Business Combinations

3 Months Ended

Feb. 29, 2016

Business Combinations [Abstract]

Business Combinations

Note 2. Business Combinations

Acquisition accounting is dependent upon certain valuations and other studies that must be completed as of the acquisition date. The judgments made in the context of the purchase price allocation can materially impact the Partnership’s future results of operations.

2016 Acquisitions

On January 26, 2016, OpCo entered into the Kern Purchase Agreement with SunPower, pursuant to which OpCo agreed to purchase an interest in a solar energy project consisting of systems attached to fixed-tilt carports located at 27 school sites in the Kern High School District located in Kern County, California, and having an aggregate nameplate capacity of 20 MW (the “Kern Project”). OpCo’s acquisition of the Kern Project will be effectuated in three phases, with the closing of the first phase having occurred simultaneously with the execution of the Kern Purchase Agreement.  The following describes the acquisition of each phase:

(i) Phase 1(a): On January 26, 2016, 8point3 OpCo Holdings, LLC (“OpCo Holdings”), a wholly owned subsidiary of OpCo, acquired from SunPower all of the class B limited liability company interests of the Kern Class B Partnership.  Prior to the date of the execution of the Kern Purchase Agreement and in connection with the closing of the tax equity financing for the Kern Project, described below, the Kern Project Entity, an indirect subsidiary of the Kern Class B Partnership, acquired the assets included in Phase 1(a) (the “Kern Phase 1(a) Assets”). The initial phase of the acquisition of the Kern Project is referred to herein as the “Kern Phase 1(a) Acquisition”.

(ii) Phase 1(b): At a future closing date, which is expected to occur in the fiscal quarter ending August 31, 2016, the Kern Project Entity will acquire the Kern Phase 1(b) assets from SunPower.

(iii) Phase 2: At a future closing date, which is expected to occur in the fiscal quarter ending November 30, 2016, the Kern Project Entity will acquire the Kern Phase 2 assets from SunPower.

The aggregate purchase price for the acquisition is $35.0 million in cash, of which OpCo paid approximately $4.9 million on January 27, 2016 in connection with the closing of the first phase on January 26, 2016.  OpCo will pay the remaining balance of the approximately $30.1 million purchase price at the closing of the second and third phases based upon the MW of the assets acquired in such phase.

In addition, on January 22, 2016, a subsidiary of the Kern Class B Partnership entered into a tax equity financing facility with a third-party investor, which allocates to OpCo a certain share of cash flows from the Kern Project pursuant to a distribution waterfall. Pursuant to this distribution waterfall, the tax equity investor is entitled to a quarterly amount of project cash flow until a specified “flip” point is achieved.  After the “flip” point, the cash allocations to OpCo increase.  In addition, upon reaching the flip point, OpCo has a right to purchase the tax equity investor’s interests in the project for an amount that is not less than its fair market value. The tax equity investor will make capital contributions to fund purchase price payments of $28.4 million, which will be made when the Kern Project’s phases meet certain construction milestones and will be transferred to affiliates of SunPower for the remaining purchase price payments.For more information about our tax equity structures in general, please read Part I, Item 1. “Business—Tax Equity Financing” of our 2015 10-K.

For the acquisition completed during the three months ended February 29, 2016, the valuation is based on the preliminary assessment of the fair values of the assets acquired, liabilities assumed and noncontrolling interests as of the acquisition date, and is subject to change as the Partnership obtains additional information for its estimates during the respective measurement period. The Kern Phase 1(a) Acquisition qualifies as a business combination and the Partnership accounts for the transaction under the acquisition method.  The purchase allocation of the identifiable assets acquired, liabilities assumed and noncontrolling interests of the Kern Phase 1(a) Assets is as follows:

(in thousands)	Fair Value
Property and equipment	$	9,733
Related party payable		(3,435	)
Asset retirement obligation		(547	)
Noncontrolling interest		(864	)
Net assets acquired	$	4,887

Pro forma results of operations for the Kern Phase 1(a) Acquisition has not been presented as the impact of the acquisition is not material to the Partnership’s unaudited condensed consolidated results of operations for the current or prior periods.  The actual results of operations of the Kern Phase 1(a) Assets have been included in the Partnership’s unaudited condensed consolidated results of operations beginning on January 26, 2016.

2015 Acquisitions

For the acquisitions completed in fiscal 2015, the Partnership obtained valuations from a third-party valuation specialist. The valuations calculated from these estimates were based on information available at the acquisition date. Therefore, the Partnership’s purchase price allocations are final and not subject to revision.

On June 24, 2015, the Partnership acquired a 100% interest in the Maryland Solar Project Entity, and a 49% indirect interest in each of the Solar Gen 2 Project, the North Star Project and the Lost Hills Blackwell Project, each of which is described in more detail below:

Maryland Solar

The Maryland Solar Project, located in Maryland, is a fully operational 20 MW grid-connected system contracted to serve a 20-year PPA with FirstEnergy Solutions, a subsidiary of FirstEnergy Corp.

Solar Gen 2

The Solar Gen 2 Project, located in California, is a fully operational 150 MW grid-connected system spanning three separate 50 MW sites. Electricity generated by the three separate systems is contracted to serve a 25-year PPA with San Diego Gas & Electric Company (“SDG&E”), a subsidiary of Sempra Energy.

North Star

The North Star Project, located in California, is a fully operational 60 MW grid-connected system contracted to serve a 20-year PPA with PG&E, a subsidiary of PG&E Corporation.

Lost Hills Blackwell

The Lost Hills Blackwell Project, located in California, is a fully operational 32 MW grid-connected system contracted to serve a 25-year PPA with PG&E, a subsidiary of PG&E Corporation, starting in 2019. The Lost Hills Blackwell Project is also contracted to serve a short-term PPA with the City of Roseville, California prior to the system’s PPA with PG&E.   

The purchase allocation for the acquired assets and liabilities of the above IPO First Solar Project Entities is as follows:

(in thousands)	Fair Value
Property and equipment	$	56,497
Equity method investment - Solar Gen 2		216,483
Equity method investment - North Star		103,849
Equity method investment - Lost Hills Blackwell		34,121
Asset retirement obligation		(2,130	)
Total purchase price	$	408,820