—Risks Related to Taxation—Our future tax liability may be greater than expected if we do not utilize Net Operating Losses, or NOLs, sufficient to offset our taxable income,” “Risk Factors—Risks Related to Taxation—Our ability to use U.S. NOLs to offset future income may be limited” and “Risk Factors—Risks Related to Taxation—Changes in our tax position can significantly affect our reported earnings and cash flows.”

If we make distributions from current or accumulated earnings and profits, as computed for U.S. federal income tax purposes, such distributions will generally be taxable to U.S. Holders (as defined in “Taxation—Material U.S. Federal Income Tax Considerations”) of our shares in the current period as ordinary income for U.S. federal income tax purposes. Under current law, if certain requirements are met, such dividends would be eligible for the lower tax rates applicable to qualified dividend income of non-corporate taxpayers. See “Taxation—Material U.S. Federal Income Tax Considerations—Taxation of distributions on the shares.” If our distributions exceed our current and accumulated earnings and profits as computed for U.S. federal income tax purposes, such excess distributions will constitute a non-taxable return of capital to the extent of a U.S. Holder’s tax basis in our shares and will result in a reduction of such tax basis. To the extent such excess exceeds a U.S. Holder’s tax basis in our shares, such excess will be taxed as capital gain. A “return of capital” represents a return of a U.S. Holder’s original investment in our shares. Upon the sale of our shares, a U.S. Holder of such shares generally will recognize capital gain or loss measured by the difference between the sale proceeds received by the U.S. Holder and its U.S. federal income tax basis in our shares sold, as adjusted to reflect prior distributions that are treated as return of capital. See “Risk Factors—Risks Related to Taxation—Distributions to U.S. Holder of our shares may be fully taxable as dividends.” While we expect that a portion of our distribution(s) to U.S. Holders of our shares may exceed our current and accumulated earnings and profits as computed for U.S. federal income tax purposes and therefore constitute a non-taxable return of capital distribution to the extent of a U.S. Holder’s tax basis in our shares, no assurance can be given that this will occur. We intend to calculate earnings and profits annually in accordance with U.S. federal income tax principles.

The United Kingdom does not currently impose withholding tax on dividends paid by Abengoa Yield, to any Holder whether resident in the United Kingdom for tax purposes or resident in any other jurisdiction (e.g., U.S. Holders). See “Taxation—Material U.K. Tax Considerations.”

For a discussion of U.K. and U.S. federal income tax considerations applicable to an investment in our shares, see “Taxation—Material U.K. Tax Considerations” and “Taxation—Material U.S. Federal Income Tax Considerations.”

Risks Associated with Our Business

We are subject to a number of risks, including risks that may prevent us from achieving our business objectives or may materially and adversely affect our business, financial condition, results of operations, cash flows and prospects. You should carefully consider these risks, including the risks discussed in the section entitled “Risk Factors,” before investing in our shares.

About Abengoa, S.A.

Abengoa, listed on the Madrid Stock Exchange and the NASDAQ Global Select Market, is a leading engineering and clean technology company with operations in more than 50 countries worldwide that provides innovative solutions for a diverse range of customers in the energy and environmental sectors. Over the course of its 70-year history, Abengoa has developed a unique and integrated business model that applies accumulated

 

 

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engineering expertise to promoting sustainable development solutions, including delivering new methods for generating power from the sun, developing biofuels, producing potable water from seawater and efficiently transporting electricity. A cornerstone of Abengoa’s business model has been investment in proprietary technologies, particularly in areas with relatively high barriers to entry. Abengoa’s engineering and construction activities provide sophisticated turnkey engineering, procurement and construction services from design to implementation for infrastructure projects within the energy and environmental sectors and Abengoa engages in other related activities with a high technology component. Its concession-type infrastructure activities include greenfield development, management and operation and maintenance of infrastructure assets, usually pursuant to long-term concession agreements. Its industrial production activities produce mostly bioethanol.

Corporate Information

Our principal executive offices are currently located at Great West House, GW1, 17th floor, Great West Road, Brentford, United Kingdom, TW8 9DF. Our telephone number is +44 207 098 4384. Our website is located at http://www.abengoayield.com and www.abengoayield.co.uk. We make our periodic reports and other information filed with or furnished to the Securities and Exchange Commission, or the Commission, pursuant to Section 13(a) or 15(d) of the Exchange Act available, free of charge, through our website, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the Commission. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus. The Commission maintains an internet site at http://www.sec.gov that contains reports and other information regarding issuers that file electronically with the Commission.

We plan to file our annual report on Form 20-F with the Commission no later than 90 days after the end of each fiscal year. We plan to furnish a quarterly report with the Commission on Form 6-K no later than 60 days following the end of each of the first three fiscal quarters of each year, or as soon thereafter as is reasonably practicable. We have furnished our quarterly reports with the Commission on Form 6-K for the quarters ended June 30 and September 30, 2014. The quarterly reports include substantially the same information as required by a Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations; provided that the financial statements included in such quarterly reports are prepared and presented in conformity with IFRS as issued by the IASB, rather than with U.S. GAAP.

 

 

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The following summary chart sets forth our ownership structure as of the date of this prospectus:

 

LOGO

 

(1)

Abengoa Yield directly holds one share in Palmucho and 10 shares in each of Quadra 1 and Quadra 2.

(2)

ACIN directly holds one share in each of ACP and Abengoa Transmision Norte, a Mexican subsidiary of Abengoa.

(3)

We do not have control over ACBH. See “Business—Our Operations—Exchangeable Preferred Equity Investment in Abengoa Concessoes Brasil Holding.”

(4)

Due to Mexican legal requirements, one share is held by Servicios Auxiliares de Administracion, S.A. de C.V.

(5)

One share is held by Abengoa Mexico, S.A. de C.V. (a Mexican subsidiary of Abengoa) and Abener Energia, S.A. (a Spanish subsidiary of Abengoa).

(6)

JGC Corporation, a Japanese engineering company, holds 26% of the shares in each of Solacor 1 and Solacor 2. We hold a 30-year right of usufruct over the remaining shares of Solacor 1 and Solacor 2 and a call option to purchase such shares for one euro during a four-year term.

(7)

Itochu Corporation, a Japanese trading company, holds 30% of the shares in each of Solaben 2 and Solaben 3. We hold a 30-year right of usufruct over the remaining shares of Solaben 2 and Solaben 3 and a call option to purchase such shares for one euro during a four-year term.

JOBS Act

As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

 

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An emerging growth company may also take advantage of reduced reporting requirements that are otherwise applicable to public companies. Among these provisions is an exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, in the assessment of our internal control over financial reporting. We have elected to rely on this exemption and will not provide such an attestation from our auditors.

We will remain an emerging growth company until the earliest of (a) the last day of our fiscal year during which we have total annual gross revenue of at least $1.0 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of our IPO; (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which would occur if certain conditions are met, including that the market value of our shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act.

Recent Developments

On January 6, 2015, Abengoa announced that it and the energy and infrastructure investor EIG Global Energy Partners, or EIG, have entered into a non-binding agreement with the objective of jointly investing in a new company, or Newco, for the development of the already contracted portfolio of Abengoa’s projects under construction. EIG is a leading specialist investor in energy and energy-related infrastructure based in Washington, DC with approximately $15 billion under management. According to the announcement, a portfolio of projects has been defined for inclusion in Newco, including conventional generation and renewable energy assets and transmission lines in different geographies, including in the US, Mexico, Brazil and Chile. Also according to the announcement, it is intended that EIG will hold a majority stake in Newco, with Abengoa retaining a minority stake. According to Abengoa’s announcement, and consistently with the requirements of the ROFO Agreement, as amended on December 9, 2014 (as described below), Newco will accede to the ROFO Agreement.

On December 9, 2014, we entered into an amendment and restatement to the ROFO Agreement with Abengoa pursuant to which (i) if Abengoa transfers to an investment vehicle any contracted renewable energy, conventional power, electric transmission and water assets located in the United States, Canada, Mexico, Chile, Peru, Uruguay, Brazil, Colombia and the European Union, whether or not in operation, those assets will be subject to our right of first offer if offered by such investment vehicle to a third party whether or not prior to operation, (ii) we have a “negotiation call” right under which we can require Abengoa to negotiate in good faith for the sale to us of any Abengoa ROFO Asset that has been in operation for 18 months and (iii) the period in which Abengoa will not be able to sell to a third party a contracted revenue asset in operation on better terms than those offered to us if we reject the offer increased from 18 months to 30 months. See “Related Party Transactions—Right of First Offer.”

On December 9, 2014, we also entered into the Call Option Agreement, pursuant to which we have the option, exercisable by us or through any of our subsidiaries during a 10-month period starting on the closing date of this offering, to purchase from Abengoa up to $100 million in equity or subordinated debt of additional operational contracted assets at a yield of 12%, such yield being based on a set of projections of recurrent cash available for distribution generated by the relevant asset to be agreed between the parties (or decided by external arbitration if an agreement is not reached between us and Abengoa during a period of time). This agreement has a one-year term starting on the date of closing of this offering, although the relevant acquisitions may be completed afterwards. We will pay Abengoa a fee of 1% of the equity purchase price of any asset that we acquire through the Call Option Agreement, which is the same fee applicable to the acquisition of any Abengoa ROFO Assets made pursuant to the ROFO Agreement. Incremental cash available for distribution from acquisitions performed under this agreement is not included in the guidance announced by us on November 14, 2014. See “Related Party Transactions—Call Option Agreement.”

 

 

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In addition, on December 9, 2014, we entered into the Governance MOU with Abengoa pursuant to which we and Abengoa agreed to work jointly for a period of seven months to amend our corporate governance regulations to (i) ensure that none of our shareholders, including Abengoa, shall have the right to appoint or recommend either the majority or even half of our directors, even if such shareholder (including Abengoa) owns a majority of our shares, (ii) expand the list of strategic matters that require approval by our board of directors, including significant investments, divestitures and indebtedness, and (iii) ensure that Abengoa will not be entitled to exercise more than 40% of the voting rights in relation to us. See “Related Party Transactions—Governance MOU.”

On December 3, 2014, we entered into the Credit Facility in the total amount of up to $125 million. On December 22, 2014, we drewdown $125 million under the Credit Facility and used the related proceeds to finance the acquisition of Cadonal and for general corporate purposes. Loans under the Credit Facility accrue interest at a rate per annum equal to: (A) for Eurodollar rate loans, LIBOR plus 2.75% and (B) for base rate loans, the highest of (i) the rate per annum equal to the weighted average of the rates on overnight U.S. Federal funds transactions with members of the U.S. Federal Reserve System arranged by U.S. Federal funds brokers on such day plus 1/2 of 1.00%, (ii) the U.S. prime rate and (iii) LIBOR plus 1.00%, in any case, plus 1.75%. Loans under the Credit Facility will mature on the fourth anniversary of the closing date of the Credit Facility. Loans prepaid by us under the Credit Facility may be reborrowed. The Credit Facility is secured by pledges of the shares of the guarantors which we own. See “Description of Certain Indebtedness—Credit Facility.”

On December 1, 2014, Mojave reached COD.

On November 17, 2014, we issued the 2019 Notes in an aggregate principal amount of $255 million. Interest accrues on the 2019 Notes from November 17, 2014 at a rate of 7.000% per annum until November 15, 2019, the maturity date. In the event that we do not obtain a public credit rating for the 2019 Notes from each of S&P and Moody’s prior to November 15, 2015, the interest rate per annum accruing on the 2019 Notes will increase by 0.75%, to 7.750%, on and after November 15, 2015 until the date on which we have obtained a public credit rating for the 2019 Notes from each of S&P and Moody’s. The proceeds of the 2019 Notes were used, together with a portion of the proceeds of the Credit Facility, to finance the acquisition of the First Dropdown Assets from Abengoa pursuant to the ROFO Agreement. See “—First Dropdown Assets” and “Business—First Dropdown Assets.” The total aggregate consideration for the First Dropdown Assets was $312 million (which consideration was determined in part by converting the portion of the purchase price of Solacor 1/2 and PS 10/20 denominated in euros into U.S. dollars based on the exchange rate on the date on which the payment was made).

On November 14, 2014, as part of the release of our results of operations as of and for the nine-month period ended September 30, 2014, we announced an increase in our guidance for cash available for distribution and dividends for the years 2015 and 2016. Such additional guidance is the result of the acquisition of the First Dropdown Assets, as well as the ongoing negotiations with Abengoa for the acquisition of other assets, including assets in Africa and the Middle East. We intend to conclude the negotiations with Abengoa regarding the acquisition of these additional assets during the first quarter of 2015 and to finance any such acquisitions, if they are agreed, with the proceeds of the Credit Facility and available cash. See “Description of Certain Indebtedness—Credit Facility.” Our guidance for cash available for distribution and dividends for the years 2015 and 2016 is not a guarantee of future results or events, is subject to risk and uncertainties (including those set forth in “Risk Factors”) and is not contained and does not otherwise form part of this prospectus.

 

 

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THE OFFERING

 

Securities offered

  

9,200,000 ordinary shares of Abengoa Yield plc.

Offering price

  

$         per ordinary share.

Selling shareholder

  

Abengoa Concessions Investments Limited, an indirectly 100%-owned subsidiary of Abengoa.

Option to purchase additional shares

  

The selling shareholder has granted the underwriters an option to purchase up to an additional 1,380,000 of our ordinary shares, at the public offering price, less the underwriting discounts, exercisable within 30 days from the date of this prospectus. See “Underwriting.” We will not receive any proceeds from the exercise of the underwriters’ option to purchase additional shares. See “Use of Proceeds.”

Shares outstanding prior to and after the offering

  

80,000,000 ordinary shares.

Use of proceeds

  

We will not receive any proceeds from the sale of our ordinary shares by the selling shareholder.

Listing

  

Our shares are listed on the NASDAQ Global Select Market under the symbol “ABY.”

Cash dividends

  

Pursuant to our cash dividend policy, we intend to pay a quarterly cash dividend to holders of our shares. Our quarterly dividend for the third quarter of 2014, paid in December 2014, was set at $0.2592 per share (or $1.04 per share on an annualized basis). Our ability to pay the regular quarterly dividend is subject to various restrictions and other factors described under the caption “Cash Dividend Policy.”

Taxation

  

Neither we nor the selling shareholder is required to withhold amounts on account of United Kingdom tax at source when paying a dividend in respect of its shares. See “Taxation—Material U.K. Tax Considerations—Taxation of dividends.” For a discussion of the tax considerations applicable to an investment in the shares, see “Taxation.”

Risk factors

  

See “Risk Factors” beginning on page 24 and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in the shares.

Lock-ups

  

We, the selling shareholder and our officers and directors listed in the “Management” section have agreed that, for a period ending 60 days after the date of this prospectus in our case and 90 days after the date of this prospectus in the case of the selling shareholder and our officers and directors, we and they will not, without the prior written consent of the representatives of the underwriters, dispose of or hedge any of our shares, or any securities convertible into or exchangeable for our shares, subject to certain exceptions. See “Underwriting.”

Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the underwriters’ option to purchase up to an additional 1,380,000 shares.

 

 

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SUMMARY FINANCIAL INFORMATION

The summary financial information as of September 30, 2014 and for the nine-month periods ended September 30, 2014 and 2013 is derived from, and qualified in its entirety by reference to, our Consolidated Condensed Interim Financial Statements, which are included in this prospectus and prepared in accordance with IFRS as issued by the IASB.

The summary financial information as of and for the years ended December 31, 2013 and 2012 and as of January 1, 2012 is derived from, and qualified in its entirety by reference to, our Annual Combined Financial Statements, which are included in this prospectus and prepared in accordance with IFRS as issued by the IASB. Our Annual Combined Financial Statements reflect the combination of certain of the assets and associated liabilities that Abengoa contributed to us immediately prior to the consummation of our IPO.

The following tables should be read in conjunction with the sections “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our Annual Combined Financial Statements and our Consolidated Condensed Interim Financial Statements and related notes, included in this prospectus. For purposes of the Annual Combined Financial Statements, the term “Abengoa Yield” represents the accounting predecessor, or the combination of the assets and associated liabilities that Abengoa contributed to us immediately prior to the consummation of our IPO. For all periods subsequent to our IPO, the Consolidated Condensed Interim Financial Statements represent our and our subsidiaries’ consolidated results.

Consolidated condensed income statements for the nine-month periods ended September 30, 2014 and 2013, and combined income statements for the years ended December 31, 2013 and 2012

 

$ in millions    Nine-month period
ended September 30,
    Year ended December 31,  
     2014     2013             2013                     2012          
     (unaudited)       

Revenue

     269.3        154.0        210.9        107.2   

Other operating income

     69.2        303.1        379.6        560.4   

Raw materials and consumables used

     (15.4     (4.2     (8.7     (4.3

Employee benefit expenses

     (1.9     (2.4     (2.4     (1.8

Depreciation, amortization and impairment charges

     (86.9     (25.7     (46.9     (20.2

Other operating expenses

     (99.4     (339.1     (420.9     (573.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

     134.9        85.7        111.6        67.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial income

     3.2        0.7        1.2        0.7   

Financial expense

     (151.6     (76.5     (123.8     (64.1

Net exchange differences

     3.4        (0.3     (0.9     0.4   

Other financial income/(expense), net

     2.4        (0.5     (1.7     (0.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial expense, net

     (142.6     (76.6     (125.2     (63.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Share of profit/(loss) of associates carried under the equity method

     (0.6     0.2        —         (0.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(loss) before income tax

     (8.3     9.3        (13.6     4.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax

     (4.1     14.4        11.8        (4.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(loss) for the period

     (12.4     23.7        (1.8     0.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss/(profit) attributable to non-controlling interests

     (1.5     (2.0     (1.6     1.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(loss) for the period attributable to the parent company

     (13.8     21.7        (3.4     1.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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Consolidated condensed statements of financial position as of September 30, 2014, and combined statements of financial position as of December 31, 2013 and 2012 and as of January 1, 2012

 

$ in millions    As of September 30,
2014
    As of December 31,      As of January 1,
2012
 
       2013      2012     
     (unaudited        
  

Non-current assets:

          

Contracted concessional assets

     4,319.3        4,418.1         2,058.9         1,546.8   

Investments in associates carried under the equity method

     431.2        387.3         734.1         180.2   

Financial investments

     349.1        28.9         13.7         9.4   

Deferred tax assets

     49.8        52.8         60.2         44.1   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total non-current assets

     5,149.4        4,887.1         2,866.9         1,780.5   
  

 

 

   

 

 

    

 

 

    

 

 

 

Current assets:

          

Inventories

     6.9        5.2         —           —     

Clients and other receivables

     96.3        97.6         106.1         124.8   

Financial investments

     261.7        266.4         127.6         101.7   

Cash and cash equivalents

     265.1        357.7         97.5         40.2   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total current assets

     630.0        726.9         331.2         266.7   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total assets

     5,779.4        5,614.0         3,198.1         2,047.2   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total equity

     1,891.4        1,287.2         1,139.8         583.9   
  

 

 

   

 

 

    

 

 

    

 

 

 

Non-current liabilities:

          

Long-term non-recourse project financing

     2,382.1        2,842.4         1,320.0         1,003.2   

Other liabilities

     1,267.3        1,209.4         502.2         214.6   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total non-current liabilities

     3,649.4        4,051.8         1,822.2         1,217.8   
  

 

 

   

 

 

    

 

 

    

 

 

 

Current liabilities:

          

Short-term non-recourse project financing

     105.2        52.4         48.9         78.7   

Other liabilities

     133.4        222.6         187.2         166.8   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total current liabilities

     238.6        275.0         236.1         245.5   
  

 

 

   

 

 

    

 

 

    

 

 

 

Equity and Total liabilities

     5,779.4        5,614.0         3,198.1         2,047.2   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

 

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Consolidated condensed cash flow statements for the nine-month periods ended September 30, 2014 and 2013, and combined cash flow statements for the years ended December 31, 2013 and 2012

 

$ in millions    Nine-month period
ended September 30,
    Year ended December 31,  
         2014             2013                 2013                     2012          
     (unaudited)       
  

Profit/(loss) for the period

     (12.4     23.7        (1.8     0.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-monetary adjustments

     205.2        57.4        92.4        22.8   

Profit for the period adjusted by non-monetary items

     192.8        81.1        90.6        22.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Variations in working capital

     (113.0     (41.0     9.2        66.6   

Net interest and income tax paid

     (81.8     (66.1     (62.4     (41.6

Net cash provided by operating activities

     (2.0     (26.0     37.4        47.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Investments in contracted concessional assets

     (81.9     (474.0     (642.3     (1,072.8

Other non-current assets/liabilities

     (2.3     2.2        (52.3     (25.9

Net cash used in investing activities

     (84.2     (471.8     (694.6     (1,098.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     (0.8     559.3        914.9        1,107.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase/(decrease) in cash and cash equivalents

     (87.0     61.5        257.7        56.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents and bank overdrafts at beginning of the period

     357.7        97.5        97.5        40.2   

Translation differences on cash or cash equivalent

     (5.6     1.5        2.5        0.8   

Cash and cash equivalents at end of the period

     265.1        160.5        357.7        97.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Geography and business sector data

Revenue by geography

 

$ in millions    Nine-month period
ended September 30,
     Year ended December 31,  
     2014      2013              2013                      2012          
     (unaudited)         

Revenue by geography

           

North America

     146.9         75.2         114.0         62.3   

South America

     60.6         17.5         25.4         17.0   

Europe

     61.8         61.3         71.5         27.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

     269.3         154.0         210.9         107.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenue by business sector

 

$ in millions    Nine-month period
endedSeptember 30,
     Year ended December 31,  
     2014      2013              2013                      2012          
     (unaudited)         

Revenue by business sector

           

Renewable energy

     129.9         61.3         82.7         27.9   

Conventional power

     85.2         75.2         102.8         62.3   

Electric transmission lines

     54.2         17.5         25.4         17.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

     269.3         154.0         210.9         107.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

 

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Non-GAAP Financial Data

Further Adjusted EBITDA by geography

 

$ in millions    Nine-month period
ended September 30,
     Year ended December 31,  
     2014      2013              2013                      2012          
     (unaudited)         

Further Adjusted EBITDA by geography

           

North America

     132.7         61.7         96.7         61.1   

South America

     53.8         12.0         19.0         10.2   

Europe

     39.9         37.7         42.8         16.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Further Adjusted EBITDA(1)

     226.4         111.4         158.5         87.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Further Adjusted EBITDA by business sector

 

$ in millions    Nine-month period
ended September 30,
     Year ended December 31,  
     2014      2013              2013                      2012          
     (unaudited)         

Further Adjusted EBITDA by business sector

           

Renewable energy

     104.6         37.4         55.8         16.1   

Conventional power

     73.4         61.7         83.3         61.0   

Electric transmission lines

     48.4         12.3         19.4         10.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Further Adjusted EBITDA(1)

     226.4         111.4         158.5         87.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Further Adjusted EBITDA is calculated as profit/(loss) for the period attributable to the parent company, after adding back loss/(profit) attributable to non-controlling interest from continued operations, income tax expense/(benefit), share of profit/(loss) of associates carried under the equity method, finance expense net, depreciation, amortization and impairment charges of entities included in the Consolidated Condensed Interim Financial Statements and the Annual Combined Financial Statements, and dividends received from our preferred equity investment in ACBH. Further Adjusted EBITDA for the nine-month period ended September 30, 2014 includes preferred dividends by ACBH for the first time during the third quarter of 2014. Further Adjusted EBITDA is not a measure of performance under IFRS as issued by the IASB and you should not consider Further Adjusted EBITDA as an alternative to operating income or profits or as a measure of our operating performance, cash flows from operating, investing and financing activities or as a measure of our ability to meet our cash needs or any other measures of performance under generally accepted accounting principles. We believe that Further Adjusted EBITDA is a useful indicator of our ability to incur and service our indebtedness and can assist securities analysts, investors and other parties to evaluate us. Further Adjusted EBITDA and similar measures are used by different companies for different purposes and are often calculated in ways that reflect the circumstances of those companies. Further Adjusted EBITDA may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results. See “Presentation of Financial Information—Non-GAAP Financial Measures.”

 

 

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The following table sets forth a reconciliation of Further Adjusted EBITDA to our profit/(loss) for the period from continuing operations:

 

$ in millions   Nine-month period
ended September 30,
    Year ended December 31,  
    2014     2013             2013                     2012          
    (unaudited)       

Reconciliation of profit for the period to Further Adjusted EBITDA

       

Profit/(loss) for the period attributable to the parent company

    (13.8     21.7        (3.4     1.3   

Loss/(profit) attributable to non-controlling interest from continued operations

    1.5        2.0        1.6        (1.2

Income tax expenses/(benefits)

    4.1        (14.4     (11.8     4.0   

Share of profit/(loss) of associates carried under the equity method

    0.6        (0.2     —          0.4   

Financial expenses, net

    142.6        76.6        125.2        63.2   

Operating profit

    134.9        85.7        111.6        67.7   
 

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation, amortization, and impairment charges

    86.9        25.7        46.9        20.2   

Dividend from exchangeable preferred equity investment in ACBH

    4.6        —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Further Adjusted EBITDA (unaudited)

    226.4        111.4        158.5        87.9   
 

 

 

   

 

 

   

 

 

   

 

 

 

The following table sets forth a reconciliation of Further Adjusted EBITDA to our net cash generated by or used in operating activities:

 

$ in millions    Nine-month period
ended September 30,
    Year ended December 31,  
         2014             2013                 2013                     2012          
     (unaudited)       

Reconciliation of Further Adjusted EBITDA to net cash generated by or used in operating activities

        

Further Adjusted EBITDA (unaudited)

     226.4        111.4        158.5        87.9   

Other cash finance costs and other

     (33.6     (30.3     (67.9     (64.9

Variations in working capital

     (113.0     (41.0     9.2        66.6   

Net interest and income tax paid

     (81.8     (66.1     (62.4     (41.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash generated by or used in operating activities

     (2.0     (26.0     37.4        47.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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RISK FACTORS

Investing in our shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with the other information contained in this prospectus, before making any investment decision. Any of the following risks and uncertainties could have a material adverse effect on our business, prospects, results of operations and financial condition. The market price of our shares could decline due to any of these risks and uncertainties, and you could lose all or part of your investment.

Risks Related to Our Business and the Markets in Which We Operate

Difficult conditions in the global economy and in the global capital markets have caused, and may continue to cause, a sharp reduction in worldwide demand for our products and services and negatively affect our access to the levels of financing necessary for the successful refinancing of our project level indebtedness

Our results of operations have been, and continue to be, materially affected by conditions in the global economy and in the global capital markets. Concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, sovereign debt and the instability of the euro have contributed to increased volatility and diminished expectations for the economy and global capital markets going forward. These factors, combined with volatile oil and gas prices, declining global business and consumer confidence and rising unemployment, have precipitated an economic slowdown and have led to a recession and weak economic growth. Adverse events and continuing disruptions in the global economy and in the global capital markets may have a material adverse effect on our business, financial condition, results of operations and cash flows. Moreover, even in the absence of a market downturn, we are exposed to substantial risk of loss due to market volatility with certain factors, including consumer spending, business investment, government spending, inflation affecting the business and economic environment that could affect the economic and financial situation of our concession contracts counterparties and, ultimately, the profitability and growth of our business.

Generalized or localized downturns or inflationary or deflationary pressures in our key geographical areas could also have a material adverse effect on the performance of our business. A significant portion of our business activity is concentrated in the United States, Mexico, Peru and Spain, and we have significant investments in Brazil. Consequently, we are significantly affected by the general economic conditions in these countries. Spain, for instance, has recently experienced negative economic conditions, including high unemployment and significant government debt which we believe could adversely affect our operations in the future. The effects on the European and global economy of any exit of one or more member states (or, each, a Member State) from the Eurozone, the dissolution of the euro and the possible redenomination of our financial instruments or other contractual obligations from euro into a different currency, or the perception that any of these events are imminent, are inherently difficult to predict and could give rise to operational disruptions or other risks of contagion to our business and have a material, adverse effect on our business, financial condition and results of operation. In addition, to the extent uncertainty regarding the European economic recovery continues to negatively affect government or regional budgets, our business, results of operations and cash flows could be materially adversely affected.

The global capital and credit markets have experienced periods of extreme volatility and disruption since the last half of 2008. Continued disruptions, uncertainty or volatility in the global capital and credit markets may limit our access to additional capital required to operate or grow our business, including our access to new equity capital to make further acquisitions or access to non-recourse project financing which we may use to fund or refinance many of our projects, even in cases where such capital has already been committed. Such market conditions may limit our ability to replace, in a timely manner, maturing liabilities and access the capital necessary to grow our business, or replace financing previously committed for a project that ceases to be available to it. As a result, we may be forced to delay raising capital, issue shorter-term securities than we prefer, or bear a higher cost of capital which could decrease our profitability and significantly reduce our financial flexibility or even require us to modify our dividend policy. In the event that we are required to replace

 

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previously committed financing to certain projects that subsequently becomes unavailable, we may have to postpone or cancel planned capital expenditures.

We have international operations and investments, including in emerging markets that could be subject to economic, social and political uncertainties

We operate our activities in a range of international locations, including Mexico, Peru, Uruguay, Chile and Spain and have significant investments in Brazil, and we expect to expand our operations into new locations such as Africa and the Middle East in the future. Accordingly, we face a number of risks associated with operating and investing in different countries that may have a material adverse effect on our business, financial condition, results of operations and cash flows. These risks include, but are not limited to, adapting to the regulatory requirements of such countries, compliance with changes in laws and regulations applicable to foreign corporations, the uncertainty of judicial processes, and the absence, loss or non-renewal of favorable treaties, or similar agreements, with local authorities or political, social and economic instability, all of which can place disproportionate demands on our management, as well as significant demands on our operational and financial personnel and business. As a result, we can provide no assurance that our future international operations and investments will remain successful.

A significant portion of our current and our potential future operations and investments are conducted in various emerging countries worldwide. Our activities and investments in these countries involve a number of risks that are more prevalent than in developed markets, such as economic and governmental instability, the possibility of significant amendments to, or changes in, the application of governmental regulations, the nationalization and expropriation of private property, payment collection difficulties, social problems, substantial fluctuations in interest and exchange rates, changes in the tax framework or the unpredictability of enforcement of contractual provisions, currency control measures, limits on the repatriation of funds and other unfavorable interventions or restrictions imposed by public authorities. Our U.S. dollar-denominated contracts in Peru and Mexico are payable in local currency at the exchange rate of the payment date. In the event of a rapid devaluation or implementation of exchange or currency controls, we may not be able to exchange the local currency for the agreed dollar amount, which could affect our cash available for distribution. Governments in Latin America frequently intervene in the economies of their respective countries and occasionally make significant changes in policy and regulations. Governmental actions in certain Latin American countries to control inflation and other policies and regulations have often involved, among other measures, price controls, currency devaluations, capital or exchange controls and limits on imports.

Decreases in government budgets, reductions in government subsidies and adverse changes in law may adversely affect our business and growth plan

Poor economic conditions have affected, and continue to affect, government budgets and threaten the continuation of government subsidies such as regulated revenues, cash grants, U.S. federal income tax benefits and other similar subsidies that benefit our business, particularly with respect to renewable energy. Such conditions may also lead to adverse changes in laws. For example, in the United States, due to the failure of the U.S. Congress to enact a plan by February 28, 2013 to reduce the federal budget deficit by $1.2 trillion, $85 billion of automatic budget cuts went into effect on March 1, 2013, reducing discretionary spending by all agencies of the federal government for the remainder of the federal fiscal year ending September 30, 2013. These cuts affected, among others, the United States Department of the Treasury, or U.S. Treasury, program providing for cash grants in lieu of investment tax credits, or ITCs. See “Regulation—Regulation in the United States—U.S. Federal Income Tax Incentives and Other Federal Considerations for Renewable Energy Generation Facilities—Section 1603 U.S. Treasury Grant Program.” In addition, a number of states and municipal authorities are experiencing severe fiscal pressures as they seek to address mounting budget deficits. The reduction or elimination of tariffs or subsidies or adverse changes in law could have a material adverse effect on the profitability of our existing projects, and the lack of availability of new projects undertaken in reliance on the continuation of such subsidies could adversely affect our growth plan.

 

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Pursuant to our cash dividend policy, we intend to distribute all or substantially all of our cash available for distribution after cash interest payments through regular quarterly distributions and dividends, and our ability to grow and make acquisitions through cash on hand could be limited

As discussed in “Cash Dividend Policy,” our dividend policy is to distribute all or substantially all of our cash available for distribution each quarter and to rely primarily upon external financing sources, including the issuance of debt and equity securities, borrowings under credit facilities and, if applicable, under our revolving credit line with Abengoa, to fund our acquisitions and potential growth capital expenditures. We may be precluded from pursuing otherwise attractive acquisitions if the projected short-term cash flow from the acquisition or investment is not adequate to service the capital raised to fund the acquisition or investment, after giving effect to our available cash reserves. See “Cash Dividend Policy—General—Our Ability to Grow our Business and Dividend.”

We intend to make regular quarterly cash distributions to our shareholders in an amount equal to the cash available for distribution generated during a given quarter, less reserves for the prudent conduct of our business, and subject to the stated payout ratio during that given period. As such, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations. To the extent we issue additional equity securities in connection with any acquisitions or growth capital expenditures, the payment of dividends on these additional equity securities may increase the risk that we will be unable to maintain or increase our per share dividend. There will be no limitations in our articles of association on our ability to issue equity securities, including securities ranking senior to our shares. The issuance of additional debt securities and/or the incurrence of additional bank borrowings or other debt by us or by intermediate subsidiaries or by our project-level subsidiaries to finance our growth strategy could result in increased interest expense and the imposition of additional or more restrictive covenants, which, in turn, may impact the cash available to be distributed to holders of our shares.

We may not be able to identify or consummate any future acquisitions on favorable terms, or at all

Our business strategy includes growth through the acquisitions of additional revenue-generating operational assets from Abengoa pursuant to the ROFO Agreement and the Call Option Agreement, and from third parties. This strategy depends on Abengoa’s ability to identify and develop assets and desire to sell those assets to us, as well as our ability to successfully identify and evaluate acquisition opportunities and consummate acquisitions on favorable terms. However, the number of acquisition opportunities may be limited.

Our ability to acquire future renewable energy facilities depends on the viability of renewable assets generally. These assets currently are largely contingent on public policy mechanisms including, among others, ITCs, cash grants, loan guarantees, accelerated depreciation, carbon trading plans, environmental tax credits and R&D incentives, as discussed in “Regulation—Regulation in the United States—U.S. Federal Income Tax Incentives and other Federal Considerations for Renewable Energy Generation Facilities.” These mechanisms have been implemented at the U.S. federal and state levels and in certain other jurisdictions where our assets are located to support the development of renewable generation and other clean infrastructure technologies. The availability and continuation of public policy support mechanisms will drive a significant part of the economics and viability of our growth strategy and expansion into clean energy investments. For example, an ITC is crucial for the development of Concentrating Solar Power plants in the United States and the benefits of ITC for new projects might be lower beginning in 2017. See “Industry and Market Opportunity—Solar—Concentrating Solar Power Technology in the United States.”

Our ability to effectively consummate future acquisitions will also depend on our ability to arrange the required or desired financing for acquisitions. We may not have access to the capital markets to issue new equity or debt securities or sufficient availability under our credit facilities or have access to project-level financing on commercially reasonable terms when acquisition opportunities arise. An inability to obtain the required or desired financing could significantly limit our ability to consummate future acquisitions and effectuate our growth strategy. If financing is available, utilization of our credit facilities, debt securities or project-level

 

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financing for all or a portion of the purchase price of an acquisition, as applicable, could significantly increase our interest expense, impose additional or more restrictive covenants and reduce cash available for distribution. Similarly, the issuance of additional equity securities as consideration for acquisitions could cause significant shareholder dilution and reduce our per share cash available for distribution if the acquisitions are not sufficiently accretive. Our ability to consummate future acquisitions may also depend on our ability to obtain any required government or regulatory approvals for such acquisitions, including, but not limited to, the Federal Energy Regulatory Commission, or FERC, approval under Section 203 of the FPA in respect of acquisitions in the United States; the National Electric Energy Agency, Agencia Nacional de Energia Eletrica, or ANEEL, approval for the acquisition of transmission lines in Brazil; or any other approvals in the countries in which we may purchase assets in the future pursuant to the ROFO Agreement or otherwise. We may also be required to seek authorizations, waivers or notifications from debt and/or equity financing providers at the project or holding company level; local or regional agencies or bodies; and/or development agencies or institutions that may have a contractual right to authorize a proposed acquisition.

Additionally, the acquisition of companies and assets are subject to substantial risks, including the failure to identify material problems during due diligence (for which we may not be indemnified post-closing), the risk of over-paying for assets (or not making acquisitions on an accretive basis) and the ability to retain customers. Further, the integration and consolidation of acquisitions requires substantial human, financial and other resources and, ultimately, our acquisitions may divert management’s attention from our existing business concerns, disrupt our ongoing business or not be successfully integrated. There can be no assurances that any future acquisitions will perform as expected or that the returns from such acquisitions will support the financing utilized to acquire them or maintain them. As a result, the consummation of acquisitions may have a material adverse effect on our business, financial condition, results of operations and cash flows and ability to pay dividends to holders of our shares.

Finally, while we benefit from a right of first offer with respect to the Abengoa ROFO Assets, we will compete with other companies for limited acquisition opportunities from third parties, which may increase our cost of making acquisitions or cause us to refrain from making acquisitions from third parties. Some of our competitors for acquisitions are much larger than us with substantially greater resources. These companies may be able to pay more for acquisitions due to cost of capital advantages, synergy potential or other drivers, and may be able to identify, evaluate, bid for and purchase a greater number of assets than our financial or human resources permit. If we are unable to identify and consummate future acquisitions, it will impede our ability to execute our growth strategy and limit our ability to increase the amount of dividends paid to holders of our shares.

We rely on certain regulations, subsidies and tax incentives that may be changed or legally challenged

We rely in a significant part on environmental and other regulations of industrial and local government activities, including regulations mandating, among other things, reductions in carbon or other greenhouse gas emissions and minimum biofuel content in fuel or use of energy from renewable sources. If the businesses to which such regulations relate were deregulated or if such regulations were materially changed or weakened, the profitability of our current and future projects could suffer, which could in turn have a material adverse effect on our business, financial condition and results of operations. In addition, uncertainty regarding possible changes to any such regulations has adversely affected in the past, and may adversely affect in the future, our ability to refinance a project or to satisfy other financing needs.

Subsidy regimes for renewable energy generation have been challenged in the past on constitutional and other grounds (including that such regimes constitute impermissible European Union state aid) in certain jurisdictions. In addition, certain loan guarantee programs in the United States, including those which have enabled the DOE to provide loan guarantees to support our Solana and Mojave projects, have been challenged on grounds of failure by the appropriate authorities to comply with applicable U.S. federal administrative and energy law. If all or part of the subsidy and incentive regimes for renewable energy generation in any jurisdiction

 

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in which we operate were found to be unlawful and, therefore, reduced or discontinued, we may be unable to compete effectively with conventional and other renewable forms of energy.

The production from our renewable energy facilities is the subject of various tax relief measures or tax incentives in the jurisdictions in which they operate. These tax relief and tax incentive measures play an important role in the profitability of our projects. In the future, it is possible that some or all of these tax incentives will be suspended, curtailed, not renewed or revoked. For example, our Solana and Mojave projects are reliant on the ITC Cash Grant program to repay a significant portion of their respective external debt financing and the failure to receive anticipated funds, or any funds at all, pursuant to the ITC Cash Grant would have an adverse effect on our ability to receive distributions from our Solana and Mojave projects. The occurrence of any of the above could adversely affect the profitability of our current plants and our ability to refinance projects, which could in turn have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are subject to extensive governmental regulation in a number of different jurisdictions, and our inability to comply with existing regulations or requirements or changes in applicable regulations or requirements may have a negative impact on our business, results of operations or financial condition

We are subject to extensive regulation of our business in the United States, Mexico, Spain, Peru and Brazil and in each of the other countries in which we operate. Such laws and regulations require licenses, permits and other approvals to be obtained in connection with the operations of our activities. See “Regulation.” This regulatory framework imposes significant actual, day-to-day compliance burdens, costs and risks on us. In particular, the power plants and transmission lines that we own are subject to strict international, national, state and local regulations relating to their operation and expansion (including, among other things, leasing and use of land, and corresponding building permits, landscape conservation, noise regulation, environmental protection and environmental permits and electric transmission and distribution network congestion regulations). Non-compliance with such regulations could result in the revocation of permits, sanctions, fines or even criminal penalties. Compliance with regulatory requirements, which may in the future include increased exposure to capital markets regulations, may result in substantial costs to our operations that may not be recovered. In addition, we cannot predict the timing or form of any future regulatory or law enforcement initiatives. Changes in existing energy, environmental and administrative laws and regulations may materially and adversely affect our business, margins and investments. Our business may also be affected by additional taxes imposed on our activities, reduction of regulated tariffs and other cuts or measures.

Further, similar changes in laws and regulations could increase the size and number of claims and damages asserted against us or subject us to enforcement actions, fines and even criminal penalties. In addition, changes in laws and regulations may, in certain cases, have retroactive effect and may cause the result of operations to be lower than expected. In particular, our activities in the energy sector are subject to regulations applicable to the economic regime of generation of electricity from renewable sources and to subsidies or public support in the benefit of the production of biofuels from renewable energy sources, which vary by jurisdiction, and are subject to modifications that may be more restrictive or unfavorable to us.

Our business is subject to stringent environmental regulation

We are subject to significant environmental regulation, which, among other things, requires us to obtain and maintain regulatory licenses, permits and other approvals and comply with the requirements of such licenses, permits and other approvals and perform environmental impact studies on changes to projects. There can be no assurance that:

 

   

public opposition will not result in delays, modifications to or cancellation of any project or license;

 

   

laws or regulations will not change or be interpreted in a manner that increases our costs of compliance or materially or adversely affects our operations or plants; or

 

   

governmental authorities will approve our environmental impact studies where required to implement proposed changes to operational projects.

 

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We believe that we are currently in material compliance with all applicable regulations, including those governing the environment. While we employ robust policies with regard to environmental regulation compliance, there are occasions where regulations are breached. On occasion, we have been found not to be in compliance with certain environmental regulations, and have incurred fines and penalties associated with such violations which, to date, have not been material in amount. We can give no assurance, however, that we will continue to be in compliance or avoid material fines, penalties, sanctions and expenses associated with compliance issues in the future. Violation of such regulations may give rise to significant liability, including fines, damages, fees and expenses, and site closures. Generally, relevant governmental authorities are empowered to clean up and remediate releases of environmental damage and to charge the costs of such remediation and clean-up to the owners or occupiers of the property, the persons responsible for the release and environmental damage, the producer of the contaminant and other parties, or to direct the responsible parties to take such action. These governmental authorities may also impose a tax or other liens on the responsible parties to secure the parties’ reimbursement obligations.

Environmental regulation has changed rapidly in recent years, and it is possible that we will be subject to even more stringent environmental standards in the future. For example, our activities are likely to be covered by increasingly strict national and international standards relating to climate change and related costs, and may be subject to potential risks associated with climate change, which may have a material adverse effect on our business, financial condition or results of operations. We cannot predict the amounts of any increased capital expenditures or any increases in operating costs or other expenses that we may incur to comply with applicable environmental, or other regulatory, requirements, or whether these costs can be passed on to our concession contract counterparties through price increases.

Increases in the cost of energy and gas could significantly increase our operating costs in some of our assets

Some of our activities (in particular, our Concentrating Solar Power plants in Spain that produce a portion of their power from natural gas) require some consumption of energy and gas, and we are vulnerable to material fluctuations in their prices. Although our energy and gas purchase contracts generally include indexing mechanisms, we cannot guarantee that these mechanisms will cover all of the additional costs generated by an increase in energy and gas prices, particularly for long-term contracts, and some of the contracts entered into by us do not include any indexing provisions. Significant increases in the cost of energy or gas, or shortages of the supply of energy and/or gas, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Counterparties to our offtake agreements may not fulfill their obligations and, as our contracts expire, we may not be able to replace them with agreements on similar terms in light of increasing competition in the markets in which we operate

A significant portion of the electric power we generate and the transmission capacity we have is sold under long-term offtake agreements with public utilities, industrial or commercial end-users or governmental entities, with a weighted average remaining duration (weighted using the relevant technical indicator by each type of asset) of approximately 25 years.

If, for any reason, any of the purchasers of power or transmission capacity under these agreements are unable or unwilling to fulfill their related contractual obligations or if they refuse to accept delivery of power delivered thereunder or if they otherwise terminate such agreements prior to the expiration thereof, our assets, liabilities, business, financial condition, results of operations and cash flow could be materially and adversely affected. Furthermore, to the extent any of our power or transmission capacity purchasers are, or are controlled by, governmental entities, our facilities may be subject to sovereign risk or legislative or other political action that may impair their contractual performance.

The power generation industry is characterized by intense competition and our electric generation assets encounter competition from utilities, industrial companies and other independent power producers, in particular

 

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with respect to uncontracted output. In recent years, there has been increasing competition among generators for offtake agreements and this has contributed to a reduction in electricity prices in certain markets characterized by excess supply above designated reserve margins. In light of these market conditions, we may not be able to replace an expiring or terminated agreement with an agreement on equivalent terms and conditions, including at prices that permit operation of the related facility on a profitable basis. In addition, we believe many of our competitors have well-established relationships with our current and potential suppliers, lenders and customers and have extensive knowledge of our target markets. As a result, these competitors may be able to respond more quickly to evolving industry standards and changing customer requirements than we will be able to. Adoption of technology more advanced than ours could reduce our competitors’ power production costs, resulting in their having a lower cost structure than is achievable with the technologies we currently employ and adversely affect our ability to compete for offtake agreement renewals. If we are unable to replace an expiring or terminated offtake agreement, the affected facility may temporarily or permanently cease operations. External events, such as a severe economic downturn, could also impair the ability of some counterparties to our offtake agreements and other customer agreements to pay for energy and/or other products and services received.

Our inability to enter into new or replacement offtake agreements or to compete successfully against current and future competitors in the markets in which we operate could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Transactions with counterparties expose us to credit risk which we must effectively manage to mitigate the effect of counterparty default

We are exposed to the credit risk profile of the counterparties to our long-term concession contracts, our suppliers and our financing providers, which could impact our business, financial condition and results of operations. Although we actively manage this credit risk through diversification, the use of non-recourse factoring contracts, credit insurance and other measures, our risk management strategy may not be successful in limiting our exposure to credit risk. This could adversely affect our business, financial condition, results of operations and cash flow.

We may be subject to increased finance expenses if we do not effectively manage our exposure to interest rate and foreign currency exchange rate risks

We are exposed to various types of market risk in the normal course of business, including the impact of interest rate changes and foreign currency exchange rate fluctuations. Some of our indebtedness (including project-level indebtedness) bears interest at variable rates, generally linked to market benchmarks such as EURIBOR and LIBOR. Any increase in interest rates would increase our finance expenses relating to our variable rate indebtedness and increase the costs of refinancing our existing indebtedness and issuing new debt (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Results of Operations—Interest Rates”). Although most of our long-term contracts are denominated in, indexed or hedged to U.S. dollars, we conduct our business and incur certain costs in the local currency of the countries in which we operate. As we continue expanding our business into existing markets such as South America and Europe, and into other new markets, such as Africa and the Middle East, we expect that an increasing percentage of our revenue and cost of sales will be denominated in currencies other than our reporting currency, the U.S. dollar. As a result, we will become subject to increasing currency translation risk, whereby changes in exchange rates between the U.S. dollar and the other currencies in which we do business could result in foreign exchange losses.

We seek to actively manage these risks by entering into interest rate options and swaps, which according to our policies, generally cover at least 75% of the outstanding project debt, to hedge against interest rate risk. In addition, we plan to use future currency sale and purchase contracts and foreign exchange rate swaps or caps to hedge against foreign exchange rate risk when our exposure to non-U.S. dollar denominated cash flows is significantly below our 90% target. If our risk management strategies are not successful in limiting our exposure

 

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to changes in interest rates and foreign currency exchange rates, our business, financial condition and results of operations could be materially and adversely affected.

Our competitive position could be adversely affected by changes in technology, prices, industry standards and other factors

The markets in which our assets or projects operate change rapidly because of technological innovations and changes in prices, industry standards, product instructions, customer requirements and the economic environment. New technology or changes in industry and customer requirements may put pressure on the profitability of our existing projects by increasing the incentives of counterparties to our long-term contracts to seek new alternative projects or request higher service standards.

Our performance under our concession contracts may be adversely affected by problems related to our reliance on third-party contractors and suppliers

Our projects rely on the supply of services, equipment or software which we subcontract to Abengoa or other third-party suppliers in order to meet our contractual obligations under our contracted concessions. The delivery of products or services which are not in compliance with the requirements of the subcontract, or the late supply of products and services, can cause us to be in default under our contracts with our concession counterparties. To the extent we are not able to transfer all of the risk or be fully indemnified by Abengoa or other third-party contractors and suppliers, we may be subject to a claim by our customers as a result of a problem caused by a third party that could have a material adverse effect on our reputation, business, results of operations, financial condition and cash flows.

Supplier concentration may expose us to significant financial credit or performance risk

We often rely on a single contracted supplier or a small number of suppliers, which in some cases may be subsidiaries of Abengoa, for the provision of fuel, transportation of fuel, equipment, technology and/or other services required for the operation of certain of our facilities. In addition, certain of our suppliers, including Abengoa and its subsidiaries, provide long-term warranties with respect to the performance of their products or services. If any of these suppliers cannot perform under their agreements with us, or satisfy their related warranty obligations, we will need to utilize the marketplace to provide or repair these products and services. There can be no assurance that the marketplace can provide these products and services as, when and where required. We may not be able to enter into replacement agreements on favorable terms or at all. If we are unable to enter into replacement agreements to provide for fuel, equipment, technology and other required services, we would seek to purchase the related goods or services at market prices, exposing us to market price volatility and the risk that fuel and transportation may not be available during certain periods at any price. We may also be required to make significant capital contributions to remove, replace or redesign equipment that cannot be supported or maintained by replacement suppliers, which could have a material adverse effect on our business, financial condition, results of operations, credit support terms and cash flows.

The failure of any supplier or customer to fulfill its contractual obligations to us could have a material adverse effect on our financial results. Consequently, the financial performance of our facilities is dependent on the credit quality of, and continued performance by, our suppliers and vendors.

We may be adversely affected by risks associated with acquisitions or investments

As a part of our growth strategy, we intend to make certain acquisitions and/or financial investments, and we may take on additional equity and debt to pay for such acquisitions. Moreover, we cannot guarantee that we will be able to complete all, or any, such transactions that we might contemplate in the future. To the extent we do, such transactions expose us to risks inherent in integrating acquired businesses and personnel, such as the inability to achieve projected cash flows; recognition of unexpected liabilities or costs; and regulatory

 

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complications arising from such transactions. Furthermore, the terms and conditions of financing for such acquisitions or financial investments could restrict the manner in which we conduct our business, particularly if we were to use debt financing. These risks could have a material adverse effect on our business, financial condition and results of operations.

In addition, we have made and may continue to make equity investments in certain strategic assets managed by or together with third parties, including governmental entities and private entities. In certain cases, we may only have partial or joint control over a particular asset. For example, we currently hold only economic rights in respect of our Brazilian investment through ACBH, which economic rights provide us with the right to receive a preferred dividend of $18.4 million annually, but we do not have control over ACBH. Investments in assets over which we have no, partial or joint control are subject to the risk that the other shareholders of the assets, who may have different business or investment strategies than us or with whom we may have a disagreement or dispute, may have the ability to independently make or block business, financial or management decisions, such as the decision to distribute dividends or appoint members of management, which may be crucial to the success of the project or our investment in the project, or otherwise implement initiatives which may be contrary to our interests. Additionally, the approval of other shareholders or partners may be required to sell, pledge, transfer, assign or otherwise convey our interest in such assets, or for us to acquire Abengoa’s interests in such assets as an initial matter. Alternatively, other shareholders may have rights of first refusal or rights of first offer in the event of a proposed sale or transfer of our interests in such assets or in the event of our acquisition of an interest in new assets pursuant to the ROFO Agreement or with third parties. These restrictions may limit the price or interest level for our interests in such assets, in the event we want to sell such interests.

Finally, our partners in existing or future projects may be unable, or unwilling, to fulfill their obligations under the relevant shareholder agreements or may experience financial or other difficulties that may adversely affect our investment in a particular joint venture. In certain of our joint ventures, we may also be reliant on the particular expertise of our partners and, as a result, any failure to perform our obligations in a diligent manner could also adversely affect the joint venture. If any of the foregoing were to occur, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

There are risks relating to future acquisitions and investments

Our board of directors may approve acquisitions and investments at any time. This could result in our making acquisitions or investments in assets that are located in different jurisdictions and are different from, and possibly riskier than, those described in this prospectus. These changes could adversely affect the market price of our shares or our ability to make distributions to shareholders.

The facilities we operate are, in some cases, dangerous workplaces at which hazardous materials are handled. If we fail to maintain safe work environments, we can be exposed to significant financial losses, as well as civil and criminal liabilities

The facilities we operate often put our employees and others in close proximity with large pieces of mechanized equipment, moving vehicles, manufacturing or industrial processes, heat or liquids stored under pressure and highly regulated materials. On most projects and at most facilities, we are responsible for safety and, accordingly, must implement safe practices and safety procedures, which are also applicable to on-site subcontractors such as our O&M services providers. If we fail to design and implement such practices and procedures or if the practices and procedures we implement are ineffective or if our O&M service providers or other suppliers do not follow them, our employees and others may become injured and our and others’ property may become damaged. Unsafe work sites also have the potential to increase employee turnover, increase the cost of a project to our customers or the operation of a facility, and raise our operating costs. Any of the foregoing could result in financial losses, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

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In addition, our projects and the operation of our facilities can involve the handling of hazardous and other highly regulated materials, which, if improperly handled or disposed of, could subject us to civil and criminal liabilities. We are also subject to regulations dealing with occupational health and safety. Although we maintain functional groups whose primary purpose is to ensure we implement effective health, safety and environmental work procedures throughout our organization, including construction sites and maintenance sites, the failure to comply with such regulations could subject us to liability. In addition, we may incur liability based on allegations of illness or disease resulting from exposure of employees or other persons to hazardous materials that we handle or are present in our workplaces.

Our insurance may be insufficient to cover relevant risks and the cost of our insurance may increase

Our business is exposed to the inherent risks in the markets in which we operate. Although we seek to obtain appropriate insurance coverage in relation to the principal risks associated with our business, we cannot guarantee that such insurance coverage is, or will be, sufficient to cover all of the possible losses we may face in the future. If we were to incur a serious uninsured loss or a loss that significantly exceeded the coverage limits established in our insurance policies, the resulting costs could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, our insurance policies are subject to review by our insurers. If premiums were to increase in the future or certain types of insurance coverage were to become unavailable, we might not be able to maintain insurance coverage comparable to those that are currently in effect at comparable cost, or at all. If we were unable to pass any increase in insurance premiums on to our customers, such additional costs could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may be subject to litigation and other legal proceedings

We are subject to the risk of legal claims and proceedings and regulatory enforcement actions in the ordinary course of our business and otherwise. The results of legal and regulatory proceedings cannot be predicted with certainty. We cannot guarantee that the results of current or future legal or regulatory proceedings or actions will not materially harm our business, financial condition, results of operations or operations, nor can we guarantee that we will not incur losses in connection with current or future legal or regulatory proceedings or actions that exceed any provisions we may have set aside in respect of such proceedings or actions or that exceed any available insurance coverage, which may have a material adverse effect on our business, financial condition, results of operations and cash flows. See “Business—Legal Proceedings.”

We are subject to reputational risk, and our reputation is closely related to that of Abengoa

We rely on our reputation to do business, obtain financing, hire and retain employees and attract investors, one or more of which could be adversely affected if our reputation were damaged. Harm to our reputation could arise from real or perceived faulty or obsolete technology, failure to comply with legal and regulatory requirements, difficulties in meeting contractual obligations or standards of quality and service, ethical issues, money laundering and insolvency, among others. In addition, our reputation is closely related to that of Abengoa. If the public image or reputation of Abengoa were to be damaged as a result of adverse publicity, poor financial or operating performance, changes in financial condition or otherwise, we could be adversely affected due to our relationship with Abengoa. For example, on November 13 and 14, 2014, Abengoa’s share and bond prices significantly declined, thereby affecting our stock price. Any perceived or real difficulties experienced by Abengoa would harm our reputation, which could have an adverse effect on our business, financial condition and results of operations.

 

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Maintenance, expansion and refurbishment of electric generation facilities involve significant risks that could result in unplanned power outages or reduced output

Although the facilities in our portfolio are relatively new, they may require periodic upgrading and improvement in the future. Any unexpected operational or mechanical failure, including failure associated with breakdowns and forced outages, could reduce our facilities’ generating capacity below expected levels, reducing our revenues and jeopardizing our ability to pay dividends to shareholders at forecasted levels or at all. Degradation of the performance of our solar facilities above levels provided for in the related offtake agreements may also reduce our revenues. Unanticipated capital expenditures associated with maintaining, upgrading or repairing our facilities may also reduce profitability.

If we make any major modifications to our conventional or renewable power generation facilities or electric transmission lines, we may be required to comply with more stringent environmental regulations, which would likely result in substantial additional capital expenditures. We may also choose to repower, refurbish or upgrade our facilities based on our assessment that such activity will provide adequate financial returns. Such facilities require time for development and capital expenditures before commencement of commercial operations, and key assumptions underpinning a decision to make such an investment may prove incorrect, including assumptions regarding construction costs, timing, available financing and future fuel and power prices. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Risks Related to Our Assets

The concession agreements under which we conduct some of our operations are subject to revocation or termination

Certain of our operations are conducted pursuant to contracted concessions granted by various governmental bodies. Generally, these contracted concessions give us rights to provide services for a limited period of time, subject to various governmental regulations. The governmental bodies or private clients responsible for regulating and monitoring these services often have broad powers to monitor our compliance with the applicable concession contracts and can require us to supply them with technical, administrative and financial information. Among other obligations, we may be required to comply with investment commitments and efficiency and safety standards established in the concession. Such commitments and standards may be amended in certain cases by the governmental bodies. Our failure to comply with the concession agreements or other regulatory requirements may result in contracted concessions being revoked, not being granted, upheld or renewed in our favor, or, if granted, upheld or renewed, may not be done on as favorable terms as currently applicable. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In some of the markets in which we are present, or in which we may own assets in the future, political instability, economic crisis or social unrest may give rise to a change in policies regarding long-term contracted assets with private companies, like us, in strategic sectors such as power generation or electric transmission. Any such changes could lead to modifications of the economic terms of our concession contracts or, in extreme scenarios, the nationalization of our assets, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Revenue from our contracted assets and concessions is significantly dependent on regulated tariffs or other long-term fixed rate arrangements that restrict our ability to increase revenue from these operations

The revenue that we generate from our contracted concessions is significantly dependent on regulated tariffs or other long-term fixed rate arrangements. Under most of our concession agreements, a tariff structure is established in such agreements, and we have limited or no possibility to independently raise tariffs beyond the established rates and indexation or adjustment mechanisms. Similarly, under a long-term PPA, we are required to deliver power at a fixed rate for the contract period, with limited escalation rights. In addition, we may be unable to adjust our tariffs or rates as a result of fluctuations in prices of raw materials, exchange rates, labor and

 

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subcontractor costs during the operating phase of these projects, or any other variations in the conditions of specific jurisdictions in which our concession-type infrastructure projects are located, which may reduce our revenue. Moreover, in some cases, if we fail to comply with certain pre-established conditions, the government or customer (as applicable) may reduce the tariffs or rates payable to us. In addition, during the life of a concession, the relevant government authority may unilaterally impose additional restrictions on our tariff rates, subject to the regulatory frameworks applicable in each jurisdiction. Governments may also postpone annual tariff increases until a new tariff structure is approved without compensating us for lost revenue. Furthermore, changes in laws and regulations may, in certain cases, have retroactive effect and expose us to additional compliance costs or interfere with our existing financial and business planning. For example, the Spanish government modified regulations applicable to renewable energy assets, including Concentrated Solar Power, in 2013 and 2012 which as a result, lowered yearly revenues of such assets. In the case that any one or more of these events occur, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Revenue from our renewable energy and conventional power facilities is partially exposed to market electricity prices

In addition to regulated incentives, revenue and operating costs from certain of our projects depend to a limited extent on market prices for sales of electricity. Market prices may be volatile and are affected by various factors, including the cost of raw materials, user demand, and if applicable, the price of greenhouse gas emission rights. In several of the jurisdictions in which we operate, we are exposed to remuneration schemes which contain both regulated incentive and market price components. In such jurisdictions, the regulated incentive component may not compensate for fluctuations in the market price component, and, consequently, total remuneration may be volatile. There can be no assurance that market prices will remain at levels which enable us to maintain profit margins and desired rates of return on investment. A decline in market prices below anticipated levels could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our solar and wind projects will be negatively affected if there are adverse changes to national and international laws and policies that support renewable energy sources

Recently, certain countries, such as the United States, a market that is one of our principal markets, have enacted policies of active support for renewable energy. These policies have included feed-in tariffs and renewable energy purchase obligations, mandatory quotas and/or portfolio standards imposed on utilities and certain tax incentives (such as the Investment Tax Credit in the United States). See “Regulation—Regulation in the United States—U.S. Federal Income Tax Incentives and other Federal Considerations for Renewable Energy Generation Facilities—Section 1603 U.S. Treasury Grant Program.”

Although support for renewable energy sources by governments and regulatory authorities in the jurisdictions in which we operate has historically been strong, and European authorities, along with the United States government, have reaffirmed their intention to continue such support, certain policies currently in place may expire, be suspended or be phased out over time, cease upon exhaustion of the allocated funding or be subject to cancellation or non-renewal, particularly if the cost of renewable energy exceeds the cost of generation of energy from other means. Accordingly, we cannot guarantee that such government support will be maintained in full, in part or at all.

If the governments and regulatory authorities in the jurisdictions in which we operate or plan to operate were to further decrease or abandon their support for development of solar and wind energy due to, for example, competing funding priorities, political considerations or a desire to favor other energy sources, renewable or otherwise, the assets we plan to acquire in the future could become less profitable or cease to be economically viable. Such an outcome could have a material adverse effect on our ability to execute our growth strategy.

 

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Our business may be adversely affected by catastrophes, natural disasters, adverse weather conditions, climate change, unexpected geological or other physical conditions, or criminal or terrorist acts at one or more of our plants, facilities and electric transmission lines

If one or more of our plants, facilities or electric transmission lines were to be subject in the future to fire, flood or a natural disaster, adverse weather conditions, drought, terrorism, power loss or other catastrophe, or if unexpected geological or other adverse physical conditions were to develop at any of our plants, facilities or electric transmission lines, we may not be able to carry out our business activities at that location or such operations could be significantly reduced. For example, drought may affect the cooling capacity of our thermosolar projects. Any of these circumstances could result in lost revenue at these sites during the period of disruption and costly remediation, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, despite security measures taken by us, it is possible that our sites and assets could be affected by criminal or terrorist acts. Any such acts could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our exchangeable preferred equity investment in ACBH is subject to inherent risks

We own an exchangeable preferred equity investment in ACBH which grants us the right to receive during a five-year period commencing on July 1, 2014 a preferred dividend of $18.4 million per year and thereafter the option for us to remain as preferred equity holder with the right to receive such dividend or exchange the preferred equity for ordinary shares of specific project companies owned by ACBH, yielding at least $18.4 million of recurrent dividends. We and the selling shareholder entered into a deed pursuant to which certain subordination measures are implemented to protect our right to receive such preferred dividend in full. Our exchangeable preferred equity investment in ACBH is subject to certain inherent risks, including those described below.

Despite our economic rights in respect of our preferred equity investment in ACBH, we do not have control over ACBH, and investments in assets over which we have no control are subject to certain risks (see “—Risks Related to Our Business and the Markets in Which We Operate—We may be adversely affected by risks associated with acquisitions or investments”).

We cannot guarantee that we will be able to exchange the preferred equity investment for ordinary shares of project companies owned by ACBH following the initial five-year period if we elect to do so. Any exchange of shares would be subject to relevant approvals, including from regulatory bodies, financing banks or equity partners at the project level, which ACBH may fail to secure. Furthermore, our right to exchange is exercisable in respect of project companies to be selected by ACBH and Abengoa at the time of the proposed exchange meeting in the aggregate specified dividend yield criteria, rather than specifically identified assets as of the time of this offering. Consequently, we can give no assurance regarding the identity or the specific characteristics of these projects or whether we would elect to remain as preferred equity holder or exchange the preferred equity investment.

We cannot be certain that the annual payment of the $18.4 million dividend will be made at any time. Payment of dividends following the initial five-year period by either ACBH or any project companies we acquire in exchange for the preferred equity investment, and the amount of such dividends, will depend on the completion of construction of certain of the projects, the performance of the projects and the extent of distributable profits in Brazilian reais for each relevant fiscal year.

Failure to receive the expected dividends from our exchangeable preferred equity investment in ACBH or any project companies we acquire in exchange for the preferred equity investment, as the case may be, may have a material adverse effect on our cash available for distribution, business, financial condition, results of operations and cash flows.

 

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Lack of electric transmission capacity availability, potential upgrade costs to the electric transmission grid, and other systems constraints could significantly impact our ability to generate solar electricity power sales

We depend on electric interconnection and transmission facilities owned and operated by others to deliver the wholesale power we will sell from our electric generation assets to our customers. A failure or delay in the operation or development of these interconnection or transmission facilities or a significant increase in the cost of the development of such facilities could result in the loss of revenues. Such failures or delays could limit the amount of power our operating facilities deliver or delay the completion of our construction projects, as the case may be. Additionally, such failures, delays or increased costs could have a material adverse effect on our business, financial condition, results of operations and cash flows. If a region’s electric transmission infrastructure is inadequate, our recovery of wholesale costs and profits may be limited. If restrictive transmission price regulation is imposed, the transmission companies may not have a sufficient incentive to invest in expansion of transmission infrastructure. Additionally, we cannot predict whether interconnection and transmission facilities will be expanded in specific markets to accommodate competitive access to those markets. In addition, certain of our operating facilities’ generation of electricity may be curtailed without compensation due to transmission limitations or limitations on the electricity grid’s ability to accommodate intermittent electricity generating sources, reducing our revenues and impairing our ability to capitalize fully on a particular facility’s generating potential. Such curtailments could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We do not own all of the land on which our renewable energy, conventional power or electric transmission assets are located, which could result in disruption to our operations

We do not own all of the land on which our power generation or electric transmission assets are located and we are, therefore, subject to the possibility of less desirable terms and increased costs to retain necessary land use if we do not have valid leases or rights-of-way or if such rights-of-way lapse or terminate. Although we have obtained rights to construct and operate these assets pursuant to related lease arrangements, our rights to conduct those activities are subject to certain exceptions, including the term of the lease arrangement. Our loss of these rights, through our inability to renew right-of-way contracts or otherwise, may adversely affect our ability to operate our power generation and electric transmission assets.

Certain of our facilities are newly constructed and may not perform as expected

The construction of Solana, ACT, Quadra 1, Quadra 2, Palmatir, ATS, Mojave and Cadonal was completed during 2013 or 2014. Our expectations regarding the operating performance of Mojave (which reached COD on December 1, 2014 and which we expect will be our largest source of cash available for distribution in the short- and medium-term) and our other newly-finished assets are based on assumptions, estimates and past experience with similar assets that Abengoa has developed and built, and without the benefit of a substantial operating history. Our projections regarding our ability to pay dividends to holders of our shares assume newly-constructed facilities perform to our expectations. However, the ability of these facilities to meet our performance expectations is subject to the risks inherent in newly-constructed power generation facilities and the construction of such facilities, including, but not limited to, degradation of equipment in excess of our expectations, system failures and outages. The failure of these facilities to perform as we expect could have a material adverse effect on our business, financial condition, results of operations and cash flows and our ability to pay dividends to holders of our shares.

The generation of electric energy from renewable energy sources depends heavily on suitable meteorological conditions, and if solar or wind conditions are unfavorable, our electricity generation, and therefore revenue from our renewable energy generation facilities using our systems, may be substantially below our expectations

The electricity produced and revenues generated by a renewable energy generation facility are highly dependent on suitable solar or wind conditions, as applicable, and associated weather conditions, which are

 

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beyond our control. Furthermore, components of our system, such as mirrors, absorber tubes or blades, could be damaged by severe weather. In addition, replacement and spare parts for key components may be difficult or costly to acquire or may be unavailable. Unfavorable weather and atmospheric conditions could impair the effectiveness of our assets or reduce their output beneath their rated capacity or require shutdown of key equipment, impeding operation of our renewable assets and our ability to achieve forecasted revenues and cash flows.

We base our investment decisions with respect to each renewable generation facility on the findings of related wind and solar studies conducted on-site prior to construction or based on historical conditions at existing facilities. However, actual climatic conditions at a facility site, particularly wind conditions, may not conform to the findings of these studies and therefore, our solar and wind energy facilities may not meet anticipated production levels or the rated capacity of our generation assets, which could adversely affect our business, financial condition and results of operations and cash flows.

Our costs, results of operations, financial condition and cash flows could be adversely affected by the disruption of the fuel supplies necessary to generate power at our conventional generation facilities

Delivery of fossil fuels to fuel our conventional and some Concentrated Solar Power generation facilities is dependent upon the infrastructure, including natural gas pipelines, available to serve each such generation facility, as well as upon the continuing financial viability of contractual counterparties. As a result, we are subject to the risks of disruptions or curtailments in the production of power at these generation facilities if a counterparty fails to perform or if there is a disruption in the relevant fuel delivery infrastructure.

Maintenance, expansion and refurbishment of electric generation facilities involve significant risks that could result in unplanned power outages or reduced output

Although the facilities in our portfolio are relatively new, they may require periodic upgrading and improvement in the future. Any unexpected operational or mechanical failure, including failure associated with breakdowns and forced outages, could reduce our facilities’ generating capacity below expected levels, reducing our revenues and jeopardizing our ability to pay dividends to shareholders at forecasted levels or at all. Degradation of the performance of our solar facilities above levels provided for in the related offtake agreements may also reduce our revenues. Unanticipated capital expenditures associated with maintaining, upgrading or repairing our facilities may also reduce profitability.

If we make any major modifications to our conventional or renewable power generation facilities or electric transmission lines, we may be required to comply with more stringent environmental regulations, which would likely result in substantial additional capital expenditures. We may also choose to repower, refurbish or upgrade our facilities based on our assessment that such activity will provide adequate financial returns. Such facilities require time for development and capital expenditures before commencement of commercial operations, and key assumptions underpinning a decision to make such an investment may prove incorrect, including assumptions regarding construction costs, timing, available financing and future fuel and power prices. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Risks Related to Our Relationship with Abengoa

Abengoa is our controlling shareholder and exercises substantial influence over Abengoa Yield and we are highly dependent on Abengoa

Abengoa currently beneficially owns 64.3% of our shares and is entitled to vote a majority of our outstanding shares. Upon consummation of this offering, assuming the full exercise of the underwriters’ option to purchase additional shares, Abengoa will beneficially own approximately 51.1% of our shares and, assuming no exercise of the underwriters’ option to purchase additional shares, Abengoa will beneficially own approximately 52.8% of our shares. As a result of this ownership, Abengoa has a substantial influence on our affairs and its ownership interest and voting power constitute a majority of any quorum of our shareholders voting on any matter requiring the approval of our shareholders. Such matters include the election of directors, the adoption of

 

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amendments to our articles of associations and approval of mergers or sale of all or substantially all of our assets. This concentration of ownership may also have the effect of delaying or preventing a change in control of Abengoa Yield or discouraging others from making tender offers for our shares, which could prevent shareholders from receiving a premium for their shares. In addition, Abengoa has the ability to appoint a majority of our directors. Abengoa may cause corporate actions to be taken even if its interests conflict with the interests of our other shareholders. See “Related Party Transactions—Procedures for Review, Approval and Ratification of Related Party Transactions; Conflicts of Interest.” There can be no assurance that the interests of Abengoa will coincide with the interests of the purchasers of our shares or that Abengoa will act in a manner that is in our best interests.

Furthermore, we depend on the executive services and management support provided by or under the direction of Abengoa under the Executive Services Agreement and the Support Services Agreement. We depend on Abengoa to provide us with our revolving credit line and maintain existing guarantees and letters of credit in our favor, under the Financial Support Agreement. If Abengoa were to fail to provide the requisite financial support, we may be unable to obtain financing from a third party on comparable terms, without undue delay or at all. Any failure to effectively support our operations, implement our strategy or provide financial support could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Abengoa or Abengoa subsidiaries currently provide support and administration services as well as operating and maintenance services at most of our facilities. Any failure by Abengoa to perform its requirements under the services arrangements, or any failure by us to identify and contract with replacement service providers, if required, could adversely affect our business or the operation of our facilities and have a material adverse effect on our business, financial condition, results of operations and cash flows.

If Abengoa ceases to beneficially own a majority of our outstanding shares, as a result of either further sales of our ordinary shares after this offering or equity offerings by us resulting in dilution of Abengoa’s stake, certain investors might find our shares less attractive. Abengoa has advised us that they may reduce further their stake in us after this offering, while remaining our core shareholder in the long term.

In addition, a further reduction in Abengoa’s shareholding in us to below a majority interest, may trigger the requirement to seek waivers, authorizations or approvals from agencies, governments, financing providers, concession contract counterparties or any other relevant contract counterparty. Any failure by Abengoa to secure any required waivers, authorizations or approvals may entitle the lenders or other parties under certain of our project-level financing agreement or other contract counterparties to accelerate our indebtedness or terminate their agreements with us, which may have a material adverse effect on our business, financial conditions, results of operations and cash flows.

We may not be able to consummate future acquisitions from Abengoa

Our ability to grow through acquisitions depends, in part, on Abengoa’s ability to identify and present us with acquisition opportunities. Abengoa established us to own, manage and acquire renewable energy, conventional power and electric transmission lines and other contracted revenue generating assets in operation. Although Abengoa has agreed to grant us a right of first offer with respect to certain contracted revenue assets in operation that Abengoa may elect to sell in the future (as described in “Related Party Transactions—Right of First Offer”), Abengoa is under no obligation to sell or propose for consideration for acquisition any assets to us or to accept any related offer from us, and may identify other opportunities for itself and its other subsidiaries and pursue such opportunities for its or their respective accounts or sell assets to third parties prior to their entry into operation. Furthermore, Abengoa has no obligation to source acquisition opportunities specifically for us. In addition, Abengoa may not be successful in sourcing, financing or developing potential acquisition opportunities. In particular, developing projects requires substantial financial resources and Abengoa may not have access to such resources either from internal funds, borrowings or external partners. Abengoa announced on January 6, 2015 that it has entered into a non-binding agreement with EIG with the objective of jointly investing in a new

 

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company for the development of the already contracted portfolio of Abengoa’s projects under construction. Failure to enter into definitive documentation and/or closing such transaction may not allow Abengoa to develop all of its existing new projects and, therefore, may result in potentially fewer acquisition opportunities for us in the future, which could in turn limit our ability to grow our cash available for distribution. There are a number of other factors which could materially and adversely impact the extent to which suitable acquisition opportunities are made available from Abengoa, including:

 

   

the same professionals within Abengoa’s organization that are involved in acquisitions that are suitable for us have responsibilities within Abengoa’s broader business. Limits on the availability of such individuals will likewise result in a limitation on the availability of acquisition opportunities for us; and

 

   

in addition to structural limitations, the question of whether a particular asset is suitable is highly subjective and is dependent on a number of factors, including an assessment by Abengoa relating to our liquidity position at the time, the risk profile of the asset, the consistency of the asset with our investment criteria, and whether such asset is an appropriate fit given our then current operations and other factors.

If Abengoa determines that an opportunity is not suitable for us, it may still pursue such opportunity on its own behalf, or on behalf of another Abengoa affiliate. In making these determinations, Abengoa may be influenced by factors that result in a misalignment or conflict of interest. Furthermore, Abengoa may offer and sell to third parties assets that are not yet contracted revenue assets without first offering such assets to us. See “—Risks Related to Our Business and the Markets in Which We Operate—We may not be able to identify or consummate any future acquisitions on favorable terms, or at all” for a description of risks associated with the identifying, evaluating and consummating acquisitions generally, including acquisitions of Abengoa ROFO Assets.

The departure of some or all of Abengoa’s employees could prevent us from achieving our objectives

We depend on the diligence, skill and business contacts of Abengoa’s executives and personnel and the information and opportunities they generate during the normal course of their activities. Under the Executive Services Agreement, senior Abengoa managers provide executive management services to us until June 2015. Our future success will depend on the continued service of these individuals, who are not obligated to remain employed with Abengoa and who are not obliged to accept direct employment with us. Abengoa has experienced departures of key professionals and personnel in the past and may do so in the future, and we cannot predict the impact that any such departures will have on our ability to achieve our objectives. The departure of a significant number of Abengoa’s professionals or a material portion of the Abengoa employees who work at any of our facilities for any reason, or the failure to appoint qualified or effective successors in the event of such departures, could have a material adverse effect on our ability to achieve our objectives.

Our organizational and ownership structure may create significant conflicts of interest that may be resolved in a manner that is not in our best interests or the best interests of our minority shareholders and that may have a material adverse effect on our business, financial condition, results of operations and cash flows

Our organizational and ownership structure involves a number of relationships that may give rise to certain conflicts of interest between us and our minority shareholders, on the one hand, and Abengoa, on the other hand. Five of our initial directors, including our chairman who has a tie-breaking vote, are affiliated with Abengoa. Ten of our senior managers are Abengoa senior managers who devote their time to both our company and Abengoa as needed to conduct the respective businesses pursuant to the Executive Services Agreement. Although our directors and executive officers owe fiduciary duties to our shareholders, these shared Abengoa executives have fiduciary and other duties to Abengoa during the period before we directly employ them, which duties may be inconsistent with our best interests and those of our minority shareholders. In addition, Abengoa and its representatives, agents and affiliates have access to our confidential information. Although some of these persons are subject to confidentiality obligations pursuant to confidentiality agreements or implied duties of confidence, neither the Executive Services Agreement nor the Support Services Agreement contains general confidentiality provisions.

 

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Abengoa is a related party under the applicable securities laws governing related party transactions and may have interests which differ from our interests or those of our other minority shareholders, including with respect to the types of acquisitions made, the timing and amount of dividends paid by us, the reinvestment of returns generated by our operations, the use of leverage when making acquisitions and the appointment of outside advisors and service providers. Any material transaction between us and Abengoa (including the acquisition of any Abengoa ROFO Asset) is subject to our related party transaction policy, which requires prior approval of such transaction by a majority of the independent members of our board of directors (as discussed in “Related Party Transactions—Procedures for Review, Approval and Ratification of Related Party Transactions; Conflicts of Interest”). The existence of our related party transaction approval policy may not insulate us from derivative claims related to related party transactions and the conflicts of interest described in this risk factor. Regardless of the merits of such claims, we may be required to spend significant management time and financial resources in the defense thereof. Additionally, to the extent we fail to appropriately deal with any such conflicts, it could negatively impact our reputation and ability to raise additional funds and the willingness of counterparties to do business with us, all of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

If Abengoa terminates the Executive Services Agreement or the Support Services Agreement, or defaults in the performance of its obligations under the agreement, we may be unable to contract with a substitute service provider on similar terms, or at all

We rely on Abengoa to provide us with executive management until June 2015 under the Executive Services Agreement and support services on an ongoing basis under the Support Services Agreement, and we will not have independent executive management or support personnel during that interim period. Our future success depends significantly on the involvement of certain of Abengoa’s senior managers and employees, who have valuable expertise in all areas of our business. Abengoa’s ability to retain and motivate the senior managers and employees involved in the management of our business, as well as attract highly skilled employees, significantly affect our ability to run our business successfully and to execute our growth strategy. If we were to lose access to one or more of the 10 senior managers provided for under the Executive Services Agreement or, for example, valuable local managers with significant experience in the markets in which we operate, it might be difficult to appoint replacements. This could have an adverse impact on our business, financial condition, results of operations and cash flows.

The Executive Services Agreement provides that Abengoa cannot terminate the agreement unilaterally; however, the Support Services Agreement provides that Abengoa may terminate the agreement upon 180 days’ prior written notice of termination to us if we default in the performance or observance of any material term, condition or covenant contained in the agreement in a manner that results in material harm and the default continues unremedied for a period of 60 days after written notice of the breach is given to us. If Abengoa terminates the Support Services Agreement or defaults in the performance of its obligations under the Executive Services Agreement or Support Services Agreement, we may be unable to contract with a substitute service provider on similar terms or at all, and the costs of substituting service providers may be substantial. In addition, in light of Abengoa’s familiarity with our assets, a substitute service provider may not be able to provide the same level of service due to lack of pre-existing synergies. If we cannot locate a service provider that is able to provide us with services substantially similar to those provided by Abengoa under the Executive Services Agreement or Support Services Agreement on similar terms, it would likely have a material adverse effect on our business, financial condition, results of operation and cash flows.

 

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Risks Related to the Acquisition of the First Dropdown Assets

Because the pro forma financial information included in this prospectus may not be representative of our results as a combined company after the completion of the acquisition of the First Dropdown Assets and consummation of the related financing, you have limited financial information on which to evaluate us and your investment decision

Preparing the pro forma financial information contained in this prospectus involved making several assumptions. These assumptions may prove inaccurate. Therefore, the pro forma financial statements presented in this prospectus may not reflect what our results of operations, financial position and cash flows would have been had we operated on a combined basis and may not be indicative of what our results of operations, financial position and cash flows will be in the future. As a result, the pro forma financial information included in this prospectus is of limited relevance to an investor in this offering. See “Unaudited Pro Forma Financial Information.”

Risks Related to Our Indebtedness

Our indebtedness could adversely affect our ability to raise additional capital to fund our operations or pay dividends. It could also expose us to the risk of increased interest rates and limit our ability to react to changes in the economy or our industry as well as impact our cash available for distribution

As of September 30, 2014, we had approximately $2,487.3 million of total indebtedness under various project-level financing arrangements. In the fourth quarter of 2014, our indebtedness increased by (i) approximately $805 million as a result of the consolidation of Mojave, (ii) $255 million as a result of the issuance of the 2019 Notes and (iii) $125 million as a result of our drawdown under the Credit Facility to finance the acquisition of Cadonal and for general corporate purposes. See “Description of Certain Indebtedness.” Additionally, we have a $50 million revolving credit line with Abengoa that we do not intend to make borrowings under in the short term. Our substantial debt could have important negative consequences on our financial condition, including:

 

   

increasing our vulnerability to general economic and industry conditions;

 

   

requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to pay dividends to holders of our shares or to use our cash flow to fund our operations, capital expenditures and future business opportunities;

 

   

limiting our ability to enter into long-term power sales or fuel purchases which require credit support;

 

   

limiting our ability to fund operations or future acquisitions;

 

   

restricting our ability to make certain distributions with respect to our shares and the ability of our subsidiaries to make certain distributions to us, in light of restricted payment and other financial covenants in our credit facilities and other financing agreements;

 

   

exposing us to the risk of increased interest rates because a portion of some of our borrowings (below 10% as of the date hereof) are at variable rates of interest;

 

   

limiting our ability to obtain additional financing for working capital, including collateral postings, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; and

 

   

limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have less debt.

The operating and financial restrictions and covenants in the indenture governing the 2019 Notes and the credit agreement governing the Credit Facility may adversely affect our ability to finance our future operations or capital needs, to engage in other business activities that may be in our interest and to execute our business

 

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strategy as we intend to do so. If we or any of our applicable subsidiaries violate any of these covenants, a default may result, which, if not cured or waived, could result in the acceleration of our debt and could limit the ability of our subsidiaries to make distributions to us or our ability to pay dividends.

The agreements governing our project-level financing contain financial and other restrictive covenants that limit our project subsidiaries’ ability to make distributions to us or otherwise engage in activities that may be in our long-term best interests. The extent of the restrictions on our subsidiaries’ ability to transfer assets to us through loans, advances or cash dividends without the consent of third parties is significant, requiring us to include condensed financial information regarding Abengoa Yield plc as part of our consolidated financial statements. The project-level financing agreements generally prohibit distributions from the project entities to us unless certain specific conditions are met, including the satisfaction of certain financial ratios. In addition, the project-level financing for Mojave prohibits distributions until the first principal repayment is made. Our inability to satisfy certain financial covenants may prevent cash distributions by the particular project(s) to us and, our failure to comply with those and other covenants could result in an event of default which, if not cured or waived, may entitle the related lenders to demand repayment or enforce their security interests, which could have a material adverse effect on our business, results of operations, financial condition and cash flows. In addition, failure to comply with such covenants, including covenants under our 2019 Notes and the Credit Facility, may entitle the related noteholders or lenders, as applicable, to demand repayment and accelerate all such indebtedness. If our project-level subsidiaries are unable to make distributions, it would likely have a material adverse effect on our ability to pay dividends to holders of our shares.

Letter of credit facilities or personal guarantees to support project-level contractual obligations generally need to be renewed, at which time we will need to satisfy applicable financial ratios and covenants. If we are unable to renew our letters of credit as expected or replace them with letters of credit under different facilities on favorable terms or at all, we may experience a material adverse effect on our business, financial condition, results of operations and cash flows. Furthermore, such inability may constitute a default under certain project-level financing arrangements, restrict the ability of the project-level subsidiary to make distributions to us and/or reduce the amount of cash available at such subsidiary to make distributions to us.

In addition, our ability to arrange financing, either at the corporate level or at a non-recourse project-level subsidiary, and the costs of such capital, are dependent on numerous factors, including:

 

   

general economic and capital market conditions;

 

   

credit availability from banks and other financial institutions;

 

   

investor confidence in us, our partners and Abengoa, as our controlling shareholder;

 

   

our financial performance and the financial performance of our subsidiaries;

 

   

our level of indebtedness and compliance with covenants in debt agreements;

 

   

maintenance of acceptable project credit ratings or credit quality;

 

   

cash flow; and

 

   

provisions of tax and securities laws that may impact raising capital.

We may not be successful in obtaining additional capital for these or other reasons. Furthermore, we may be unable to refinance or replace project-level financing arrangements or other credit facilities on favorable terms or at all upon the expiration or termination thereof. Our failure, or the failure of any of our projects, to obtain additional capital or enter into new or replacement financing arrangements when due may constitute a default under such existing indebtedness and may have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

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Potential future defaults by our subsidiaries, Abengoa or other persons could adversely affect us

All of our subsidiaries finance project assets and significant investments, including capital expenditures typically relating to contracted assets and concessions, primarily under loan agreements and related documents which, except as noted below, require the loans to be repaid solely from the revenue of the project being financed thereby, and provide that the repayment of the loans (and interest thereon) is secured solely by the shares, physical assets, contracts and cash flow of that project company. This type of financing is usually referred to herein as “Non-Recourse Debt” or “project financing.” As of September 30, 2014, we had $2,487.3 million of outstanding indebtedness under various project-level financing arrangements.

While the lenders under our non-recourse project financings do not have direct recourse to us or our subsidiaries (other than the project borrowers under those financings), defaults by the project borrowers under such financings can still have important consequences for us and our subsidiaries, including, without limitation:

 

   

reducing our receipt of dividends, fees, interest payments, loans and other sources of cash, since the project company will typically be prohibited from distributing cash to us and our subsidiaries during the pendency of any default;

 

   

causing us to record a loss in the event the lender forecloses on the assets of the project company; and

 

   

the loss or impairment of investors’ and project finance lenders’ confidence in us.

If we were to fail to satisfy any of our debt service obligations or to breach any related financial or operating covenants, the applicable lender could declare the full amount of the relevant indebtedness to be immediately due and payable and could foreclose on any assets pledged as collateral. Further, certain of our financing arrangements contain events of default related to Abengoa’s financial condition and cross-default provisions such that a default under one particular financing arrangement in Abengoa could automatically trigger defaults under some of our financing arrangements or events of default related to the performance by Abengoa of certain technical obligations related to the construction of our assets (i.e., performance guarantees). Certain of such agreements also contain cross-default provisions related to the financing arrangements of other project sponsors unrelated to us. As a result, a significant deterioration in Abengoa’s financial condition, a default under any indebtedness above certain thresholds in Abengoa or such other parties or an event of default related to such technical obligations could result in a substantial loss to us or could otherwise have a material adverse effect on our business, financial condition, results of operation and cash flows.

Any of these events could have a material adverse effect on our financial condition, results of operations or cash flows.

Risks Related to Ownership of our Shares

We may not be able to pay a specific or increasing level of cash dividends to holders of our shares in the future

The amount of our cash available for distribution principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:

 

   

the level and timing of capital expenditures we make;

 

   

the level of our operating and general and administrative expenses, including reimbursements to Abengoa for services provided to us in accordance with the Support Services Agreement;

 

   

seasonal variations in revenues generated by the business;

 

   

our debt service requirements and other liabilities;

 

   

fluctuations in our working capital needs;

 

   

our ability to borrow funds;

 

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restrictions contained in our debt agreements (including our project-level financing); and

 

   

other business risks affecting our cash levels.

As a result of all these factors, we cannot guarantee that we will have sufficient cash generated from operations to pay a specific or increasing level of cash dividends to holders of our shares. Furthermore, holders of our shares should be aware that the amount of cash available for distribution depends primarily on our cash flow, and is not solely a function of profitability, which is affected by non-cash items. We may incur other expenses or liabilities during a period that could significantly reduce or eliminate our cash available for distribution and, in turn, impair our ability to pay dividends to shareholders during the period. Because we are a holding company, our ability to pay dividends on our shares is limited by restrictions or limitations on the ability of our subsidiaries to pay dividends or make other distributions, such as pursuant to shareholder loans, capital reductions or other means, to us, including restrictions under the terms of the agreements governing project-level financing, the 2019 Notes, the Credit Facility or legal, regulatory or other restrictions or limitations applicable in the various jurisdictions in which we operate, such as exchange controls or similar matters or corporate law limitations, any of which could change from time to time and thereby limit our subsidiaries’ ability to pay dividends or make other distributions to us. Our project-level financing agreements generally prohibit distributions to us unless certain specific conditions are met, including the satisfaction of financial ratios.

Our cash available for distribution will likely fluctuate from quarter to quarter, in some cases significantly, due to seasonality. See “Business—Seasonality.” As result, we may reduce the amount of cash we distribute in a particular quarter to establish reserves to fund distributions to shareholders in future periods for which the cash distributions we would otherwise receive from our subsidiary project companies would otherwise be insufficient to fund our quarterly dividend. If we fail to establish sufficient reserves, we may not be able to maintain our quarterly dividend with a respect to a quarter adversely affected by seasonality.

Dividends to holders of our shares will be paid at the discretion of our board of directors. Our board of directors may decrease the level of or entirely discontinue payment of dividends. For a description of additional restrictions and factors that may affect our ability to pay cash dividends, please see “Cash Dividend Policy.”

We are a holding company and our only material assets are our interests in our subsidiaries, upon whom we are dependent for distributions to pay dividends, taxes and other expenses

We are a holding company whose sole material assets consist of our interests in our subsidiaries. We do not have any independent means of generating revenue. We intend to cause our operating subsidiaries to make distributions to us in an amount sufficient to cover all applicable taxes payable and dividends, if any, declared by us. To the extent that we need funds for a quarterly cash dividend to holders of our shares or otherwise, and one or more of our operating subsidiaries is restricted from making such distributions under the terms of its financing or other agreements or applicable law and regulations or is otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition and limit our ability to pay dividends to shareholders.

We have a limited operating history and as a result there is no assurance we can operate on a profitable basis

We have a limited operating history on which to base an evaluation of our business and prospects. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of operation. We cannot assure you that we will be successful in addressing the risks we may encounter, and our failure to do so could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Market interest rates may have an effect on the value of our shares

One of the factors that will influence the price of our shares will be the effective dividend yield of our shares (i.e., the yield as a percentage of the then-market price of our shares) relative to market interest rates. An increase

 

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in market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of our shares to expect a higher dividend yield. Our inability to increase our dividend as a result of an increase in borrowing costs, insufficient cash available for distribution or otherwise could result in selling pressure on, and a decrease in, the market price of our shares as investors seek alternative investments with higher yield.

Market volatility may affect the price of our shares and the value of your investment

The market for securities issued by issuers such as us is influenced by economic and market conditions and, to varying degrees, market conditions, interest rates, currency exchange rates and inflation rates in other countries. There can be no assurance that events in the United States, Latin America, Europe or elsewhere will not cause market volatility or that such volatility will not adversely affect the price of the shares or that economic and market conditions will not have any other adverse effect. Fluctuations in interest rates may give rise to arbitrage opportunities based upon changes in the relative value of the shares. Any trading by arbitrageurs could, in turn, affect the trading price of the shares. Securities markets in general may experience extreme volatility that is unrelated to the operating performance of particular companies. Any broad market fluctuations may adversely affect the trading of our shares.

In addition, the market price of our shares may fluctuate in the event of the termination of the ROFO Agreement, the Executive Services Agreement, the Support Services Agreement or additions or departures of Abengoa’s key personnel, changes in market valuations of similar companies or Abengoa and/or speculation in the press or investment community regarding us or Abengoa.

You may experience dilution of your ownership interest due to the future issuance of additional shares

In order to finance the growth of our business through future acquisitions, we may require additional funds from further equity or debt financings, including tax equity financing transactions or sales of preferred shares or convertible debt, to complete future acquisitions, expansions and capital expenditures and pay the general and administrative costs of our business. In the future, we may issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of purchasers of our shares offered hereby. The potential issuance of additional shares or preferred stock or convertible debt may create downward pressure on the trading price of our shares. We may also issue additional shares or other securities that are convertible into or exercisable for our shares in future public offerings or private placements for capital-raising purposes or for other business purposes, potentially at an offering price, conversion price or exercise price that is below the offering price for our shares in this offering.

If securities or industry analysts do not publish or cease to publish research or reports about us, our business or our market, or if they change their recommendations regarding our shares adversely, the price and trading volume of our shares could decline

The trading market for our shares will be influenced by the research and reports that industry or securities analysts may publish about us, Abengoa, our business, our market or our competitors. If any of the analysts who may cover us change their recommendations regarding our shares adversely, or provide more favorable relative recommendations about our competitors, the price of our shares would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price or trading volume of our shares to decline.

Future sales of our shares by Abengoa may cause the price of our shares to fall

The market price of our shares could decline as a result of future sales by Abengoa of such shares in the market, or the perception that these sales could occur. Abengoa has agreed to certain limitations on the ability to dispose of or hedge any of our shares, or any securities convertible into or exchangeable for our shares, for a

 

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period of time commencing on the date of this prospectus. Future sales of substantial amounts of the shares and/or equity-related securities in the public market, or the perception that such sales could occur, could adversely affect prevailing trading prices of the shares and could impair our ability to raise capital through future offerings of equity or equity-related securities. The price of the shares could be depressed by investors’ anticipation of the potential sale in the market of substantial additional amounts of shares. Disposals of shares could increase their offer in the market and depress their price. Abengoa advised us that they may reduce further their stake in us after this offering, while remaining our core shareholder in the long term.

As a “foreign private issuer” in the United States, we are exempt from certain rules under the U.S. securities laws and are permitted to file less information with the Commission than U.S. companies

As a “foreign private issuer,” we are exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our shares. Moreover, we are not required to file periodic reports and financial statements with the Commission as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.

We will be a “foreign private issuer” so long as we are incorporated outside the United States except if as of the last business day of our most recently completed second quarter more than 50% of our outstanding voting securities are directly or indirectly owned by residents of the United States, and any of the following: (i) a majority of our executive officers or directors are U.S. citizens or residents, (ii) more than 50% of our assets are located in the United States or (iii) our business is principally administered in the United States. If we were to lose our “foreign private issuer” status we would no longer be exempt from certain provisions of the U.S. securities laws described above, we would be required to commence reporting on forms required of U.S. companies, such as Forms l0-K, 10-Q and 8-K, rather than the forms currently available to us, such as Forms 20-F and 6-K, we would be required to prepare our financial statements in U.S. GAAP, rather than IFRS, and we would likely incur increased compliance and other costs, among other consequences, any of which could material adverse effect on our business, financial condition, results of operations and cash flows.

Judgments of U.S. courts may not be enforceable against us

Judgments of U.S. courts, including those predicated on the civil liability provisions of the federal securities laws of the United States, may not be enforceable in courts in the United Kingdom or other countries in which we operate. As a result, our shareholders who obtain a judgment against us in the United States may not be able to require us to pay the amount of the judgment.

There are limitations on enforceability of civil liabilities under U.S. federal securities laws

We are incorporated under the laws of England and Wales. Most of our officers and directors reside outside of the United States. In addition, a portion of our assets and the majority of the assets of our directors and officers are located outside the United States. As a result it may be difficult or impossible to serve legal process on persons located outside the United States and to force them to appear in a U.S. court. It may also be difficult or impossible to enforce a judgment of a U.S. court against persons outside the United States, or to enforce a judgment of a foreign court against such persons in the United States. We believe that there may be doubt as to the enforceability against persons in England and Wales and in Spain, whether in original actions or in actions for the enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon the laws of the United States, including its federal securities laws. Because we are a foreign private issuer, our directors and officers will not be subject to rules under the Exchange Act that under certain circumstances would require directors and officers to forfeit to us any “short-swing” profits realized from purchases and sales, as determined under the

 

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Exchange Act and the rules thereunder, of our equity securities. In addition, punitive damages in actions brought in the United States or elsewhere may be unenforceable in England and Wales and in Spain.

We are an “emerging growth company” and may elect to comply with reduced public company reporting requirements, which could make our shares less attractive to investors

We are an “emerging growth company,” as defined by the JOBS Act. For as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various public company reporting requirements. These exemptions include, but are not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and (ii) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements. We could be an emerging growth company for up to five years after the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act, which such fifth anniversary will occur in 2019. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end of such five-year period. The information that we provide to holders of our shares may be different than you might receive from other public reporting companies in which you hold equity interests. We cannot predict if investors will find our shares less attractive as a result of our reliance on these exemptions. If some investors find our shares less attractive as a result of any choice we make to reduce disclosure, there may be a less active trading market for our shares and the price for our shares may be more volatile.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. However, we have irrevocably elected not to avail ourselves of this extended transition period for complying with new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Shareholders in certain jurisdictions may not be able to exercise their pre-emptive rights if we increase our share capital

Under our articles of association, holders of our shares generally have the right to subscribe and pay for a sufficient number of our shares to maintain their relative ownership percentages prior to the issuance of any new shares in exchange for cash consideration. Holders of shares in certain jurisdictions may not be able to exercise their pre-emptive rights unless securities laws have been complied with in such jurisdictions with respect to such rights and the related shares, or an exemption from the requirements of the securities laws of these jurisdictions is available. We currently do not intend to register the shares under the laws of any jurisdiction other than the United States, and no assurance can be given that an exemption from the securities laws requirements of other jurisdictions will be available to shareholders in these jurisdictions. To the extent that such shareholders are not able to exercise their pre-emptive rights, the pre-emptive rights would lapse and the proportional interests of such holders would be reduced.

The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation organized in Delaware

We are incorporated under English law. The rights of holders of our shares are governed by English law, including the provisions of the U.K. Companies Act 2006, and by our articles of association. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations organized in Delaware. The principal differences are set forth in “Description of Share Capital—Differences in Corporate Law.”

 

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Provisions in the U.K. City Code on Takeovers and Mergers may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our shareholders

The U.K. City Code on Takeovers and Mergers, or the Takeover Code, applies, among other things, to an offer for a public company whose registered office is in the United Kingdom and whose securities are not admitted to trading on a regulated market in the United Kingdom if the company is considered by the Panel on Takeovers and Mergers, or the Takeover Panel, to have its place of central management and control in the United Kingdom. This is known as the “residency test.” The test for central management and control under the Takeover Code is different from that used by the U.K. tax authorities. Under the Takeover Code, the Takeover Panel will determine whether we have our place of central management and control in the United Kingdom by looking at various factors, including the structure of our board of directors, the functions of the directors and where they are resident.

If at the time of a takeover offer the Takeover Panel determines that we have our place of central management and control in the United Kingdom, we would be subject to a number of rules and restrictions, including but not limited to the following: (1) our ability to enter into deal protection arrangements with a bidder would be extremely limited; (2) we may not, without the approval of our shareholders, be able to perform certain actions that could have the effect of frustrating an offer, such as issuing shares or carrying out acquisitions or disposals; and (3) we would be obliged to provide equality of information to all bona fide competing bidders

Risks Related to Taxation

Changes in our tax position can significantly affect our reported earnings and cash flows

Changes in corporate tax rates and/or other relevant tax laws in the United Kingdom, the United States or the other countries in which our assets are located could have a material impact on our future tax rate and/or our required tax payments. Although we consider our tax provision to be adequate, the final determination of our tax liability could be different from the forecasted amount, which could have potential adverse effects on our financial condition and cash flows. In relation to the United Kingdom Controlled Foreign Company regime, or the U.K. CFC rules, we have good arguments to consider that the foreign entities held under Abengoa Yield would not be subject to the U.K. CFC rules. Changes to the U.K. CFC rules or adverse interpretations of them, could have effects on the future tax rate and/or required tax payments in Abengoa Yield. With respect to some of our projects, we must meet defined requirements to apply favorable tax treatment, such as lower tax rates or exemptions. We intend to meet these requirements in order to benefit from the favorable tax treatment; however, there can be no assurance that we will be able to comply with all of the necessary requirements in the future, or the requirements could change or be interpreted in another manner, which could give rise to a greater tax liability and which could have an adverse effect on our results of operations and cash flows.

Our future tax liability may be greater than expected if we do not utilize Net Operating Losses, or NOLs, sufficient to offset our taxable income

We expect to generate NOLs and NOL carryforwards that we can use to offset future taxable income. Based on our current portfolio of assets, which include renewable assets that benefit from an accelerated tax depreciation schedule, and subject to potential tax audits, which may result in income, sales, use or other tax obligations, we do not expect to pay significant taxes for a period of approximately 10 years, with the exception of ACT in Mexico, where we do not expect to pay significant income taxes until the fifth or sixth year after our IPO (which was consummated in June 2014) once we use existing NOLs.

While we expect these losses will be available to us as a future benefit, in the event that they are not generated as expected, or are successfully challenged by the local tax authorities, such as the U.S. Internal Revenue Service, or the IRS, or Her Majesty’s Revenue and Customs among others, by way of a tax audit or otherwise, or are subject to future limitations as discussed below, our ability to realize these benefits may be limited. A reduction in our expected NOLs, a limitation on our ability to use such losses or the occurrence of

 

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future tax audits may result in a material increase in our estimated future income tax liability and may negatively impact our results of operations and liquidity.

Our ability to use U.S. NOLs to offset future income may be limited

Our ability to use U.S. NOLs generated in the future could be limited if we were to experience an “ownership change” as defined under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, or the IRC, and similar state rules. In general, an “ownership change” would occur if our “5-percent shareholders,” as defined under Section 382 of the IRC, collectively increased their ownership in us by more than 50 percentage points over a rolling three-year period. A corporation that experiences an ownership change will generally be subject to an annual limitation on the use of its pre-ownership change U.S. NOLs equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term tax-exempt rate for the month in which the ownership change occurs. The long-term tax-exempt rate for January 2015 is 2.80%. Future sales of our shares by Abengoa, or sales of shares of Abengoa, as well as future issuances by us or Abengoa could contribute to a potential ownership change.

Distributions to U.S. Holders of our shares may be fully taxable as dividends

It is difficult to predict whether or to what extent we will generate earnings or profits as computed for U.S. federal income tax purposes in any given tax year. If we make distributions on the shares from current or accumulated earnings and profits as computed for U.S. federal income tax purposes, such distributions generally will be taxable to U.S. Holders of our shares as ordinary dividend income for U.S. federal income tax purposes. Under current law, if certain requirements are met, such dividends would be eligible for the lower tax rates applicable to qualified dividend income of certain non-corporate U.S. Holders. While we expect that a portion of our distributions to U.S. Holders of our shares may exceed our current and accumulated earnings and profits as computed for U.S. federal income tax purposes, and therefore may constitute a non-taxable return of capital to the extent of a U.S. Holder’s basis in our shares, no assurance can be given that this will occur. We intend to calculate our earnings and profits annually in accordance with U.S. federal income tax principles. See “Taxation—Material U.S. Federal Income Tax Considerations.”

If we are a passive foreign investment company for U.S. federal income tax purposes for any taxable year, U.S. Holders of our shares could be subject to adverse U.S. federal income tax consequences

If Abengoa Yield were a “passive foreign investment company” within the meaning of Section 1297 of the IRC (a “PFIC”) for any taxable year during which a U.S. Holder holds our shares, certain adverse U.S. federal income tax consequences may apply to the U.S. Holder. Abengoa Yield does not believe that it was a PFIC for its prior taxable year and does not expect to be a PFIC for U.S. federal income tax purposes for its current taxable year or in the foreseeable future. However, PFIC status depends on the composition of a company’s income and assets and the fair market value of its assets (including, among others, less than 25% owned equity investments) from time to time, as well as on the application of complex statutory and regulatory rules that are subject to potentially varying or changing interpretations. Accordingly, there can be no assurance that Abengoa Yield will not be considered a PFIC for any taxable year.

If Abengoa Yield were a PFIC, U.S. Holders of our shares may be subject to adverse U.S. federal income tax consequences, such as taxation at the highest marginal ordinary income tax rates on capital gains and on certain actual or deemed distributions, interest charges on certain taxes treated as deferred, and additional reporting requirements. See “Taxation—Material U.S. Federal Income Tax Considerations—Passive foreign investment company rules.”

 

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USE OF PROCEEDS

We will not receive any of the proceeds from the sale of the ordinary shares being offered hereby. The selling shareholder will receive all proceeds from the sale of these ordinary shares.

 

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PRICE RANGE OF OUR ORDINARY SHARES

Our ordinary shares trade on the NASDAQ Global Select Market under the symbol “ABY.” The following table sets forth, for the periods indicated, the high and low intraday sales price per ordinary share as reported by the NASDAQ Global Select Market since the date of our IPO.

 

     High      Low  

Year Ending December 31, 2015

     

First quarter (through January 9, 2015)

   $ 29.33       $ 25.93   

Year Ending December 31, 2014

     

Fourth quarter

   $ 35.76       $ 21.00   

Third quarter

   $ 40.98       $ 33.87   

Second quarter (from June 12, 2014)(1)

   $ 40.61       $ 35.00   

 

(1)

Our ordinary shares were admitted to trading on the NASDAQ Global Select Market following the consummation of our IPO on June 12, 2014. There was no public market for our ordinary shares before our IPO.

On January 9, 2015, the last reported sale price of our ordinary shares on the NASDAQ Global Select Market was $29.16 per share. On January 5, 2015, there were two holders of record of our ordinary shares. The number of record holders does not include persons who held our ordinary shares in nominee or “street name” accounts through brokers.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents, short-term financial investments and capitalization as of September 30, 2014 on a historical basis and as adjusted to give effect to (i) the issuance of the 2019 Notes and the drawdown in full of the Credit Facility and (ii) the acquisition of the First Dropdown Assets from Abengoa.

You should read the following table in conjunction with the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Unaudited Pro Forma Combined Financial Statements” and our Consolidated Condensed Interim Financial Statements and our Annual Combined Financial Statements included elsewhere in this prospectus.

 

     As of September 30, 2014  
$ in millions    Historical     As Adjusted(1)  

Cash and cash equivalents

     265.1 (2)      421.4   

Short-term financial investments

     261.7        261.7   
  

 

 

   

 

 

 

Total cash and cash equivalents and short-term financial investments

     526.8        683.2   
  

 

 

   

 

 

 

Non-recourse project financing (long and short term)(3)

     2,487.3        3,101.9   

2019 Notes

     —          255.0   

Credit Facility

     —          125.0   

Total debt

     2,487.3        3,481.9   
  

 

 

   

 

 

 

Total equity

     1,891.4        1,869.5   
  

 

 

   

 

 

 

Total capitalization

     4,378.7        5,351.5   
  

 

 

   

 

 

 

 

(1)

We have prepared the information presented in the “as adjusted” column for illustrative purposes only. Information presented in the “as adjusted” column gives effect to (i) the issuance of the 2019 Notes in the amount of $255.0 million before fees and commissions ($252.7 million net of fees and commissions) and the drawdown in full of the Credit Facility in the amount of $125 million before fees and commissions ($124.0 million net of fees and commissions) and (ii) the acquisition of the First Dropdown Assets from Abengoa. The information included in the “as adjusted” column in respect of the acquisition of the First Dropdown Assets is based on the historical financial information of the First Dropdown Assets as of September 30, 2014. See “Business—Our Operations—Renewable Energy—Cadonal.” Cadonal’s non-recourse project financing (long and short term) at the time of its acquisition by us was $29.1 million higher than the corresponding amount incurred by it as of September 30, 2014 and used in the preparation of the “as adjusted” information shown above. The project financing for Cadonal was signed in September 2014 and initially drawndown on November 28, 2014, replacing the bridge financing in place until such date. The information presented in the “as adjusted” column addresses pro forma situations and, therefore, does not represent our actual financial position or results. Consequently, such information may not be indicative of our total capitalization as of the date of this prospectus. Investors are cautioned not to place undue reliance on this pro forma information.

(2)

$86.2 million is held at Abengoa Yield plc level. This amount already reflects that approximately $35 million was used to purchase Cofides’ stake in ATS in October 2014.

(3)

Non-Recourse Debt amount does not reflect additional Non-Recourse Debt of $812.8 million following the consolidation of Mojave once we assumed control of Mojave Solar LLC as of December 1, 2014. See “Unaudited Pro Forma Financial Information.”

 

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CASH DIVIDEND POLICY

General

Our Cash Dividend Policy

We intend to pay a regular quarterly dividend in U.S. dollars to our shareholders starting in the third quarter of 2014. Our quarterly dividend was set at $0.2592 per share for the third quarter of 2014, or $1.04 per share on an annualized basis.

We expect to pay a quarterly dividend on or about the 75th day following the expiration of each fiscal quarter to our shareholders of record on or about the 60th day following the last day of such fiscal quarter. We declared our first quarterly dividend in November 2014 and paid it on December 15, 2014.

We have established our initial quarterly dividend level based on a targeted cash available for distribution payout ratio of 90%, after considering the cash available for distribution that we expect our projects will be able to generate, less reserves for the prudent conduct of our business (including for, among other things, dividend shortfalls as a result of fluctuations in our cash flows). Our board of directors may, by resolution, amend the cash dividend policy at any time. We intend to grow our business via improvements in our existing projects, the ramp-up of Mojave and through the acquisition of operational projects, which, we believe, will facilitate the growth of our cash available for distribution and enable us to increase our dividend per share over time. However, the determination of the amount of cash dividends to be paid to holders of our shares will be made by our board of directors and will depend upon our financial condition, results of operations, cash flow, long-term prospects and any other matters that our board of directors deem relevant. Our cash dividend policy reflects a basic judgment that our shareholders will be better served by distributing most of the cash distributions we receive from our project companies each quarter in the form of a quarterly dividend rather than retaining it. In addition, by providing for the provision of reserves each quarter after calculating cash available for distribution, and thereby enabling us to retain a portion of cash generated from operations, we believe we will also provide better value to our shareholders by maintaining the operating capacity of our assets and, in turn, dividend paying capacity.

Our cash available for distribution is likely to fluctuate from quarter to quarter, in some cases significantly, as a result of the seasonality of our assets, the terms of our financing arrangements, maintenance and outage schedules, among other factors. Accordingly, during quarters in which our projects generate cash available for distribution in excess of the amount necessary for us to pay our stated quarterly dividend, we may reserve a portion of the excess to fund cash distributions in future quarters. In quarters in which we do not generate sufficient cash available for distribution to fund our stated quarterly cash dividend, if our board of directors so determines, we may use retained cash flow from other quarters, as well as other sources of cash, such as net cash provided by financing activities, receipts from cash grant proceeds or borrowings under our Credit Facility or future credit facilities, to pay dividends to our shareholders. Our estimation of cash available for distribution does not include non-recurring cash generation events.

Risks Regarding Our Cash Dividend Policy

We do not have a significant operating history as an independent company upon which to rely in evaluating whether we will have sufficient cash available for distribution and other sources of liquidity to allow us to pay dividends on our shares at our initial quarterly dividend level on an annualized basis or at all. There is no guarantee that we will pay quarterly cash dividends to our shareholders. We do not have a legal obligation to pay our initial quarterly dividend or any other dividend. While we currently intend to grow our business and increase our dividend per share over time, our cash dividend policy is subject to all the risks inherent in our business and may be changed at any time as a result of certain restrictions and uncertainties, including the following:

 

   

The amount of our quarterly cash available for distribution could be impacted by restrictions on cash distributions contained in our project-level financing arrangements, which require that our project-level

 

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subsidiaries comply with certain financial tests and covenants in order to make such cash distributions. Generally these restrictions limit the frequency of permitted cash distributions to semi-annual or annual payments, and prohibit distributions unless specified debt service coverage ratios, historical and/or projected, are met. See the sub-sections entitled “—Project Level Financing” under the individual project descriptions in “Business—Our Operations.” When forecasting cash available for distribution and dividend payments we have aimed to take these restrictions into consideration, but we cannot guarantee future dividends.

 

   

Additionally, we recently incurred indebtedness under the 2019 Notes and entered into the Credit Facility which contain, among other covenants, certain financial incurrence and maintenance covenants, as applicable. See “Description of Certain Indebtedness.” In addition, we may incur debt in the future to acquire new projects, the terms of which will likely require commencement of commercial operations prior to our ability to receive cash distributions from such acquired projects. These agreements likely will contain financial tests and covenants that our subsidiaries must satisfy prior to making distributions. Should we or any of our project-level subsidiaries be unable to satisfy these covenants or if any of us are otherwise in default under such facilities, we may be unable to receive sufficient cash distributions to pay our stated quarterly cash dividends notwithstanding our stated cash dividend policy. See the “Project Level Financing” descriptions contained in “Business—Our Operations” for a description of such restrictions.

 

   

We and our board of directors have the authority to establish cash reserves for the prudent conduct of our business and for future cash dividends to our shareholders, and the establishment of or increase in those reserves could result in a reduction in cash dividends from levels we currently anticipate pursuant to our stated cash dividend policy. These reserves may account for the fact that our project-level cash flows may vary from year to year based on, among other things, changes in prices under offtake agreements, operational costs and other project contracts, compliance with the terms of non-recourse project-level financing including debt repayment schedules, the transition to market or recontracted pricing following the expiration of offtake agreements, working capital requirements and the operating performance of the assets. Furthermore, our board of directors may increase reserves to account for the seasonality that has historically existed in our assets’ cash flows and the variances in the pattern and frequency of distributions to us from our assets during the year.

 

   

We may lack sufficient cash to pay dividends to our shareholders due to cash flow shortfalls attributable to a number of operational, commercial or other factors, including low availability, unexpected operating interruptions, legal liabilities, costs associated with governmental regulation, changes in governmental subsidies, changes in regulation, as well as increases in our operating and/or general and administrative expenses, including existing contracts with Abengoa and its subsidiaries, principal and interest payments on our and our subsidiaries’ outstanding debt, income tax expenses, working capital requirements or anticipated cash needs at our project-level subsidiaries. See “Risk Factors” for more information on the risks to which our business is subject.

 

   

We may pay cash to our shareholders via capital reduction in lieu of dividends in some years.

 

   

Our project companies’ cash distributions to us (in the form of dividends or other forms of cash distributions such as shareholder loan repayments) and, as a result, our ability to pay or grow our dividends are dependent upon the performance of our subsidiaries and their ability to distribute cash to us. The ability of our project-level subsidiaries to make cash distributions to us may be restricted by, among other things, the provisions of existing and future indebtedness, applicable corporation laws and other laws and regulations.

 

   

Our board of directors may, by resolution, amend the cash dividend policy at any time. Our board of directors may elect to change the amount of dividends, suspend any dividend or decide to pay no dividends even if there is ample cash available for distribution.

 

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Our Ability to Grow our Business and Dividend

We intend to grow our business primarily through the improvement of existing assets and the acquisition of contracted power generation assets, electric transmission lines and other infrastructure assets, which, we believe, along with Mojave’s having reached COD and the recent acquisitions of Cadonal, PS10/20 and the 30-year usufruct of the economic and political rights over the shares of Solacor 1/2 (with an option to purchase such shares for one euro during a four-year term), will facilitate the growth of our cash available for distribution and enable us to increase our dividend per share over time. Our approved policy is to maximize cash distributions to shareholders and specifically to distribute 90% of our cash available for distribution. However, the final determination of the amount of cash dividends to be paid to our shareholders will be made by our board of directors and will depend upon our financial condition, results of operations, cash flow, long-term prospects and any other matters that our board of directors deems relevant.

We expect that we will rely primarily upon external financing sources, including commercial bank borrowings and issuances of debt and equity securities, to fund any future growth capital expenditures. To the extent we are unable to finance growth externally, our cash dividend policy could significantly impair our ability to grow because we do not currently intend to reserve a substantial amount of cash generated from operations to fund growth opportunities. If external financing is not available to us on acceptable terms, our board of directors may decide to finance acquisitions with cash from operations, which would reduce or even eliminate our cash available for distribution and, in turn, impair our ability to pay dividends to our shareholders. To the extent we issue additional shares to fund growth capital expenditures, the payment of dividends on those additional shares may increase the risk that we will be unable to maintain or increase our per share dividend level. Additionally, the incurrence of additional commercial bank borrowings or other debt to finance our growth would result in increased interest expense, which in turn may impact our cash available for distribution and, in turn, our ability to pay dividends to our shareholders.

 

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma financial information sets forth the unaudited pro forma consolidated condensed income statement of Abengoa Yield for the nine-month period ended September 30, 2014, the unaudited pro forma combined income statements of Abengoa Yield for the years ended December 31, 2013 and 2012, as well as the unaudited pro forma consolidated condensed statements of financial position of Abengoa Yield as of September 30, 2014 to give effect to: (i) the consolidation of Mojave, (ii) the preferred equity investment in ACBH, (iii) the issuance of the 2019 Notes and the drawdown in full of the Credit Facility, and (iv) the acquisition of the First Dropdown Assets from Abengoa.

Unaudited pro forma financial information has been derived from, and should be read in conjunction with, the Consolidated Condensed Interim Financial Statements and the Annual Combined Financial Statements, included in this prospectus.

We have included the unaudited pro forma financial information to illustrate the following, on a pro forma basis:

 

   

The consolidation of Mojave Solar LLC, which was completed after we assumed its control in December 2014, after Mojave achieved COD on December 1, 2014. Until such date, Mojave was recorded as an associate under the equity method in our Consolidated Condensed Interim Financial Statements and in our Annual Combined Financial Statements. The entry into operation of Mojave, and thereby its full consolidation, occurred after September 30, 2014 and had a significant impact on our total assets and financial position. Therefore, such disclosure is considered material for investors.

 

   

A preferred equity investment in ACBH, a Brazilian company that owns 15 electric transmission lines in Brazil (as described in “Business—Our Operations—Exchangeable Preferred Equity Investment in Abengoa Concessoes Brasil Holding”), which was transferred to us immediately prior to our IPO. The effect of such transfer of preferred equity investment in ACBH is not included in the historical combined income statements because such preferred equity investment was not made during the period covered by such financial statements. The transfer of the preferred equity investment in ACBH was completed immediately prior to our IPO. Consequently, the pro forma consolidated condensed statement of financial position as of September 30, 2014 does not reflect any adjustment and the pro forma consolidated condensed income statements for the nine-month period ended September 30, 2014 and the pro forma combined income statements for the years ended December 31, 2013 and 2012 give effect to the dividend that would have been received had the preferred equity investment been transferred on January 1, 2012.

 

   

The issuance of the 2019 Notes in the amount of $255.0 million before fees and commissions ($252.7 million net of fees and commissions) and the drawdown in full of the Credit Facility in the amount of $125.0 million before of fees and commissions ($124.0 million net of fees and commissions); and

 

   

The acquisition of the First Dropdown Assets from Abengoa.

The acquisition on the First Dropdown Assets from Abengoa will be accounted for using predecessor values, given that this is a transaction between entities under common control. Any difference between the consideration paid and the aggregate book value of the assets and liabilities of the acquired entities as of the date of the relevant transaction has been reflected as an adjustment to equity. We present herein pro forma income statements for the nine-month period ended September 30, 2014 and for the years ended December 31, 2013 and 2012, which are the same periods included in the Consolidated Condensed Interim Financial Statements and the Annual Combined Financial Statements.

We have assumed that the above transactions have been completed on:

 

   

January 1, 2012 for the purpose of presenting the unaudited pro forma consolidated condensed income statement for the nine-month period ended September 30, 2014 and the unaudited pro forma combined income statements for the years ended December 31, 2013 and 2012.

 

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September 30, 2014 for the purpose of presenting the unaudited pro forma consolidated condensed statement of financial position as of September 30, 2014.

The unaudited pro forma financial information is presented for illustrative purposes only and reflects estimates and certain assumptions made by our management that are considered reasonable under the circumstances as of the date of this prospectus and which are based on the information available at the time of the preparation of the unaudited pro forma financial information. Actual adjustments may differ materially from the information presented herein. The unaudited consolidated pro forma financial information does not purport to represent what our consolidated income statement and consolidated statement of financial position would have been if the relevant transactions had occurred on the dates indicated and is not intended to project our consolidated results of operations or consolidated financial position for any future period or date.

Unaudited Pro Forma Consolidated Condensed Income Statement For the Nine-Month Period Ended September 30, 2014

 

    Abengoa Yield
Historical
Consolidated
    Pro Forma
Adjustment for

Mojave
Consolidation(1)
    Pro Forma
Adjustment for
the preferred
shares of
ACBH(2)
    Pro Forma
Adjustment for
the Issuance

of the 2019
Notes and
drawdown of
the Credit
Facility(3)
    Pro Forma
Adjustment for
the Acquisition
of the First
Dropdown
Assets(4)
    Pro Forma
Abengoa
Yield
 
    $ in millions  

Revenue

    269.3        —          —          —          81.8        351.1   

Other operating income

    69.2        —          —          —          0.1        69.3   

Raw materials and consumables used

    (15.4     —          —          —          (1.5     (16.9

Employee benefit expenses

    (1.9     —          —          —          (0.4     (2.3

Depreciation, amortization and impairment charges

    (86.9     (0.1     —          —          (22.6     (109.6

Other operating expenses

    (99.4     —          —          —          (25.9     (125.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

    134.9        (0.1     —          —          31.6        166.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial income

    3.2        —          —          —          0.1        3.3   

Financial expense

    (151.6     —          —          (16.9     (14.9     (183.5

Net exchange differences

    3.4        —          —          —          (0.2     3.2   

Other net finance income/(expense)

    2.4        (0.1     9.2        —          (1.0     10.5   

Finance cost, net

    (142.6     (0.1     9.2        (16.9     (16.1     (166.5

Share of profit/(loss) of associates

    (0.6     —          —          —          —          (0.4

Profit/(loss) before income tax

    (8.3     (0.2     9.2        (16.9     15.5        (0.6

Income tax (expense)/benefit

    (4.1     —          —          —          (4.3     (8.4

Profit (Loss) for the period from continuing operations

    (12.4     (0.2     9.2        (16.9     11.2        (9.1

Loss/(profit) attributable to non-controlling interests from continuing operations

    (1.5     —          —          —          (1.3     (2.8

Profit (Loss) for the period attributable to the combined group

    (13.8     (0.2     9.2        (16.9     9.9        (11.9

Number of ordinary shares outstanding (millions)

    80.0        —          —          —          —          80.0   

Earnings per share (U.S. dollars per share)(*)

    (0.17     —          —          —          —          (0.15

 

(*)

Historical earnings per share as of September 30, 2014 have been calculated considering our net income for the nine-month period ended September 30, 2014.

 

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Unaudited Pro Forma Combined Income Statement for the Year Ended December 31, 2013

 

    Abengoa Yield
Historical
Consolidated
    Pro Forma
Adjustment for
Mojave
Consolidation(1)
    Pro Forma
Adjustment for
the preferred
shares of
ACBH(2)
    Pro Forma
Adjustment for
the Issuance

of the 2019
Notes and
drawdown of
the Credit
Facility(3)
    Pro Forma
Adjustment for
the Acquisition
of the First
Dropdown
Assets(4)
    Pro Forma
Abengoa
Yield
 
    $ in millions  

Revenue

    210.9        —          —          —          88.6        299.5   

Other operating income

    379.6        —          —          —          5.1        384.8   

Raw materials and consumables used

    (8.7     —          —          —          (3.8     (12.4

Employee benefit expenses

    (2.4     —          —          —          (0.3     (2.7

Depreciation, amortization and impairment charges

    (46.9     —          —          —          (29.6     (76.6

Other operating expenses

    (420.9     (0.1     —          —          (33.2     (454.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

    111.6        (0.1     —          —          26.9        138.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial income

    1.2        —          —          —          0.1        1.3   

Financial expense

    (123.8     (0.1     —          (22.5     (20.0     (166.5

Net exchange differences

    (0.9     —          —          —          —          (0.9

Other net finance income/(expense)

    (1.7     0.3        18.4        —          (1.3     15.7   

Finance cost, net

    (125.2     0.2        18.4        (22.5     (21.3     (150.5

Share of profit/(loss) of associates

    —          —          —          —          —          —     

Profit/(loss) before income tax

    (13.6     0.1        18.4        (22.5     5.6        (12.1

Income tax (expense)/benefit

    11.8        —          —          —          (0.4     11.3   

Profit (Loss) for the year from continuing operations

    (1.8     0.1        18.4        (22.5     5.2        (0.8

Loss/(profit) attributable to non-controlling interests from continuing operations

    (1.6     —          —          —          (0.2     (1.7

Profit (Loss) for the year attributable to the combined group

    (3.4     0.1        18.4        (22.5     5.0        (2.5

Number of ordinary shares outstanding (millions)

    —          —          —          —          —          80.0   

Earnings per share (U.S. dollars per share)(*)

    —          —          —          —          —          (0.03

 

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Unaudited Pro Forma Combined Income Statement for the Year Ended December 31, 2012

 

    Abengoa Yield
Historical
Consolidated
    Pro Forma
Adjustment for
Mojave
Consolidation(1)
    Pro Forma
Adjustment for
the preferred
shares of
ACBH(2)
    Pro Forma
Adjustment for
the Issuance

of the 2019
Notes and
drawdown of
the Credit
Facility(3)
    Pro Forma
Adjustment for
the Acquisition
of the First
Dropdown
Assets(4)
    Pro Forma
Abengoa
Yield
 
    $ in millions  

Revenue

    107.2        —          —          —          99.1        206.3   

Other operating income

    560.4        —          —          —          1.9        562.2   

Raw materials and consumables used

    (4.3     —          —          —          (8.9     (13.2

Employee benefit expenses

    (1.8     —          —          —          (0.1     (1.9

Depreciation, amortization and impairment charges

    (20.2     —          —          —          (29.1     (49.3

Other operating expenses

    (573.6     (0.4     —          —          (25.7     (599.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

    67.7        (0.4     —          —          37.1        104.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial income

    0.7        —          —          —          0.1        0.9   

Financial expense

    (64.1     —          —          (22.5     (20.6     (107.3

Net exchange differences

    0.4        —          —          —          —          0.4   

Other net finance income/(expense)

    (0.2     —          18.4        —          (2.2     16.1   

Finance cost, net

    (63.2     —          18.4        (22.5     (22.7     (90.0

Share of profit/(loss) of associates

    (0.4     —          —          —          —          (0.4

Profit/(loss) before income tax

    4.1        (0.4     18.4        (22.5     14.5        14.1   

Income tax (expense)/benefit

    (4.0     —          —          —          (2.9     (7.0

Profit (Loss) for the year from continuing operations

    0.1        (0.4     18.4        (22.5     11.5        7.2   

Loss/(profit) attributable to non-controlling interests from continuing operations

    1.2        —          —          —          (1.2     (0.1

Profit (Loss) for the year attributable to the combined group

    1.3        (0.4     18.4        (22.5     10.3        7.1   

Number of ordinary shares outstanding (millions)

    —          —          —          —          —          80.0   

Earnings per share (U.S. dollars per share)(*)

    —          —          —          —          —          0.09   

 

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Unaudited Pro Forma Consolidated Condensed Statement of Financial Position as of September 30, 2014

 

    Abengoa Yield
Historical
Consolidated
    Pro Forma
Adjustment for
Mojave
Consolidation(1)
    Pro Forma
Adjustment for
the preferred
shares of
ACBH(2)
    Pro Forma
Adjustment for
the Issuance

of the 2019
Notes and
drawdown of
the Credit
Facility(3)
    Pro Forma
Adjustment for
the Acquisition
of the First
Dropdown
Assets(4)
    Pro Forma
Abengoa
Yield
 
    $ in millions  

Non-current assets

           

Concessional assets

    4,319.3        1,559.3        —          —          890.1        6,768.7   

Investments carried under the equity method

    431.3        (425.5     —          —          —          5.7   

Financial investments

    349.1        15.2        —          —          2.3        366.6   

Deferred tax assets

    49.8        —          —          —          17.5        67.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-current assets

    5,149.4        1,149.0        —          —          909.9        7,208.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current assets

           

Inventories

    6.9        —          —          —          —          6.9   

Clients and other receivables

    96.3        1.0        —          —          33.6        130.9   

Financial investments

    261.7        7.0        —          —          0.1        268.8   

Cash and cash equivalents

    265.1        0.6        —          380.0        (223.7     422.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    630.0        8.7        —          380.0        (190.0     828.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    5,779.4        1,157.7        —          380.0        720.0        8,037.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity and liabilities

           

Total equity

    1,891.4        —          —          —          (21.9     1,869.5   

Non-current liabilities

           

Long-term corporate debt

    —          —          —          380.0        —          380.0   

Long-term non-recourse financing (project financing)

    2,382.1        805.8        —          —          586.6        3,774.5   

Grants and other liabilities

    1,115.4        273.0        —          —          25.5        1,414.0   

Related parties

    48.9        —          —          —          —          48.9   

Derivative liabilities

    95.1        —          —          —          52.0        147.1   

Deferred tax liabilities

    7.8        —          —          —          2.6        10.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-current liabilities

    3,649.4        1,078.8        —          380.0        666.7        5,774.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current liabilities

           

Short-term non-recourse financing (project financing)

    105.2        7.1        —          —          28.0        140.3   

Trade payables and other current liabilities

    125.8        71.8        —          —          43.5        241.0   

Income and other tax payables

    7.7        —          —          —          3.7        11.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    238.6        78.9        —          —          75.2        392.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity and liabilities

    5,779.4        1,157.7        —          380.0        720.0        8,037.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1)

Reflects the impact of consolidating Mojave Solar LLC, the company that holds our Mojave project, which was recorded under the equity method during its construction period. We have derived the pro forma adjustments in the pro forma consolidated income statements for Mojave’s consolidation from Mojave’s income statements for the nine months ended September 30, 2014 and for the years ended December 31, 2013 and 2012; we have not made any adjustments to reflect the construction in progress performed by related parties in 2013, 2012 or in the nine-month period ended September 30, 2014 because Mojave was operational when it was consolidated. Mojave entered into operation on December 1, 2014 and is fully consolidated as of such date, when we obtained control over Mojave Solar LLC We reassess whether or not we control an investee when facts and circumstances indicate that there are changes to the elements that determine control (power over the investee, exposition to variable returns of the investee and ability to use its power to affect its returns). We concluded that during the construction phase of Mojave all the relevant decisions were subject to the control and approval of a third party. As a result, we did not have control over Mojave during the construction period. IFRS 10 (B80) provides that control requires a continuous assessment and that we shall reassess if we control an investee if facts and circumstances indicate that there are changes to the elements of control. Since Mojave entered into operation, the investee is controlled and it is fully consolidated.

(2)

Reflects a preferred equity investment in ACBH, a subsidiary holding company of Abengoa that is engaged in the development, construction, investment and management of contracted concessions in Brazil, comprised mostly of transmission lines. The expected annual dividend of $18.4 million ($4.6 million per quarter) is not reflected in our historical income statements for the years ended December 31, 2013 and 2012 and is partially reflected only in the historical income statement for the nine-month period ended September 30, 2014; as a result, it has been included as an adjustment in the unaudited pro forma consolidated condensed income statement for the nine-month period ended September 30, 2014 and in the unaudited pro forma combined income statement for the years ended December 31, 2013 and 2012.

(3)

Reflects the issuance of the 2019 Notes in a principal amount of $255.0 million before fees and commissions ($252.7 million net of fees and commissions), and the drawdown in full of the Credit Facility in the amount of $125.0 million before fees and commissions ($124.0 million net of fees and commissions). The 2019 Notes accrue interest at a 7.000% rate per annum. See “Description of Certain Indebtedness—2019 Notes.” Loans under the Credit Facility accrue interest at a rate per annum equal to: (A) for Eurodollar rate loans, LIBOR plus 2.75% and (B) for base rate loans, the highest of (i) the rate per annum equal to the weighted average of the rates on overnight U.S. Federal funds transactions with members of the U.S. Federal Reserve System arranged by U.S. Federal funds brokers on such day plus 1/2 of 1.00%, (ii) the U.S. prime rate and (iii) LIBOR plus 1.00%, in any case, plus 1.75%. See “Description of Certain Indebtedness—Credit Facility.”

(4)

Reflects the accounting for the acquisition of the First Dropdown Assets from Abengoa, consisting of (i) a 74% interest in each of Solacor 1 and Solacor 2, with a capacity of 100 MW; (ii) PS10/20, with a capacity of 31 MW; and (iii) one on-shore wind farm in Uruguay, Cadonal, with a capacity of 50 MW, based on the historical financial information of the First Dropdown Assets for the relevant periods and as of September 30, 2014, as applicable. Impact on cash and cash equivalents includes the payment of the consideration for the acquisition. Impact on equity relates to the 26% minority interests held by JGC in each of Solacor 1 and 2. The difference between the consideration paid and the aggregate book value of the assets and liabilities of the acquired entities as of September 30, 2014 has been reflected as an adjustment to equity in accordance with predecessor accounting, given that this is an acquisition between entities under common control. Cadonal’s non-recourse financing (long and short term) at the time of its acquisition by us was $29.1 million higher, accounts payable was $34.0 million lower and total assets was $32.2 million higher, than the respective corresponding historical amounts as of September 30, 2014 used in the preparation of the pro forma balance sheet as of such date. The project financing for Cadonal was signed in September 2014 and initially drawndown on November 28, 2014, replacing the bridge financing in place until such date. Given that Cadonal was under construction as of September 30, 2014, it did not have any operations during the periods presented in this pro forma section. See “Business—First Dropdown Assets—Cadonal.” Moreover, the line item “cash and cash equivalents” in this adjustment reflects the net effect of the consolidation of, and the consideration paid for the First Dropdown Assets.

 

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SELECTED FINANCIAL INFORMATION

The selected financial information as of September 30, 2014 and for the nine-month periods ended September 30, 2014 and 2013 is derived from, and qualified in its entirety by reference to, our Consolidated Condensed Interim Financial Statements, which are included in this prospectus and prepared in accordance with IFRS as issued by the IASB.

The selected financial information as of and for the years ended December 31, 2013 and 2012 and as of January 1, 2012 is derived from, and qualified in its entirety by reference to, our Annual Combined Financial Statements, which are included in this prospectus and prepared in accordance with IFRS as issued by the IASB. Our Annual Combined Financial Statements reflect the combination of certain of the assets and associated liabilities that Abengoa contributed to us immediately prior to the consummation of our IPO.

The following tables should be read in conjunction with the sections “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our Annual Combined Financial Statements and our Consolidated Condensed Interim Financial Statements and related notes, included in this prospectus. For purposes of the Annual Combined Financial Statements, the term “Abengoa Yield” represents the accounting predecessor, or the combination of the assets and associated liabilities that Abengoa contributed to us immediately prior to the consummation of our IPO. For all periods subsequent to our IPO, the Consolidated Condensed Interim Financial Statements represent our and our subsidiaries’ consolidated results.

Consolidated condensed income statements for the nine-month periods ended September 30, 2014 and 2013, and combined income statements for the years ended December 31, 2013 and 2012

 

$ in millions    Nine-month period
ended September 30,
    Year ended December 31,  
     2014     2013     2013     2012  
     (unaudited)       

Revenue

     269.3        154.0        210.9        107.2   

Other operating income

     69.2        303.1        379.6        560.4   

Raw materials and consumables used

     (15.4     (4.2     (8.7     (4.3

Employee benefit expenses

     (1.9     (2.4     (2.4     (1.8

Depreciation, amortization and impairment charges

     (86.9     (25.7     (46.9     (20.2

Other operating expenses

     (99.4     (339.1     (420.9     (573.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

     134.9        85.7        111.6        67.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial income

     3.2        0.7        1.2        0.7   

Financial expense

     (151.6     (76.5     (123.8     (64.1

Net exchange differences

     3.4        (0.3     (0.9     0.4   

Other financial income/(expense), net

     2.4        (0.5     (1.7     (0.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial expense, net

     (142.6     (76.6     (125.2     (63.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Share of profit/(loss) of associates carried under the equity method

     (0.6     0.2        —          (0.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(loss) before income tax

     (8.3     9.3        (13.6     4.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax

     (4.1     14.4        11.8        (4.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(loss) for the period

     (12.4     23.7        (1.8     0.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss/(profit) attributable to non-controlling interests

     (1.5     (2.0     (1.6     1.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(loss) for the period attributable to the parent company

     (13.8     21.7        (3.4     1.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Consolidated condensed statements of financial position as of September 30, 2014, and combined statements of financial position as of December 31, 2013 and 2012 and as of January 1, 2012

 

$ in millions    As of September 30,
2014
     As of December 31,      As of January 1,
2012
 
        2013      2012     
     (unaudited)                       

Non-current assets:

           

Contracted concessional assets

     4,319.3         4,418.1         2,058.9         1,546.8   

Investments in associates carried under the equity method

     431.2         387.3         734.1         180.2   

Financial investments

     349.1         28.9         13.7         9.4   

Deferred tax assets

     49.8         52.8         60.2         44.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-current assets

     5,149.4         4,887.1         2,866.9         1,780.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Current assets:

           

Inventories

     6.9         5.2         —           —     

Clients and other receivables

     96.3         97.6         106.1         124.8   

Financial investments

     261.7         266.4         127.6         101.7   

Cash and cash equivalents

     265.1         357.7         97.5         40.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     630.0         726.9         331.2         266.7   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     5,779.4         5,614.0         3,198.1         2,047.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity

     1,891.4         1,287.2         1,139.8         583.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-current liabilities:

           

Long-term non-recourse project financing

     2,382.1         2,842.4         1,320.0         1,003.2   

Other liabilities

     1,267.3         1,209.4         502.2         214.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-current liabilities

     3,649.4         4,051.8         1,822.2         1,217.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Current liabilities:

           

Short-term non-recourse project financing

     105.2         52.4         48.9         78.7   

Other liabilities

     133.4         222.6         187.2         166.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total current liabilities

     238.6         275.0         236.1         245.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity and Total liabilities

     5,779.4         5,614.0         3,198.1         2,047.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated condensed cash flow statements for the nine-month periods ended September 30, 2014 and 2013, and combined cash flow statements for the years ended December 31, 2013 and 2012

 

$ in millions    Nine-month period
ended September 30,
    Year ended December 31,  
         2014             2013         2013     2012  
     (unaudited)       

Profit/(loss) for the period

     (12.4     23.7        (1.8     0.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-monetary adjustments

     205.2        57.4        92.4        22.8   

Profit for the period adjusted by non-monetary items

     192.8        81.1        90.6        22.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Variations in working capital

     (113.0     (41.0     9.2        66.6   

Net interest and income tax paid

     (81.8     (66.1     (62.4     (41.6

Net cash provided by operating activities

     (2.0     (26.0     37.4        47.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Investments in contracted concessional assets

     (81.9     (474.0     (642.3     (1,072.8

Other non-current assets/liabilities

     (2.3     2.2        (52.3     (25.9

Net cash used in investing activities

     (84.2     (471.8     (694.6     (1,098.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     (0.8     559.3        914.9        1,107.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase/(decrease) in cash and cash equivalents

     (87.0     61.5        257.7        56.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents and bank overdrafts at beginning of the period

     357.7        97.5        97.5        40.2   

Translation differences on cash or cash equivalent

     (5.6     1.5        2.5        0.8   

Cash and cash equivalents at end of the period

     265.1        160.5        357.7        97.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Geography and business sector data

Revenue by geography

 

$ in millions    Nine-month period
ended September 30,
     Year ended December 31,  
     2014      2013      2013      2012  
     (unaudited)         

Revenue by geography

           

North America

     146.9         75.2         114.0         62.3   

South America

     60.6         17.5         25.4         17.0   

Europe

     61.8         61.3         71.5         27.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

     269.3         154.0         210.9         107.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenue by business sector

 

$ in millions    Nine-month period
ended September 30,
     Year ended December 31,  
     2014      2013      2013      2012  
     (unaudited)         

Revenue by business sector

           

Renewable energy

     129.9         61.3         82.7         27.9   

Conventional power

     85.2         75.2         102.8         62.3   

Electric transmission lines

     54.2         17.5         25.4         17.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

     269.3         154.0         210.9         107.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP Financial Data

Further Adjusted EBITDA by geography

 

$ in millions    Nine-month period
ended September 30,
     Year ended December 31,  
     2014      2013      2013      2012  
     (unaudited)         

Further Adjusted EBITDA by geography

           

North America

     132.7         61.7         96.7         61.1   

South America

     53.8         12.0         19.0         10.2   

Europe

     39.9         37.7         42.8         16.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Further Adjusted EBITDA(1)

     226.4         111.4         158.5         87.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Further Adjusted EBITDA by business sector

 

$ in millions    Nine-month period
ended September 30,
     Year ended December 31,  
     2014      2013      2013      2012  
     (unaudited)         

Further Adjusted EBITDA by business sector

           

Renewable energy

     104.6         37.4         55.8         16.1   

Conventional power

     73.4         61.7         83.3         61.0   

Electric transmission lines

     48.4         12.3         19.4         10.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Further Adjusted EBITDA(1)

     226.4         111.4         158.5         87.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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(1)

Further Adjusted EBITDA is calculated as profit/(loss) for the period attributable to the parent company, after adding back loss/(profit) attributable to non-controlling interest from continued operations, income tax expense/(benefit), share of profit/(loss) of associates carried under the equity method, finance expense net, depreciation, amortization and impairment charges of entities included in the Consolidated Condensed Interim Financial Statements and the Annual Combined Financial Statements, and dividends received from our preferred equity investment in ACBH. Further Adjusted EBITDA for the nine-month period ended September 30, 2014 includes preferred dividends by ACBH for the first time during the third quarter of 2014. Further Adjusted EBITDA is not a measure of performance under IFRS as issued by the IASB and you should not consider Further Adjusted EBITDA as an alternative to operating income or profits or as a measure of our operating performance, cash flows from operating, investing and financing activities or as a measure of our ability to meet our cash needs or any other measures of performance under generally accepted accounting principles. We believe that Further Adjusted EBITDA is a useful indicator of our ability to incur and service our indebtedness and can assist securities analysts, investors and other parties to evaluate us. Further Adjusted EBITDA and similar measures are used by different companies for different purposes and are often calculated in ways that reflect the circumstances of those companies. Further Adjusted EBITDA may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results. See “Presentation of Financial Information—Non-GAAP Financial Measures.”

The following table sets forth a reconciliation of Further Adjusted EBITDA to our profit/(loss) for the period from continuing operations:

 

$ in millions   Nine-month period
ended September 30,
    Year ended December 31,  
    2014     2013     2013     2012  
    (unaudited)              

Reconciliation of profit for the period to Further Adjusted EBITDA

       

Profit/(loss) for the period attributable to the parent company

    (13.8     21.7        (3.4     1.3   

Loss/(profit) attributable to non-controlling interest from continued operations

    1.5        2.0        1.6        (1.2

Income tax expenses/(benefits)

    4.1        (14.4     (11.8     4.0   

Share of profit/(loss) of associates carried under the equity method

    0.6        (0.2     —          0.4   

Financial expenses, net

    142.6        76.6        125.2        63.2   

Operating profit

    134.9        85.7        111.6        67.7   
 

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation, amortization, and impairment charges

    86.9        25.7        46.9        20.2   

Dividend from exchangeable preferred equity investment in ACBH

    4.6        —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Further Adjusted EBITDA (unaudited)

    226.4        111.4        158.5        87.9   
 

 

 

   

 

 

   

 

 

   

 

 

 

The following table sets forth a reconciliation of Further Adjusted EBITDA to our net cash generated by or used in operating activities:

 

$ in millions   Nine-month period
ended September 30,
    Year ended December 31,  
    2014     2013     2013     2012  
    (unaudited)              

Reconciliation of Further Adjusted EBITDA to net cash generated by or used in operating activities

       

Further Adjusted EBITDA (unaudited)

    226.4        111.4        158.5        87.9   

Other cash finance costs and other

    (33.6     (30.3     (67.9     (64.9

Variations in working capital

    (113.0     (41.0     9.2        66.6   

Net interest and income tax paid

    (81.8     (66.1     (62.4     (41.7
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash generated by or used in operating activities

    (2.0     (26.0     37.4        47.9   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read together with, and is qualified in its entirety by reference to, our Consolidated Condensed Interim Financial Statements and our Annual Combined Financial Statements. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs, which are based on assumptions we believe to be reasonable. Our actual results could differ materially from those discussed in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.

The following discussion analyzes our historical financial condition and results of operations. For all periods prior to our IPO, the discussion reflects the combined financial statements of our predecessor, which represents the combination of the assets transferred by Abengoa to us immediately prior to the consummation of our IPO. For all periods subsequent to our IPO, the discussion reflects our and our subsidiaries’ consolidated results.

Overview

We are a dividend growth-oriented company formed to serve as the primary vehicle through which Abengoa owns, manages and acquires renewable energy, conventional power and electric transmission lines and other contracted revenue-generating assets in operation, initially focused on North America (the United States and Mexico), South America (Peru, Chile, Uruguay and Brazil) and Europe (Spain). We intend to expand this presence to selected countries in Africa and the Middle East.

We own 13 assets, comprising 891 MW of renewable energy generation, 300 MW of conventional power generation and 1,018 miles of electric transmission lines, as well as an exchangeable preferred equity investment in ACBH. Each of the assets we own has a project-finance agreement in place. All of our assets have contracted revenues (regulated revenues in the case of our Spanish assets) with low-risk off-takers and collectively have a weighted average remaining contract life of approximately 25 years as of September 30, 2014.

We intend to take advantage of favorable trends in the power generation and electric transmission sectors globally, including energy scarcity and a focus on the reduction of carbon emissions. To that end, we believe that our cash flow profile, coupled with our scale, diversity and low-cost business model, offers us a lower cost of capital than that of a traditional engineering and construction company or independent power producer and provides us with a significant competitive advantage with which to execute our growth strategy.

With this business model, our objective is to pay a consistent and growing cash dividend to holders of our shares that is sustainable on a long-term basis. We expect to target a payout ratio of 90% of our cash available for distribution and will seek to increase such cash dividends over time through organic growth and as we acquire assets with characteristics similar to those in our current portfolio.

We are focused on high-quality, newly-constructed and long-life facilities with creditworthy counterparties that we expect will produce stable, long-term cash flows. We have signed an exclusive agreement with Abengoa, which we refer to as the ROFO Agreement, which provides us with a right of first offer on any proposed sale, transfer or other disposition of any of Abengoa’s contracted renewable energy, conventional power, electric transmission or water assets in operation and located in the United States, Canada, Mexico, Chile, Peru, Uruguay, Brazil, Colombia and the European Union, as well as four assets in Africa, the Middle East and Asia, which initial four assets are: Shams, a 110 MW solar plant in Abu Dhabi, United Arab Emirates, SPP1, a 150 MW cogeneration power plant in Algeria, Honaine, a 7 million cubic feet per day desalination plant in Algeria and

 

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Table of Contents

Skikda, a 3.5 million cubic feet per day desalination plant in Algeria. We refer to the contracted assets subject to the ROFO Agreement as the “Abengoa ROFO Assets.” See “Summary—Our Growth Strategy,” “Business—Our Growth Strategy” and “Related Party Transactions—Right of First Offer.”

On November 18, 2014, we completed the acquisition of Solacor 1/2 through a 30-year usufruct rights contract over the related shares (which includes an option to purchase such shares for one euro during a four-year term); on December 4, 2014, we completed the acquisition of PS10/20; and on December 29, 2014, we completed the acquisition of Cadonal. Together, these three First Dropdown Assets, which we agreed in September 2014 to acquire from Abengoa under the ROFO Agreement, comprise an aggregate of 131 MW of Concentrating Solar Power generation and 50 MW of wind power generation. See “Business—Our Operations—Renewable Energy” for a description of such assets. The total aggregate consideration for the First Dropdown Assets was $312 million (which consideration was determined in part by converting the portion of the purchase price of Solacor 1/2 and PS 10/20 denominated in euros into U.S. dollars based on the exchange rate on the date on which the payment was made).

Pursuant to our cash dividend policy, we intend to pay a cash dividend each quarter to holders of our shares. Our quarterly dividend for the third quarter of 2014, paid in December 2014, was set at $0.2592 per share, or $1.04 per share on an annualized basis. See “Cash Dividend Policy.”

Based on the acquisition opportunities available to us, which include the Abengoa ROFO Assets, to the extent offered for sale by Abengoa or any investment vehicle to which Abengoa has transferred them, as well as any third-party acquisitions we pursue, we believe that we will have the opportunity to grow our cash available for distribution in a manner that would allow us to increase our cash dividends per share over time. Prospective investors should read “Cash Dividend Policy” and “Risk Factors,” including the risks and uncertainties related to our forecasted results, acquisition opportunities and growth plan, in their entirety.

Upon consummation of this offering, assuming the full exercise of the underwriters’ option to purchase additional shares, Abengoa will beneficially own approximately 51.1% of our shares and, assuming no exercise of the underwriters’ option to purchase additional shares, Abengoa will beneficially own approximately 52.8% of our shares.

We own a diversified portfolio of renewable energy, conventional power and electric transmission line contracted assets in North America (the United States and Mexico), South America (Peru, Chile, Uruguay and Brazil) and Europe (Spain). Our portfolio consists of seven renewable energy assets, a cogeneration facility and several electric transmission lines, all of which are fully operational. In addition, we own an exchangeable preferred equity investment in ACBH, a subsidiary holding company of Abengoa that is engaged in the development, construction, investment and management of contracted concessions in Brazil, consisting mostly of electric transmission lines. All of our assets have contracted revenues (regulated revenues in the case of our Spanish assets) with low-risk off-takers and collectively have a weighted average remaining contract life of approximately 25 years as of September 30, 2014. We expect the majority of our cash available for distribution over the next four years will be in U.S. dollars, indexed to the U.S. dollar or in euros. We intend to use currency hedging contracts to maintain a ratio of 90% of our cash available for distribution denominated in U.S. dollars. Over 90% of our project-level debt is hedged against changes in interest rates through an underlying fixed rate on the debt instrument or through interest rate swaps, caps or similar hedging instruments.

 

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Our revenue and Further Adjusted EBITDA by geography and business sector for the nine-month periods ended September 30, 2014 and 2013 and for the years ended December 31, 2013 and 2012 are set forth in the following tables:

Revenue by geography

 

     Nine-month period ended September 30,      Year ended December 31,  

Revenue by geography

   2014
(unaudited)
     2013
(unaudited)
     2013      2012  
     $ in
  millions  
     % of
revenue
     $ in
millions
     % of
revenue
     $ in
millions
     % of
revenue
     $ in
millions
     % of
revenue
 

North America

     146.9         54.6         75.2         48.8         114.0         54.1         62.3         58.1   

South America

     60.6         22.5         17.5         11.4         25.4         12.0         17.0         15.9   

Europe

     61.8         22.9         61.3         39.8         71.5         33.9         27.9         26.0   

Total revenue

     269.3         100.0         154.0         100.0         210.9         100.0         107.2         100.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Revenue by business sector

 

     Nine-month period ended September 30,      Year ended December 31,  

Revenue by business sector

   2014
(unaudited)
     2013
(unaudited)
     2013      2012  
     $ in
  millions
     % of
revenue
     $ in
millions
     % of
revenue
     $ in
millions
     % of
revenue
     $ in
millions
     % of
revenue
 

Renewable energy

     129.9         48.3         61.3         39.8         82.7         39.2         27.9         26.0   

Conventional power

     85.2         31.6         75.2         48.8         102.8         48.7         62.3         58.1   

Electric transmission lines

     54.2         20.1         17.5         11.4         25.4         12.1         17.0         15.9   

Total revenue

     269.3         100.0         154.0         100.0         210.9         100.0         107.2         100.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Further Adjusted EBITDA by geography

 

     Nine-month period ended September 30,      Year ended December 31,  

Further Adjusted EBITDA by geography

   2014
(unaudited)
     2013
(unaudited)
     2013      2012  
     $ in
  millions
     % of
revenue
     $ in
millions
     % of
revenue
     $ in
millions
     % of
revenue
     $ in
millions
     % of
revenue
 

North America

     132.7         90.3         61.7         82.0         96.7         84.8         61.1         98.1   

South America

     53.8         88.8         12.0         68.6         19.0         74.8         10.2         60.0   

Europe

     39.9         64.6         37.7         61.5         42.8         59.9         16.6         59.9   

Further Adjusted EBITDA(1)

     226.4         84.1         111.4         72.3         158.5         75.2         87.9         82.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Further Adjusted EBITDA by business sector

 

    Nine-month period ended September 30,     Year ended December 31,  

Further Adjusted EBITDA by business sector

  2014
(unaudited)
    2013
(unaudited)
    2013     2012  
    $ in
  millions  
    % of
revenue
    $ in
millions
    % of
revenue
    $ in
millions
    % of
revenue
    $ in
millions
    % of
revenue
 

Renewable energy

    104.6        80.5        37.4        61.0        55.8        67.5        16.1        57.7   

Conventional power

    73.4        86.2        61.7        82.0        83.3        81.0        61.0        97.9   

Electric transmission lines

    48.4        89.3        12.3        70.3        19.4        76.4        10.8        63.5   

Further Adjusted EBITDA(1)

    226.4        84.1        111.4        72.3        158.5        75.2        87.9        82.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1)

Further Adjusted EBITDA is calculated as profit/(loss) for the period attributable to the parent company, after adding back loss/(profit) attributable to non-controlling interest from continued operations, income tax expense/(benefit), share of profit/(loss) of associates carried under the equity method, finance expense net, depreciation, amortization and impairment charges of entities included in the Consolidated Condensed Interim Financial Statements and the Annual Combined Financial Statements, and dividends received from our preferred equity investment in ACBH. Further Adjusted EBITDA for the nine-month period ended September 30, 2014 includes preferred dividends by ACBH for the first time during the third quarter of 2014. Further Adjusted EBITDA is not a measure of performance under IFRS as issued by the IASB and you should not consider Further Adjusted EBITDA as an alternative to operating income or profits or as a measure of our operating performance, cash flows from operating, investing and financing activities or as a measure of our ability to meet our cash needs or any other measures of performance under generally accepted accounting principles. We believe that Further Adjusted EBITDA is a useful indicator of our ability to incur and service our indebtedness and can assist securities analysts, investors and other parties to evaluate us. Further Adjusted EBITDA and similar measures are used by different companies for different purposes and are often calculated in ways that reflect the circumstances of those companies. Further Adjusted EBITDA may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results. See “Presentation of Financial Information—Non-GAAP Financial Measures.”

Factors Affecting Our Results of Operations

Commencement of operations of projects

The comparability of our results of operations is significantly influenced by the volume of projects that become operational during a particular year. The number of projects becoming operational and the length of lead times for projects under construction significantly affect our revenue and operating profit, which makes the comparison of periods difficult.

The following table sets forth the principal projects that commenced operations through September 30, 2014 and those that commenced operations during the fourth quarter of 2014, including the quarter in which operations began.

 

Geography

Segment

   Asset    Business Sector    Capacity    Status    Commercial
Operation Date

North America

   Solana    Renewable energy    280 MW    Operational    4Q 2013
   Mojave    Renewable energy    280 MW    Operational    4Q 2014
   ACT    Conventional power    300 MW    Operational    2Q 2013

South America

   ATS    Electric transmission    569 miles    Operational    1Q 2014
   Quadra 1    Electric transmission    49 miles    Operational    2Q 2014
   Quadra 2    Electric transmission    38 miles    Operational    1Q 2014
   Palmatir    Renewable energy    50 MW    Operational    2Q 2014

Europe

   Solaben 2    Renewable energy    50 MW    Operational    2Q 2012
   Solaben 3    Renewable energy    50 MW    Operational    4Q 2012

In addition, on November 18, 2014, we completed the acquisition of Solacor 1/2 through a 30-year usufruct rights contract over the related shares (which includes an option to purchase such shares for one euro during a four-year term); on December 4, 2014, we completed the acquisition of PS10/20; on December 29, 2014, we completed the acquisition of Cadonal. Solacor 1/2 has a capacity of 100 MW, PS 10/20 has a capacity of 31 MW and Cadonal has a capacity of 50 MW. Solacor 1/2 and PS 10/20 are CSP plants located in Spain and Cadonal is an on-shore wind farm located in Uruguay. These acquisitions will affect the comparability of our results.

Regulation

We operate in a significant number of regulated markets. The degree of regulation to which our activities are subject varies by country. In a number of the countries in which we operate, regulation is carried out by national regulatory authorities. In some countries, such as the United States and, to a certain degree, Spain, there are various additional layers of regulation at the state, regional and/or local levels. In such countries, the scope, nature, and extent of regulation may differ among the various states, regions and/or localities.

 

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While we believe the requisite authorizations, permits, and approvals for our existing activities have been obtained and that our activities are operated in substantial compliance with applicable laws and regulations, we remain subject to a varied and complex body of laws and regulations that both public officials and private parties may seek to enforce. See “Regulation” for a description of the primary industry-related regulations applicable to our activities in the United States and Spain and currently in force in certain of the principal markets in which we operate.

Power purchase agreements and other contracted revenue agreements

As of September 30, 2014, the average remaining life of our PPAs, concessions and contracted revenue agreements was approximately 25 years. We believe that the average life of our PPAs and contracted revenue agreements is a significant indicator of our forecasted revenue streams and the growth of our business. Contracted assets and concessions consist of long-term projects awarded to and undertaken by us (in conjunction with other companies or on an exclusive basis) typically over a term of 20 to 30 years. Upon expiration of our PPAs and contracted revenue agreements and in order to maintain and grow our business, we must obtain extensions to these agreements or secure new agreements to replace them as they expire. Under most of our PPAs and concessions, there is an established price structure that provides us with price adjustment mechanisms that partially protect us against inflation.

Tax incentives in the United States for renewable energy assets

U.S. federal, state and local governments have established several incentives and financial mechanisms to reduce the cost of renewable energy and spur the development of energy from renewable, non-carbon–based, sources. Some of the major tax incentives applied in our projects are, among others, Investment Tax Credit, Cash Grant in Lieu of ITC, Modified Accelerated Cost Recovery System, or MACRS, and Loan Guarantee Program.

We do not expect Solana or Mojave to pay U.S. federal income tax for the foreseeable future due to the relevant NOLs and NOL carryfowards generated by the application of the aforementioned tax incentives established in the United States, in particular MACRS accelerated depreciation.

Tax accelerated depreciation for Spanish new assets

For investments in new material assets and investment properties used for economic activities acquired in the tax periods commencing in 2009 up to March 31, 2012, tax free depreciation is allowed. Due to this special regime, Solaben 2/3 and Solacor 1/2 do not expect to pay taxes in the following 10 years.

Specific corporate income tax rules in Mexico

Our project in Mexico, ACT, must pay Mexican corporate income tax on its business income and capital gains. The general taxable income is calculated in a similar way to the other jurisdictions in which our assets are located; however, the Mexican corporate income tax provides for specific inflationary adjustments on monetary assets and liabilities.

Notwithstanding the above, the project is not expected to pay significant income taxes until the fifth or sixth year after our IPO (which was consummated in June 2014) due to the NOL carryforwards generated during the construction phase.

Capital expenditures

We finance our contracted assets primarily through Non-Recourse Debt issued by a financial institution. Consequently, a significant part of our business is capital-intensive and our assets are highly leveraged. See “—Liquidity and Capital Resources—Capital expenditures.”

 

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Interest rates

We incur significant indebtedness at the corporate level and in our assets. The interest rate risk arises mainly from indebtedness with variable interest rates. In November 2014, we incurred significant indebtedness at the corporate level through the issuance of the 2019 Notes, which have an interest rate of 7.000%. See “Description of Certain Indebtedness—2019 Notes.” We have also entered into the Credit Facility under which loans accrue interest at a rate per annum equal to: (A) for Eurodollar rate loans, LIBOR plus 2.75% and (B) for base rate loans, the highest of (i) the rate per annum equal to the weighted average of the rates on overnight U.S. Federal funds transactions with members of the U.S. Federal Reserve System arranged by U.S. Federal funds brokers on such day plus 1/2 of 1.00%, (ii) the U.S. prime rate and (iii) LIBOR plus 1.00%, in any case, plus 1.75%. See “Description of Certain Indebtedness—Credit Facility.” To mitigate the interest rate risk, we primarily use long-term interest rate swaps and interest rate options which, in exchange for a fee, offer protection against a rise in interest rates. We estimate that currently over 90% of our interest cost exposure is covered. Nevertheless, our results of operations can be affected by changes in interest rates with respect to the unhedged portion of our indebtedness that bears interest at floating rates, which typically bears a spread over EURIBOR or LIBOR.

Exchange rates

Our functional currency is the U.S. dollar, as most of our revenues and expenses are denominated or linked to U.S. dollars. All our companies located in North America and South America have their PPAs, or concessional agreements, and financing contracts signed in, or indexed to, U.S. dollars, and report their individual financial statements in U.S. dollars. Our CSP plants in Spain, Solaben 2/3, Solacor 1/2 and PS10/20, have their revenues and expenses denominated in euros.

Fluctuations in the value of foreign currencies (the euro) in relation to the U.S. dollar may affect our operating results. Impacts associated with fluctuations in foreign currency are discussed in more detail under “—Quantitative and qualitative disclosure about market risk—Foreign exchange rate risk.” In subsidiaries with functional currency other than the U.S. dollar, assets and liabilities are translated into U.S. dollars using end-of-period exchange rates; revenue, expenses and cash flows are translated using average rates of exchange. The following table illustrates the average rates of exchange used in the case of euros:

 

     U.S. dollar
average per euro
 

Nine-month period ended September 30, 2014

   $ 1.3532   

Nine-month period ended September 30, 2013

   $ 1.3170   

Year ended December 31, 2013

   $ 1.3277   

Year ended December 31, 2012

   $ 1.2857   

Apart from the impact of translation differences described above, the exposure of our income statement to fluctuations of foreign currencies is limited, as the financing of projects is typically denominated in the same currency as that of the contracted revenue agreement. This policy seeks to ensure that the main revenue and expenses in foreign companies are denominated in the same currency, limiting our risk of foreign exchange differences in our financial results.

In our discussion of operating results, we have included foreign exchange impacts in our revenue by providing constant currency revenue growth. The constant currency presentation is a non-IFRS financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations. We calculate constant currency amounts by converting our current period local currency revenue using the prior period foreign currency average exchange rates and comparing these adjusted amounts to our prior period reported results. This calculation may differ from similarly titled measures used by others and, accordingly, the constant currency presentation is not meant to substitute for recorded amounts presented in conformity with IFRS nor should such amounts be considered in isolation.

 

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Key Performance Indicators

In addition to the factors described above, we closely monitor the f