F-1/A 1 d897131df1a.htm F-1/A F-1/A
Table of Contents

As filed with the Securities and Exchange Commission on April 21, 2020

Registration Nos. 333-234614 and 234614-01

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

Amendment No. 2

to

FORM F-1

on

FORM F-1/FORM F-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

BROOKFIELD

RENEWABLE

CORPORATION

 

BROOKFIELD

RENEWABLE

PARTNERS L.P.

(Exact name of Registrant as specified in its charter)   (Exact name of Registrant as specified in its charter)

 

 

 

Not Applicable

(Translation of Registrant’s name into English)

 

Not Applicable

(Translation of Registrant’s name into English)

British Columbia, Canada

(State or other jurisdiction of incorporation or organization)

 

Bermuda

(State or other jurisdiction of incorporation or organization)

4911

(Primary Standard Industrial Classification Code Numbers)

 

4911

(Primary Standard Industrial Classification Code Numbers)

Not Applicable

(IRS Employer Identification Numbers)

 

Not Applicable

(IRS Employer Identification Numbers)

Brookfield Renewable Corporation

250 Vesey Street, 15th Floor

New York, New York 10281-1023

(212) 417-7000

 

Brookfield Renewable Partners L.P.

73 Front Street, 5th Floor

Hamilton, HM 12, Bermuda

+1 (441) 294-3304

(Address, including zip code, and telephone number, including area code, of

Registrants’ principal executive offices)

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

 

 

Puglisi & Associates

850 Library Avenue, Suite 204

Newark, Delaware 19711

(302) 738-6680

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

 

 

Copies to:

 

Karrin Powys-Lybbe, Esq.

Mile T. Kurta, Esq.

Torys LLP

1114 Avenue of the Americas, 23rd Floor
New York, New York 10036

(212) 880-6000

 

Richard Hall, Esq.

David J. Perkins, Esq.

Cravath, Swaine & Moore LLP

Worldwide Plaza
825 Eight Avenue
New York, New York 10019

(212) 474-1000

 

William Fyfe, Esq.

TerraForm Power, Inc.

200 Liberty Street

14th Floor
New York, New York 10019

(646) 992-2400

  

Sean T. Wheeler, P.C.

Debbie P. Yee, P.C.

Kirkland & Ellis LLP

609 Main Street
Houston, Texas 77002

(713) 836-3600

 

 

Approximate date of commencement of proposed sale to the public: as soon as practicable after the effective date of this registration statement.

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(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 registrants are emerging growth companies as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP (as defined below), indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Form F-1

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 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.  ☐

 

 

Form F-4

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Amount

to be

Registered

 

Proposed

Maximum

Offering Price

Per Share/Unit

 

Proposed

maximum

aggregate

offering price

 

Amount of

registration fee(8)

Class A Exchangeable Subordinate Voting Shares of Brookfield Renewable Corporation

  (1)    N/A   $2,895,000,000(6)   $375,771(6)

Class A Exchangeable Subordinate Voting Shares of Brookfield Renewable Corporation

  (2)    (5)    $1,453,121,316.15(5)   $188,615.15(5)

Limited Partnership Units of Brookfield Renewable Partners L.P.

  (2)    (5)    $—  (5)   $—  (5)

Limited Partnership Units of Brookfield Renewable Partners L.P.

  (3)    N/A   $—  (7)   $—  (7)

Limited Partnership Units of Brookfield Renewable Partners L.P.

  (4)    N/A   $—  (7)   $—  (7)

Total

          $4,348,121,316.15   $564,386.15

 

 

(1) 

Represents an aggregate of up to 78,000,000 class A exchangeable subordinate voting shares, no par value (“BEPC exchangeable shares”), of Brookfield Renewable Corporation (“BEPC”), consisting of approximately 44,800,000 BEPC exchangeable shares, which will be distributed (the “special distribution”) to the holders of limited partnership units (“BEP units”) of Brookfield Renewable Partners L.P. (“BEP”) and an additional approximate 33,200,000 BEPC exchangeable shares to be issued to Brookfield Asset Management Inc. and its subsidiaries (other than BEP, BEPC and their respective subsidiaries), as more fully described in the special distribution prospectus contained in this registration statement.

(2) 

Represents the maximum number of BEPC exchangeable shares or BEP units estimated to be issuable upon completion of the transactions (collectively, the “TERP acquisition”) contemplated by the Agreement and Plan of Reorganization, dated as of March 16, 2020, by and among BEPC, BEP, 2252876 Alberta ULC, TerraForm Power, Inc. (“TERP”) and TerraForm Power NY Holdings, Inc. (as amended from time to time, the “Reorganization Agreement”), as more fully described in the proxy statement/prospectus contained in this registration statement.

(3) 

Represents up to 119,600,000 BEP units to be issued from time to time upon exchange, redemption or purchase of BEPC exchangeable shares (including upon liquidation, dissolution, or winding up of BEPC) following the special distribution and the TERP acquisition as described in the prospectuses filed as part of this registration statement. The number of BEP units represents a good-faith estimate of the maximum number of BEP units to be issued upon exchange, redemption or purchase of BEPC exchangeable shares (including upon liquidation, dissolution, or winding up of BEPC). Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional BEP units as may be issuable as a result of stock splits, stock dividends or similar transactions.

(4) 

Represents up to 119,600,000 BEP units to be delivered by the selling unitholder upon exchange of BEPC exchangeable shares following the special distribution and the TERP acquisition as described in the prospectuses filed as part of this registration statement. The number of BEP units represents a good-faith estimate of the maximum number of BEP units to be delivered upon exchange of BEPC exchangeable shares. Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional BEP units as may be deliverable as a result of stock splits, stock dividends or similar transactions.

(5) 

Estimated solely for purposes of calculating the registration fee required by Section 6(b) of the Securities Act of 1933, as amended (the “Securities Act”), and calculated pursuant to Rules 457(f)(1) and 457(c) under the Securities Act. The proposed maximum aggregate offering price of the BEPC exchangeable shares or BEP units, as applicable, was calculated based upon the market value of shares of TERP’s common stock (the securities to be cancelled following the TERP acquisition) in accordance with Rule 457(c) under the Securities Act as follows: the product of (A) $16.67, the average of the high and low prices per share of TERP’s common stock on April 16, 2020, as quoted on the Nasdaq Global Select Market, multiplied by (B) 87,169,845 shares of TERP common stock (being the estimated maximum number of shares of TERP common stock that may be exchanged for BEPC exchangeable shares or BEP units pursuant to the TERP acquisition, including the total number of shares of TERP common stock issuable under outstanding TERP stock-based awards that are expected to be settled for shares of TERP common stock prior to the completion of the TERP acquisition and shares of TERP common stock underlying outstanding TERP stock awards that are expected to be cancelled and exchanged for BEPC stock awards in connection with the TERP acquisition).

(6)

There is currently no market for BEPC exchangeable shares. Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(f) under the Securities Act.

(7) 

No separate registration fee is payable pursuant to Rule 457(i) under the Securities Act.

(8) 

The amount of the registration fee is $564,386.15, of which $318,010 was paid in connection with the initial filing of the registration statement on Form F-1 on November 8, 2019 and the remaining amount of $246,376.15 was paid in connection with the filing of this Amendment No. 2 to Form F-1 on Form F-1/Form F-4.

 

 

The Registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the Registrants 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 the 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

EXPLANATORY NOTE

This Registration Statement on Form F-1 and F-4 (this “Registration Statement”) contains the following two forms of prospectuses:

 

   

A prospectus (the “special distribution prospectus”) that will be used to register (i) the delivery of an aggregate of approximately 77.8 million class A exchangeable subordinate voting shares, no par value (“BEPC exchangeable shares”) of Brookfield Renewable Corporation (“BEPC”), consisting of approximately 44.7 million BEPC exchangeable shares that will be distributed (the “special distribution”) to the holders of limited partnership units (“BEP units”) of Brookfield Renewable Partners L.P. (“BEP”) and an additional approximate 33.1 million BEPC exchangeable shares to be issued to Brookfield Asset Management Inc. (“BAM”) and its subsidiaries (other than BEP and BEPC and its subsidiaries); (ii) the delivery of up to approximately 77.8 million BEP units to holders of BEPC exchangeable shares if BEPC or BEP elects to satisfy any exchange, redemption or acquisition of BEPC exchangeable shares by delivering BEP units (including in connection with any liquidation, dissolution or winding up of BEPC); and (iii) the delivery by BAM, as selling unitholder, of up to approximately 77.8 million BEP units to holders of BEPC exchangeable shares to satisfy any such exchange of BEPC exchangeable shares, pursuant to the rights agreement between BAM and Wilmington Trust, National Association (the “Rights Agreement”).

 

   

A proxy statement/prospectus (the “proxy statement/prospectus”) that will be used in connection with (i) the registration of BEPC exchangeable shares and BEP units to be issued in connection with the acquisition of all outstanding shares of class A common stock of TerraForm Power, Inc. (“TerraForm Power” or “TERP”) not currently held by BEP and its affiliates; (ii) the TERP stockholders meeting being held on                     , 2020, to, among other things, vote to adopt the Plan of Merger (as defined in the proxy statement/prospectus) and to approve the Reorganization Agreement (as defined in the proxy statement/prospectus) and the reincorporation merger and share exchange (together, the “TERP acquisition”) contemplated thereby; (iii) the delivery of up to approximately 41.6 million BEP units to holders of BEPC exchangeable shares to satisfy any exchange, redemption or purchase of BEPC exchangeable shares to be issued in the TERP acquisition by delivering BEP units (including in connection with any liquidation, dissolution or winding up of BEPC); and (iv) the delivery by BAM, as selling unitholder, of up to approximately 41.6 million BEP units to holders of BEPC exchangeable shares to be issued in the TERP acquisition to satisfy any such exchange of BEPC exchangeable shares pursuant to the Rights Agreement.

The TERP acquisition is expected to close immediately after the closing of the special distribution.

The special distribution prospectus and the proxy statement/prospectus will be identical in all substantive respects, except that certain sections will be replaced as set forth in the comparison table below, as a result of which the table of contents and the page numbers of each document will be different:

 

Special Distribution Prospectus    Proxy Statement/Prospectus
Section   

Page

   Section   

Page

Special Distribution Prospectus Cover Page

   Front Cover   

Proxy Statement/Prospectus Cover Page

   ALT-1

None

     

Notice of Annual Meeting of TERP Stockholders

   ALT-5

Notice to Investors(1)

   1   

Notice to Investors(1)

   ALT-9

Glossary

   4   

Glossary

   ALT-10

Questions and Answers Regarding the Special Distribution

   11   

Questions and Answers

   ALT-23

Summary

   23   

Summary

   ALT-54


Table of Contents
Special Distribution Prospectus    Proxy Statement/Prospectus
Section   

Page

   Section   

Page

None

     

Summary Historical Financial Data of TerraForm Power

   ALT-78

None

     

Summary Historical Financial Data of the United States, Brazilian and Colombian Operations of BEP

   ALT-79

None

     

Summary Historical Financial Data of BEP

   ALT-80

None

     

Summary Unaudited Pro Forma Financial Information of BEPC

   ALT-81

None

     

Summary Unaudited Pro Forma Financial Information of BEP

   ALT-82

None

     

Unaudited Comparative Per Share Information

   ALT-83

None

     

Comparative Stock Prices and Cash Dividends

   ALT-85

Risk Factors(2)

   39   

Risk Factors(2)

   ALT-88

Special Note Regarding Forward-Looking Information

   69   

Special Note Regarding Forward-Looking Information

   ALT-104

Proposed Acquisition of TerraForm Power, Inc.

   70   

None

  

None

     

The Companies

   ALT-106

None

     

The TERP Stockholders Meeting

   ALT-108

None

     

The TERP Acquisition

   ALT-132

None

     

The Reorganization Agreement

   ALT-197

None

     

The TERP Voting Agreement

   ALT-218

Use of Proceeds

   76   

None

  

Prior Sales

   80   

None

  

Comparison of Rights of Holders of BEPC Exchangeable Shares and BEP Units

   216   

Comparison of Rights of Holders of BEPC Exchangeable Shares, BEP Units and TERP Common Stock

   ALT-219

Selling Unitholder

   238   

None

  

BEPC Exchangeable Shares Eligible for Future Sales

   239   

None

  

Material Canadian Federal Income Tax Considerations

   240   

Material United States Federal Income Tax Considerations

   ALT-249


Table of Contents
Special Distribution Prospectus    Proxy Statement/Prospectus
Section   

Page

   Section   

Page

Material United States Federal Income Tax Considerations

   246   

Material Canadian Federal Income Tax Considerations

   ALT-272

None

     

Stockholder Proposals and Householding

   ALT-275

Where You Can Find More Information(3)

   263   

Where You Can Find More Information(3)

   ALT-277

Costs of the Special Distribution

   268   

None

  

Annex A (Mandate of the Board of Directors of BEP)

   A-1   

None

  

Annex B (BEP Audit Committee Charter)

   B-1   

None

  

None

     

Annex A—Agreement and Plan of Reorganization

   ALT-A-1

None

     

Annex B—Opinion of Morgan Stanley & Co. LLC

   ALT-B-1

None

     

Annex C—Opinion of Greentech Capital Advisors Securities, LLC

   ALT-C-1

Special Distribution Prospectus Back Cover Page

   Back Cover   

None

  

 

(1) 

The “Notice to Investors” section will be identical, except that the subsection “About this Document” in the special distribution prospectus will be replaced in its entirety in the proxy statement/prospectus with “About this Proxy Statement/Prospectus” set forth beginning on page ALT-9.

(2) 

The “Risk Factors” section will be identical, except that: (i) the lead-in paragraph to the “Risk Factors” will be replaced in the proxy statement/prospectus as set forth on page ALT-88, (ii) the subsection “Risks Relating to the TERP Acquisition” in the special distribution prospectus will be replaced in its entirety in the proxy statement/prospectus with a supplemented subsection entitled “Risks Relating to the TERP Acquisition” set forth beginning on page ALT-89, and such subsection will be moved to be the first subsection, immediately before “Risks Relating to BEPC”, in the “Risk Factors” of the proxy statement/prospectus, (iii) the subsection “Risks Relating to Taxation” in the special distribution prospectus will be replaced in its entirety in the proxy statement/prospectus with a subsection entitled Risks Relating to Taxation” set forth beginning on page ALT-97.

(3) 

The “Where You Can Find More Information” section will be identical, except that proxy statement/prospectus will include the subsection entitled “TerraForm Power” set forth beginning on page ALT-277.

Final forms of each of the special distribution prospectus and the proxy statement/prospectus will be filed with the Securities and Exchange Commission under Rule 424(b) under the Securities Act of 1933, as amended. BEP also intends to file a separate registration statement on Form F-3 relating to the delivery of BEP units to holders of BEPC exchangeable shares upon exchange, redemption or purchase, as applicable, of such shares as described herein.


Table of Contents

The information in this prospectus is not complete and may be changed. We may not issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This 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

PRELIMINARY PROSPECTUS DATED APRIL 21, 2020

 

 

LOGO

Class A Exchangeable Subordinate Voting Shares of Brookfield Renewable Corporation

Limited Partnership Units of Brookfield Renewable Partners L.P.

(issuable or deliverable upon exchange, redemption or acquisition of Class A Exchangeable Subordinate Voting Shares)

 

 

This document is being furnished to you as a unitholder of Brookfield Renewable Partners L.P., which we refer to as BEP, in connection with the planned special distribution, which we refer to as the special distribution, by BEP to the holders of its non-voting limited partnership units, which we refer to as BEP units, of approximately 44.7 million class A exchangeable subordinate voting shares, which we refer to as BEPC exchangeable shares, of Brookfield Renewable Corporation, which we refer to as BEPC, a corporation incorporated under, and governed by, the laws of British Columbia. Each BEPC exchangeable share will be structured with the intention of providing an economic return equivalent to one BEP unit (subject to adjustment to reflect certain capital events). Each exchangeable share will be exchangeable at the option of the holder for one BEP unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BEPC). BEP may elect to satisfy its exchange obligation by acquiring such tendered BEPC exchangeable shares for an equivalent number of BEP units (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BEP). See “Description of BEPC Share Capital—Exchange by Holder—Adjustments to Reflect Certain Capital Events”. BEPC and BEP currently intend to satisfy any exchange requests on the BEPC exchangeable shares through the delivery of BEP units rather than cash. It is expected that following completion of the special distribution each BEPC exchangeable share will receive identical dividends to the distributions paid on each BEP unit as more fully described in this document. BEP therefore expects that the market price of BEPC exchangeable shares will be significantly impacted by the market price of the BEP units and the combined business performance of BEP, BEPC and their respective subsidiaries as a whole, which we refer to throughout this document as the Brookfield Renewable group. BEPC’s initial operations will consist of renewable power assets in the United States, Brazil, and Colombia. Prior to the special distribution, BEPC will acquire certain of BEP’s subsidiaries that hold these assets (excluding a 10% interest in certain Brazilian and Colombian operations, which will continue to be held indirectly by BEP through its continued ownership of 10% of the common shares of BRP Bermuda Holdings I Limited, or LATAM Holdco). Following completion of the special distribution, BEPC will own and operate high-quality, long-life renewable power assets that sell electricity under contracts with creditworthy counterparties.

This document also relates to (i) the delivery of up to approximately 77.8 million BEP units to holders of BEPC exchangeable shares if BEPC or BEP elects to satisfy any exchange, redemption or acquisition of BEPC exchangeable shares by delivering BEP units pursuant to this document (including in connection with any liquidation, dissolution or winding up of BEPC) and (ii) the delivery by Brookfield Asset Management Inc., or BAM, as selling unitholder, of up to approximately 77.8 million BEP units to holders of BEPC exchangeable shares pursuant to the rights agreement between BAM and Wilmington Trust, National Association. BAM has agreed that, for up to seven years from the distribution date, in the event that BEPC or BEP has not satisfied an exchange of BEPC exchangeable shares in cash or by delivering BEP units, then BAM, as selling unitholder, will satisfy or cause to be satisfied by paying such cash amount or delivering such BEP units pursuant to this document. BEPC, BEP and BAM currently intend to satisfy any exchange, redemption or purchase of BEPC exchangeable shares, as applicable, through the delivery of BEP units.

On March 16, 2020, BEP, BEPC, Acquisition Sub, TerraForm Power and TerraForm Power NY Holdings, Inc. entered into an Agreement and Plan of Reorganization, or as it may be amended from time to time, the Reorganization Agreement, pursuant to which BEP and BEPC have agreed to acquire all shares of Class A common stock, par value $0.01, of TerraForm Power not already owned by BEP and its affiliates, or the public


Table of Contents

TERP shares, on the terms and subject to the conditions set forth in the Reorganization Agreement, or the TERP acquisition. Pursuant to the Reorganization Agreement, each holder of public TERP shares will be entitled to receive for each public TERP share held by such holder as consideration a number of BEPC exchangeable shares equal to the adjusted exchange ratio or, at the election of such holder, BEP units, in each case as further adjusted to prevent dilution in accordance with the Reorganization Agreement plus any cash paid in lieu of fractional BEP units or BEPC exchangeable shares, as applicable. The adjusted exchange ratio will be determined by multiplying (x) 0.381 by (y) the sum of (i) the number (rounded, if necessary, to three decimal points) of BEPC exchangeable shares to be distributed with respect to each BEP unit upon the consummation of the special distribution and (ii) one. Because holders of BEP units are expected to receive one BEPC exchangeable share for every four BEP units in the special distribution, the adjusted exchange ratio is expected to be equal to 0.47625, in which case holders of public TERP shares will be entitled to receive 0.47625 of a BEPC exchangeable share or BEP unit per public TERP share. Holders of public TERP shares who do not make an election to receive BEP units will receive BEPC exchangeable shares. There is no limit on the number of shares of TERP common stock that may be exchanged for BEPC exchangeable shares or BEP units. The offer of BEPC exchangeable shares and BEP units in connection with the TERP acquisition will be made via a separate proxy statement/prospectus, and if successfully completed, is expected to close immediately after the closing of the special distribution. However, the special distribution is not conditioned on the successful completion of the TERP acquisition.

BEP is a holding entity and its only substantial asset is its limited partnership interests in Brookfield Renewable Energy L.P., which we refer to as BRELP. Immediately prior to the special distribution, BEP will receive BEPC exchangeable shares through a distribution in specie by BRELP, which we refer to as the BRELP Distribution, of BEPC exchangeable shares to all the holders of its equity units (which does not include preferred partnership units). As a result of the BRELP Distribution, (i) BAM and its subsidiaries (other than entities within the Brookfield Renewable group), which we refer to as Brookfield, who has a current approximate 60% economic interest in BEP on a fully-exchanged basis, as indirect holder of redeemable partnership units of BRELP and the general partner interests in BRELP, will receive approximately 33.1 million BEPC exchangeable shares and (ii) BEP will receive approximately 44.7 million BEPC exchangeable shares, which it will subsequently distribute to unitholders of BEP pursuant to the special distribution. Immediately following the special distribution, BEPC’s sole direct investment will be all of the issued and outstanding shares of BEP Subco Inc., which we refer to as Canada SubCo, which will indirectly hold a 90% interest in LATAM Holdco and a 100% interest in BEP Bermuda Holdings IV Limited, or Holdings IV, and Brookfield Power US Holding America Co., which we refer to as BPUSHA. Following the closing of the TERP acquisition, it is expected that BEPC will hold a 38% economic interest in TerraForm Power, assuming the TERP acquisition consideration consists solely of BEPC exchangeable shares. It is currently anticipated that immediately following the special distribution, (i) holders of BEP units (other than Brookfield and its affiliates) will hold approximately 39.5% of the issued and outstanding BEPC exchangeable shares (25.8% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares), (ii) Brookfield and its affiliates will hold approximately 60.5% of the issued and outstanding BEPC exchangeable shares (39.5% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares), and (iii) a subsidiary of BEP will own all of the issued and outstanding class B multiple voting shares, which we refer to as BEPC class B shares, which represent a 75% voting interest, and all of the issued and outstanding class C non-voting shares of BEPC, which we refer to as BEPC class C shares, which entitle BEP to all of the residual value in BEPC after payment in full of the amount due to holders of BEPC exchangeable shares and BEPC class B shares and subject to the prior rights of holders of BEPC preferred shares. Holders of BEPC exchangeable shares are expected to hold an aggregate 25% voting interest in BEPC. Brookfield, through its ownership of BEPC exchangeable shares, will initially hold an approximate 15% voting interest in BEPC (10% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares). Holders of BEPC exchangeable shares, excluding Brookfield, will initially hold an approximate 10% aggregate voting interest in BEPC (15% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares). Together, Brookfield and Brookfield Renewable will hold an approximate 90% voting interest in BEPC (85% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares). The holders of the BEPC exchangeable shares will be entitled to one vote for each BEPC exchangeable share held at all meetings of the shareholders of BEPC, except for meetings at which only holders of another specified


Table of Contents

class or series of shares of BEPC are entitled to vote separately as a class or series. The holders of the BEPC class B shares will be entitled to cast, in the aggregate, a number of votes equal to three times the number of votes attached to the BEPC exchangeable shares. Except as otherwise expressly provided in the BEPC articles or as required by law, the holders of BEPC exchangeable shares and BEPC class B shares will vote together and not as separate classes. Holders of BEPC class C shares will have no voting rights. See “Description of BEPC Share Capital”.

Pursuant to the special distribution, holders of BEP units as of                 , the record date for the special distribution, which we refer to as the distribution record date, will be entitled to receive one (1) BEPC exchangeable share for every four (4) BEP units held as of the distribution record date, provided that the special distribution will be subject to any applicable withholding tax and no holder will be entitled to receive any fractional interests in the BEPC exchangeable shares. The distribution date for the special distribution is expected to be on or about                 , which we refer to as the distribution date. Holders of BEP units who would otherwise be entitled to a fractional BEPC exchangeable share will receive a cash payment.

Holders of BEP units will not be required to pay for the BEPC exchangeable shares to be received upon completion of the special distribution or tender or surrender BEP units or take any other action in connection with the special distribution. Holders of BEP units are not being asked for a proxy in this document and are requested not to send a proxy in connection with this document. See “Questions and Answers Regarding the Special Distribution” for further details.

BEPC may, at any time and in its sole discretion, upon sixty (60) days’ prior written notice to holders of BEPC exchangeable shares, redeem all of the outstanding BEPC exchangeable shares for one BEP unit per BEPC exchangeable share held (subject to adjustment to reflect certain capital events as described in more detail in this document). See “Description of BEPC Share Capital”.

In addition, wholly-owned subsidiaries of Brookfield will provide management services to BEPC pursuant to BEP’s existing Master Services Agreement, which we refer to as the BEP Master Services Agreement, which will be amended in connection with the completion of the special distribution. There will be no increase to the base management fee and incentive distribution fees currently paid by BEP to the Service Providers, though following completion of the special distribution, BEPC will be responsible for reimbursing BEP or its subsidiaries, as the case may be, for its proportionate share of the base management fee. See also “BEP and BEPC Relationship with Brookfield—Incentive Distributions”.

There is currently no public market for BEPC exchangeable shares. BEPC has applied to have the BEPC exchangeable shares listed on the New York Stock Exchange, or the NYSE, and the Toronto Stock Exchange, or the TSX, under the symbol “BEPC”. BEPC expects that trading of BEPC exchangeable shares will begin on a “when-issued” basis as early as one (1) trading day prior to the distribution record date and will continue up to and including the distribution date. “When-issued” trades generally settle within two (2) trading days after the distribution date. On or about the first trading day following the distribution date, any “when-issued” trading of BEPC exchangeable shares will end and “regular-way” trading will begin. The listing of BEPC exchangeable shares on the NYSE is subject to BEPC fulfilling all of the requirements of the NYSE and the listing of BEPC exchangeable shares on the TSX is subject to BEPC fulfilling all of the requirements of the TSX. The NYSE and the TSX have not conditionally approved BEPC’s listing application and there is no assurance that the NYSE or the TSX will approve the listing application.

 

 

In reviewing this document, you should carefully consider the matters described in the section entitled “Risk Factors ” beginning on page 39.

NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS INFORMATION IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

 

This document does not constitute an offer to sell or the solicitation of an offer to buy any securities.


Table of Contents

TABLE OF CONTENTS

 

NOTICE TO INVESTORS

     1  

GLOSSARY

     4  

QUESTIONS AND ANSWERS REGARDING THE SPECIAL DISTRIBUTION

     11  

SUMMARY

     23  

RISK FACTORS

     39  

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

     69  

THE SPECIAL DISTRIBUTION

     71  

USE OF PROCEEDS

     76  

BEPC DIVIDEND POLICY

     76  

LISTING OF BEPC EXCHANGEABLE SHARES AND THE BEP UNITS

     77  

BEP AND BEPC CAPITALIZATION

     77  

PRIOR SALES

     80  

CORPORATE STRUCTURE

     80  

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

     85  

SELECTED HISTORICAL FINANCIAL INFORMATION OF THE UNITED STATES, BRAZILIAN AND COLOMBIAN OPERATIONS OF BEP

     113  

BEPC BUSINESS

     114  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE UNITED STATES, BRAZILIAN AND COLOMBIAN OPERATIONS OF BEP

     125  

BEPC GOVERNANCE

     155  

BEPC MANAGEMENT AND THE BEP MASTER SERVICES AGREEMENT

     168  

BEPC EXECUTIVE COMPENSATION

     174  

BEP AND BEPC RELATIONSHIP WITH BROOKFIELD

     182  

BEPC RELATIONSHIP WITH BROOKFIELD RENEWABLE

     205  

DESCRIPTION OF BEPC SHARE CAPITAL

     208  

COMPARISON OF RIGHTS OF HOLDERS OF BEPC EXCHANGEABLE SHARES AND BEP UNITS

     216  

BROOKFIELD RENEWABLE PARTNERS L.P.

     233  

SECURITY OWNERSHIP

     237  

SELLING UNITHOLDER

     238  

BEPC EXCHANGEABLE SHARES ELIGIBLE FOR FUTURE SALES

     239  

MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

     240  

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

     246  

LEGAL MATTERS

     258  

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

     258  

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

     258  

CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS

     259  

INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

     260  

EXPERTS, TRANSFER AGENT AND REGISTRAR

     261  

SERVICE OF PROCESS AND ENFORCEABILITY OF CIVIL LIABILITIES

     262  

WHERE YOU CAN FIND MORE INFORMATION

     263  

MATERIAL CONTRACTS

     265  

COSTS OF THE SPECIAL DISTRIBUTION

     268  

ANNEX A

     A-1  

ANNEX B

     B-1  

INDEX TO FINANCIAL STATEMENTS

     F-1  


Table of Contents

NOTICE TO INVESTORS

About this Document

In Canada, this document constitutes (i) a long-form prospectus of BEPC with respect to the BEPC exchangeable shares to be distributed in the special distribution and (ii) a short-form prospectus of BEP with respect to the BEP units to be issued or delivered in connection with the exchange, redemption or acquisition, if any, of BEPC exchangeable shares (including in connection with any liquidation, dissolution or winding up of BEPC). In the U.S., for purposes of the Securities Act, this document constitutes (i) a prospectus of BEPC with respect to the BEPC exchangeable shares to be distributed in the special distribution and (ii) a prospectus of BEP with respect to the BEP units to be issued or delivered in connection with the exchange, redemption or acquisition, if any, of BEPC exchangeable shares (including in connection with any liquidation, dissolution or winding up of BEPC).

You should rely only on the information contained in or incorporated by reference into this document. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this document. You should assume that the information appearing in this document is accurate only as of the date on the front cover of this document, regardless of the time of delivery of this document. BEPC’s business, financial condition, results of operations and prospects could have changed since that date. BEPC expressly disclaims any duty to update this document, except as required by applicable law.

This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities in any jurisdiction in which, or from any person with respect to whom, it is unlawful to make any such offer in such jurisdiction.

Meaning of Certain References

Unless otherwise noted or the context otherwise requires, when used in this document, the term “BEPC” means Brookfield Renewable Corporation together with all of its subsidiaries. References to “Brookfield Renewable” mean BEP collectively with BRELP, the Holding Entities (but excluding BEPC) and the Operating Entities. References to “Brookfield Renewable group” mean, collectively, BEPC and Brookfield Renewable. Certain capitalized terms and phrases used in this document are defined in the “Glossary”. Words importing the singular number include the plural, and vice versa, and words importing any gender include all genders.

Unless otherwise noted or the context otherwise requires, the disclosure in this document assumes that (i) the special distribution has been completed and BEPC has acquired its operating subsidiaries from Brookfield Renewable, although BEPC will not acquire such subsidiaries until prior to the special distribution and (ii) the TERP acquisition has not been completed.

Historical Performance and Market Data

This document contains information relating to BEPC’s Business as well as historical performance and market data for Brookfield Renewable and certain of its operating subsidiaries. When considering this data, you should bear in mind that historical results and market data may not be indicative of the future results that you should expect from BEPC or BEP.

Financial Information

The financial information contained or incorporated by reference in this document is presented in United States dollars and, with the exception of certain financial information relating to TerraForm Power and unless otherwise indicated, has been prepared in accordance with International Financial Reporting Standards, which we refer to as IFRS, as issued by the International Accounting Standards Board, or the IASB. The financial

 

1


Table of Contents

information relating to TerraForm Power contained or incorporated by reference herein has been prepared in accordance with U.S. generally accepted accounting principles, which we refer to as U.S. GAAP. Information prepared in accordance with IFRS may differ from financial information prepared in accordance with U.S. GAAP and therefore may not be comparable.

All figures are unaudited unless otherwise indicated. In this document, all references to “$” are to United States dollars, references to “C$” are to Canadian dollars, references to “R$” are to Brazilian real and references to “COP” are to Colombian pesos.

Use of Non-IFRS Measures

To measure performance, BEPC focuses on net income, an IFRS measure, as well as certain non-IFRS measures, including Funds from Operations, or FFO, and adjusted earnings before interest, taxes, depreciation, and amortization, or Adjusted EBITDA.

BEPC uses FFO to assess the performance of the business before the effects of certain cash items (e.g., acquisition costs and other typical non-recurring cash items) and certain non-cash items (e.g., deferred income taxes, depreciation, non-cash portion of non-controlling interests, unrealized gain or loss on financial instruments, non-cash gain or loss from equity-accounted investments, and other non-cash items) as these are not reflective of the performance of the underlying business. In this document, BEPC uses the revaluation approach in accordance with IAS 16, Property, Plant and Equipment, whereby depreciation is determined based on a revalued amount, thereby reducing comparability with BEPC’s peers who do not report under IFRS as issued by the IASB or who do not employ the revaluation approach to measuring property, plant and equipment. BEPC adds back deferred income taxes on the basis that it does not believe this item reflects the present value of the actual tax obligations that it expects to incur over its long-term investment horizon. FFO is therefore unlikely to be comparable to similar measures presented by other issuers. FFO has limitations as an analytical tool. Specifically, BEPC’s definition of FFO may differ from the definition used by other organizations, as well as the definition of Funds from Operations used by the Real Property Association of Canada and the National Association of Real Estate Investment Trusts, Inc., or NAREIT, in part because the NAREIT definition is based on U.S. GAAP, as opposed to IFRS.

BEPC uses Adjusted EBITDA to assess the performance of the Business before the effects of interest expense, income taxes, depreciation, management service costs, non-controlling interests, unrealized gain or loss on financial instruments, non-cash gain or loss from equity-accounted investments, distributions to preferred limited partners and other typical non-recurring items. BEPC adjusts for these factors as they may be non-cash, unusual in nature and/or are not factors used by management for evaluating operating performance. Adjusted EBITDA is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning prescribed by, IFRS. Adjusted EBITDA is therefore unlikely to be comparable to similar measures presented by other issuers and has limitations as an analytical tool.

See “Managements Discussion and Analysis of Financial Condition and Results of Operations of the United States, Brazilian and Colombian Operations of BEP” for reconciliations of non-IFRS measures to the nearest IFRS measures.

Market Data and Industry Data

Market and industry data presented throughout, or incorporated by reference in, this document was obtained from third party sources, industry publications, and publicly available information, as well as industry and other data prepared by the Brookfield Renewable group on the basis of its collective knowledge of the Canadian, U.S. and international markets and economies (including estimates and assumptions relating to these markets and economies based on that knowledge). The Brookfield Renewable group believes that the market and economic data is accurate and that the estimates and assumptions are reasonable, but there can be no assurance as to the accuracy or completeness thereof. The accuracy and completeness of the market and economic data used

 

2


Table of Contents

throughout this document, or incorporated by reference herein, are not guaranteed and the Brookfield Renewable group does not make any representation as to the accuracy of such information. Although the Brookfield Renewable group believes it to be reliable, the Brookfield Renewable group has not independently verified any of the data from third party sources referred to or incorporated by reference in this document, analyzed or verified the underlying studies or surveys relied upon or referred to by such sources, or ascertained the underlying economic and other assumptions relied upon by such sources.

 

3


Table of Contents

GLOSSARY

Acquisition Sub” means 2252876 Alberta ULC, an unlimited liability corporation incorporated under the laws of Alberta and a wholly owned direct subsidiary of BEP;

BAM” means Brookfield Asset Management Inc.;

BAM Class A Shares” has the meaning ascribed thereto under “BEPC Executive Compensation”;

BCBCA” means the Business Corporations Act (British Columbia);

BEP” means Brookfield Renewable Partners L.P.;

BEPC” means Brookfield Renewable Corporation;

BEPC articles” means the notice of articles and articles of BEPC;

BEPC audit committee” means the audit committee of the BEPC board, as further described under “BEPC Governance—Corporate Governance Disclosure—Committees of the Board of Directors—BEPC Audit Committee”;

BEPC board” means the board of directors of BEPC;

BEPC class B shares means the class B multiple voting shares in the capital of BEPC, as further described under “Description of BEPC Share Capital—BEPC Class B Shares”, and “BEPC class B share” means any one of them;

BEPC class C shares means the class C non-voting shares in the capital of BEPC, as further described under “Description of BEPC Share Capital—BEPC Class C Shares”, and “BEPC class C share” means any one of them;

BEPC committees” means the BEPC audit committee and the BEPC nominating and governance committee;

BEPC exchangeable shares” means the class A exchangeable subordinate voting shares in the capital of BEPC, as further described under “Description of BEPC’s Share Capital—BEPC Exchangeable Shares”, and “BEPC exchangeable share” means any one of them;

BEPC nominating and governance committee” means the nominating and governance committee of the BEPC board, as further described under “BEPC Governance—Corporate Governance Disclosure—Committees of the Board of Directors—BEPC Nominating and Governance Committee”;

BEPC notice” has the meaning ascribed thereto under “BEP and BEPC Relationship with Brookfield—Rights Agreement—Satisfaction of Secondary Exchange Rights”;

BEPC pre-approval policy” means the written policy on auditor independence of the BEPC board;

BEPC preferred shares” has the meaning ascribed thereto under “Description of BEPC Share Capital”;

BEPC Voting Agreements” has the meaning ascribed thereto under “BEP and BEPC Relationship with Brookfield Renewable—BEPC Voting Agreements”;

BEP Master Services Agreement” means the second amended and restated master services agreement dated as of February 26, 2015, among the Service Recipients, BRELP, Brookfield, the Service Providers and others, as amended;

 

4


Table of Contents

BEP Registration Rights Agreement” has the meaning ascribed thereto under “BEP and BEPC Relationship with Brookfield—BEP Registration Rights Agreement”;

BEP’s Annual Report” means BEP’s annual report on Form 20-F for the fiscal year ended December 31, 2019, as amended (filed in Canada with the Canadian securities regulatory authorities in lieu of an annual information form), which includes BEP’s audited consolidated statements of financial position as of December 31, 2019 and December 31, 2018, and the related consolidated statements of income, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2019, together with the reports thereon of the independent registered public accounting firm and management’s discussion and analysis of BEP as of December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019;

BEP units” means BEP’s limited partnership units, and “BEP unit” means any one of them;

BPUSHA” means Brookfield Power US Holding America Co.;

BRELP” means Brookfield Renewable Energy L.P.;

BRELP Class A Preferred Units” means the Class A preferred partnership units of BRELP;

BRELP Distribution” means the distribution in specie by BRELP of BEPC exchangeable shares to all holders of its equity units (which does not include preferred partnership units) that occurs immediately prior to the special distribution;

Brookfield” has the meaning ascribed thereto on the cover page of this document;

Brookfield Accounts” means Brookfield and/or other Brookfield-sponsored vehicles, consortiums and/or partnerships (including private funds, joint ventures and similar arrangements);

Brookfield Personnel” means the partners, members, shareholders, directors, officers and employees of Brookfield;

Brookfield Relationship Agreement” means the amended and restated relationship agreement dated as of March 28, 2014, as amended from time to time, by, among others, BAM, BEP and BRELP;

Brookfield Renewable” means BEP collectively with BRELP, the Holding Entities and the Operating Entities (but excluding BEPC);

Brookfield Renewable group” means Brookfield Renewable, BEPC and their respective subsidiaries, including Acquisition Sub;

Brookfield stockholders” means BBHC Orion Holdco L.P. and Orion U.S. Holdings 1 L.P., each an affiliate of Brookfield and a stockholder of TerraForm Power;

Brookfield Trading Policy” has the meaning ascribed thereto under “BEPC Governance—Corporate Governance Disclosure—Personal Trading Policy”;

BRPI” means Brookfield Renewable Power Inc.;

BRPPE” means Brookfield Renewable Power Preferred Equity Inc.;

 

5


Table of Contents

Business” means the United States, Brazilian and Colombian operations of BEP to be acquired by BEPC immediately prior to the special distribution;

Canada SubCo” means BEP Subco Inc.;

cash bonus” has the meaning ascribed thereto under “BEPC Executive Compensation”;

CDS” means CDS Clearing and Depository Services Inc.;

CEE Funds” means the Germany based asset manager that holds renewable energy funds targeting low risk renewable investments, which is a portfolio company of Brookfield;

chair” means the chairperson of the BEPC board;

Code” means the U.S. Internal Revenue Code of 1986, as amended;

collateral account” means the non-interest-bearing trust account established by Brookfield or its affiliates to be administered by the rights agent;

Competition Act” means Competition Act, R.S.C., 1985, c. C 34.;

conflicts management policy” has the meaning ascribed thereto under “BEP and BEPC Relationship with Brookfield—Conflicts of Interest and Fiduciary Duties”;

CRA” means the Canada Revenue Agency;

customary rates” means the same or substantially similar services provided by Brookfield to one or more third parties;

DGCL” means General Corporation Law of the State of Delaware;

distribution date” has the meaning ascribed thereto on the cover page of this document;

distribution record date” has the meaning ascribed thereto on the cover page of this document;

DSU Allotment Price” has the meaning ascribed thereto under “BEPC Executive Compensation”;

DSUP” means the Deferred Share Unit Plan;

DSUs” has the meaning ascribed thereto under “BEPC Executive Compensation—Cash Bonus and Long-Term Incentive Plans”;

DTC” means the Depository Trust Company;

EDGAR” means the Electronic Data Gathering, Analysis, and Retrieval system at www.sec.gov;

Equity Commitment Agreement” has the meaning ascribed thereto under “BEPC Relationship with Brookfield Renewable—Equity Commitment Agreement”;

Escrow Company” has the meaning ascribed thereto under “BEPC Executive Compensation”;

Escrowed Shares” has the meaning ascribed thereto under “BEPC Executive Compensation”;

 

6


Table of Contents

Escrowed Stock Plan” has the meaning ascribed thereto under “BEPC Executive Compensation”;

ESG” means environmental, social and governance;

Ethics code” means the BEPC Code of Business Conduct and Ethics;

Euro Holdco” means Brookfield BRP Europe Holdings (Bermuda) Limited;

Exchange Act” means the Securities Exchange Act of 1934, as amended;

FERC” means the Federal Energy Regulatory Commission;

FFO” means Funds from Operations;

Finco” means Brookfield Renewable Partners ULC;

forward-looking information” has the meaning ascribed thereto under “Special Note Regarding Forward-Looking Information”;

Holding Entities” means LATAM Holdco, NA Holdco, Euro Holdco, Investco and any other direct or indirect wholly-owned subsidiary of BRELP created or acquired after the date of BRELP’s limited partnership agreement;

Holdings IV” means BEP Bermuda Holdings IV Limited;

HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;

HSS&E” has the meaning ascribed thereto under “BEPC Business—Operating Philosophy”;

Hydro Holdings” means an entity that is entitled to appoint a majority of the board of directors of Isagen;

IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board;

Investco” means Brookfield Renewable Investments Limited;

investing affiliate” has the meaning ascribed thereto under “BEP and BEPC Relationship with Brookfield—Conflicts of Interest and Fiduciary Duties—Investments by the Investing Affiliate”;

IRS” means the Internal Revenue Service;

Isagen” means Isagen S.A. E.S.P.;

LATAM Holdco” means BRP Bermuda Holdings I Limited;

LIBOR” means the London Inter-bank Offered Rate;

Licensing Agreement” has the meaning ascribed thereto under “BEP and BEPC Relationship with Brookfield—Licensing Agreement”;

LTA” means long-term average;

 

7


Table of Contents

MI 61-101” means Canadian Multilateral Instrument 61-101—Protection of Minority Securityholders in Special Transactions;

MRE” has the meaning ascribed thereto under “The BEPC Business—Current Operations—Brazil—Market Opportunity”;

MSOP” has the meaning ascribed thereto under “BEPC Executive Compensation”;

NA HoldCo” means Brookfield BRP Holdings (Canada) Inc.;

NASDAQ” means National Association of Securities Dealers Automated Quotations System;

NEOs” means the named executive officers of BEPC;

non-resident holder” has the meaning ascribed thereto under “Material Canadian Federal Income Tax Considerations—Taxation of Holders Not Resident in Canada”;

non-U.S. unitholder” has the meaning ascribed thereto under “Material United States Federal Income Tax Considerations”;

NYBCL” means Business Corporation Law of the State of New York;

NYSE” means the New York Stock Exchange;

Operating Entities” means the subsidiaries of the Holding Entities which, from time to time, directly or indirectly hold, or may in the future hold, operations or assets, including any of the assets or operations held through joint ventures, partnerships and consortium arrangements;

operating performance compensation” means performance-based compensation;

PFIC” has the meaning ascribed thereto under “Material United States Federal Income Tax Considerations—Consequences to U.S. Unitholders—Special Distribution of BEPC Exchangeable Shares”;

PJM ISO” means PJM Interconnection, L.L.C.;

Plan of Merger” means the agreement and plan of merger set forth in Exhibit B to the Reorganization Agreement;

PPA” means a power purchase agreement, power guarantee agreement or similar long-term agreement between a seller and buyer of electrical power generation;

preferred units” means BEP’s preferred limited partnership units;

proposed amendments” has the meaning ascribed thereto under “Material Canadian Federal Income Tax Considerations”;

PSG” means Brookfield’s Public Securities Group;

public TERP shares” means the shares of issued and outstanding TERP common stock that are not owned by the Brookfield stockholders, and “public TERP share” means any one of them;

RDSP” means registered disability savings plan;

 

8


Table of Contents

reincorporation merger” means the first step of the TERP acquisition, in which TerraForm Power will merge with and into TerraForm Power NY Holdings Inc., with TerraForm Power NY Holdings, Inc. as the surviving corporation of such merger;

Reorganization Agreement,” has the meaning ascribed thereto on the cover page of this document, a copy of which is filed as an exhibit to the registration statement of which this document forms a part;

resident holder” has the meaning ascribed thereto under “Material Canadian Federal Income Tax Considerations—Taxation of Holders Resident in Canada”;

RESP” means registered education savings plan;

Restricted Shares” or “RS” has the meaning ascribed thereto under “BEPC Executive Compensation”;

Restricted Stock Plan” has the meaning ascribed thereto under “BEPC Executive Compensation”;

rights agent” means Wilmington Trust, National Association;

Rights Agreement” has the meaning ascribed thereto under “BEP and BEPC Relationship with Brookfield—Rights Agreement”;

RRIF” means registered retirement income fund;

RRSP” means registered retirement savings plan;

RSU Allotment Price” has the meaning ascribed thereto under “BEPC Executive Compensation”;

RSUP” has the meaning ascribed thereto under “BEPC Executive Compensation”;

RSUs” has the meaning ascribed thereto under “BEPC Executive Compensation”;

Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002 (United States);

SEC” means the United States Securities and Exchange Commission;

SEDAR” means the System for Electronic Document Analysis and Retrieval at www.sedar.com;

Service Providers” has the meaning ascribed thereto in the BEP Master Services Agreement;

Service Recipients” has the meaning ascribed thereto in the BEP Master Services Agreement;

SHPP” has the meaning ascribed thereto under “BEPC Business—Current Operations—Brazil”;

special distribution” has the meaning ascribed thereto on the cover page of this document;

Subordinated Credit Facilities” has the meaning ascribed thereto under “BEPC Relationship with Brookfield Renewable—Subordinated Credit Facilities”;

Tax Act” means the Income Tax Act (Canada);

TERP or TerraForm Power” means TerraForm Power, Inc. and, where the context requires, the entity surviving after the reincorporation merger;

 

9


Table of Contents

TERP acquisition” has the meaning ascribed thereto on the cover page of this document;

TERP acquisition completion date” means the date on which the TERP acquisition is completed;

TERP acquisition consideration” means the consideration, per public TERP share, to be received in the TERP acquisition by TERP stockholders (other than the Brookfield stockholders), equivalent to 0.381 of a BEPC exchangeable share or, at the election of the holder of such share, 0.381 of a BEP unit (in each case, subject to adjustment for the special distribution and subject to further adjustment to prevent dilution in accordance with the Reorganization Agreement as described in the section entitled “Proposed Acquisition of TerraForm Power, Inc.”) plus any cash paid in lieu of a fractional BEPC exchangeable share or BEP unit, as applicable;

TERP common stock” means class A common stock, par value $0.01, of TerraForm Power;

Treasury Regulations” means the U.S. Treasury Regulations promulgated under the Code;

TSX” means the Toronto Stock Exchange;

Unaudited Pro Forma Financial Statements” means collectively or separately, as the context requires, BEPC’s unaudited condensed combined pro forma financial statements and BEP’s unaudited condensed combined pro forma financial statements;

U.S. GAAP” means generally accepted accounting principles in the United States that the SEC has identified as having substantial authoritative support, as supplemented by Regulation S-X under the 1934 Act, as amended from time to time;

U.S. Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated from time to time thereunder; and

U.S. unitholder” has the meaning ascribed thereto under “Material United States Federal Income Tax Considerations”.

 

10


Table of Contents

QUESTIONS AND ANSWERS REGARDING THE SPECIAL DISTRIBUTION

The following questions and answers address briefly some questions you may have regarding the special distribution. These questions and answers may not address all questions that may be important to you as a holder of BEP units and these questions and answers should be read together with the more detailed information and financial data and statements contained elsewhere in this document. See “Glossary” for the definitions of the various defined terms used throughout this document.

 

Questions

  

Answers About the Special Distribution

Why is BEP distributing BEPC exchangeable shares to its unitholders?

  

BEP believes that certain investors in certain jurisdictions may be dissuaded from investing in BEP because of the tax reporting framework that results from investing in units of a Bermuda-exempted limited partnership. Creating BEPC, a corporation, and distributing BEPC exchangeable shares, which have been structured with the intention of providing an economic return equivalent to the BEP units, is intended to achieve the following objectives:

 

•  Provide investors that would not otherwise invest in BEP with an opportunity to gain access to BEP’s globally diversified portfolio of high-quality renewable power assets.

 

•  Provide investors with the flexibility to own, through the ownership of a BEPC exchangeable share, the economic equivalent of a BEP unit because of the ability to exchange into a BEP unit or its cash equivalent and the identical dividends that are expected to be paid on each BEPC exchangeable share.

 

•  Provide investors with a tax reporting framework that may be favored by investors in some jurisdictions over the tax reporting framework provided by an investment in BEP, which BEP believes will attract new investors who will benefit from investing in its business.

 

•  Create a company that BEP expects to be eligible for inclusion in several indices, which may be attractive to certain investors.

 

•  Provide the Brookfield Renewable group with a greater securityholder base, thereby creating enhanced liquidity for the Brookfield Renewable group’s securityholders.

 

•  Create a company that will provide the Brookfield Renewable group with the ability to access new capital pools.

 

The special distribution is being effected in a manner that BEP expects will not result in any adverse impact on Brookfield Renewable’s credit rating or its preference shareholders, preferred unitholders or debtholders.

 

See “The Special Distribution—Background to and Purpose of the Special Distribution and BEPC Relationship with Brookfield Renewable—Credit Support”. For additional information regarding Brookfield Renewable, see “Brookfield Renewable Partners L.P.”.

 

How will BEPC’s performance track to BEP’s performance?

  

 

Each BEPC exchangeable share has been structured with the intention of providing an economic return equivalent to one BEP unit. BEP therefore expects that the market price of BEPC exchangeable shares will be significantly impacted by the combined business performance of the

 

11


Table of Contents

Questions

  

Answers About the Special Distribution

  

Brookfield Renewable group as a whole and the market price of the BEP units in a manner that should result in the market price of the BEPC exchangeable shares tracking the market price of the BEP units. Following the special distribution, it is expected that dividends on BEPC exchangeable shares will be declared and paid at the same time as distributions are declared and paid on the BEP units and that dividends on each BEPC exchangeable share will be declared and paid in the same amount as are declared and paid on each BEP unit to provide holders of BEPC exchangeable shares with an economic return equivalent to holders of BEP units. BEPC expects to commence paying dividends on BEPC exchangeable shares on the first distribution payment date for the BEP units occurring after the distribution date for the special distribution. Additionally, pursuant to the Equity Commitment Agreement, BEP has agreed that it will not declare or pay any distribution on the BEP units if on such date BEPC does not have sufficient funds or other assets to enable the declaration and payment of an equivalent dividend on the BEPC exchangeable shares.

 

Each BEPC exchangeable share will be exchangeable at the option of the holder for one BEP unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BEPC). BEP may elect to satisfy its exchange obligation by acquiring such tendered BEPC exchangeable shares for an equivalent number of BEP units (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BEP). See “Description of BEPC Share Capital—Exchange by Holder—Adjustments to Reflect Certain Capital Events” for a description of such capital events. BEPC and BEP currently intend to satisfy any exchange requests on the BEPC exchangeable shares through the delivery of BEP units rather than cash. However, factors that BEP and BEPC may consider when determining whether to satisfy any exchange request for cash rather than BEP units include, without limitation, compliance with applicable securities laws, changes in law (including the Bermuda limited partnership laws), BEP’s and BEPC’s respective available consolidated liquidity, and any change in the tax consequences to BEP or BEPC or to a holder as a result of delivery of BEP units.

Do you intend to pay dividends on the BEPC exchangeable shares?

  

Yes. The board of directors of BEPC, or the board of directors of BEP, may declare dividends at their discretion. However, each BEPC exchangeable share has been structured with the intention of providing an economic return equivalent to one BEP unit and it is expected that dividends on the BEPC exchangeable shares will be declared and paid at the same time and in the same amount as distributions are declared and paid on each BEP unit. BEPC expects to commence paying dividends on BEPC exchangeable shares on the first distribution payment date for the BEP units occurring after the distribution date for the special distribution. Additionally, pursuant to the Equity Commitment Agreement, BEP has agreed that it will not declare or pay any distribution on the BEP units if on such date BEPC does not have sufficient funds or other assets to enable the declaration and payment of an equivalent dividend on the BEPC exchangeable shares. BEP pursues a

 

12


Table of Contents

Questions

  

Answers About the Special Distribution

  

strategy which the Brookfield Renewable group expects will provide for highly stable, predictable cash flows sourced from predominantly hydroelectric, wind and solar assets ensuring a sustainable distribution yield. The Brookfield Renewable group’s objective is to pay a distribution that is sustainable on a long-term basis and targets a payout ratio of approximately 70% of Brookfield Renewable’s FFO.

 

Immediately following completion of the special distribution, the aggregate distribution received by a holder on its BEP units and BEPC exchangeable shares (assuming such holder did not dispose of its BEP units or BEPC exchangeable shares) will be the same as it would have received if the special distribution had not been made, with distributions on each BEP unit representing four-fifths (4/5ths) of such aggregate amount as a result of the one (1) for four (4) special distribution, and the dividends on each exchangeable share being identical to the distributions on each BEP unit after the special distribution. See also “BEPC Dividend Policy”.

 

For example, assuming a unitholder of BEP owns 40 BEP units prior to the special distribution, it would be entitled to receive an aggregate of $21.70 in distributions (based on a quarterly distribution amount per BEP unit of $0.5425) for the distribution period immediately prior to the special distribution. Based on the distribution ratio of one BEPC exchangeable share for four BEP units, the unitholder of BEP is expected to receive 10 BEPC exchangeable shares and therefore immediately after the special distribution the holder would own 50 securities (40 BEP units and 10 BEPC exchangeable shares). The holder will still receive an aggregate distribution of $21.70 (assuming the holder continues to own the 40 BEP units and 10 BEPC exchangeable shares), but that $21.70 would be divided among the 40 BEP units it owns and the 10 BEPC exchangeable shares it owns immediately after the special distribution. Therefore, while the aggregate distributions to be received by the holder for the distribution period immediately after the special distribution would remain the same (i.e., $21.70), the per BEP unit distribution amount/per share dividend amount would no longer be $0.5425 but rather $0.4340 per BEP unit and $0.4340 per BEPC exchangeable share. Therefore, the distribution/dividend amount per BEP unit/BEPC exchangeable share immediately post-closing will be identical (i.e., $0.4340), but on a per BEP unit/BEPC exchangeable share basis it will be reduced from the amount immediately pre-closing to take into account that there are more securities outstanding (50 rather than 40, in the above example) that will be entitled to receive distributions/dividends. This effect on the quarterly distribution level mirrors what would happen in the event of a stock split.

What will BEPC’s relationship with Brookfield be after the special distribution?

  

BEPC’s relationship with Brookfield will be substantially the same as Brookfield Renewable’s existing relationship with Brookfield. After the special distribution:

 

•  Brookfield will be BEPC’s largest investor and will, directly and indirectly, hold approximately 60.5% of BEPC exchangeable shares (39.5% assuming the TERP acquisition is completed and the

 

13


Table of Contents

Questions

  

Answers About the Special Distribution

  

TERP acquisition consideration consists solely of BEPC exchangeable shares).

 

•  The Service Providers, being wholly-owned subsidiaries of Brookfield, will provide management and administrative services to BEPC pursuant to the BEP Master Services Agreement in exchange for a base management fee and incentive distributions. The BEP Master Services Agreement will continue in perpetuity until terminated in accordance with its terms.

 

•  During at least the first seven years after the distribution date, if BEPC or BEP has not satisfied its obligation under BEP’s notice of articles and articles, or the BEPC articles, to deliver the BEP unit amount or its cash equivalent amount upon an exchange request, Brookfield will satisfy or cause to be satisfied the obligation to deliver BEP units or cash on an exchange of the BEPC exchangeable shares.

 

•  If the TERP acquisition is completed, Brookfield and Brookfield Renewable intend to enter into voting agreements with a subsidiary of BEPC, giving BEPC voting control over the TERP common stock held by BEP and its affiliates.

 

For additional information, see “BEPC Management and the BEP Master Services Agreement—The BEP Master Services Agreement” and “BEP and BEPC Relationship with Brookfield”.

What will BEPC’s relationship with Brookfield Renewable be after the special distribution?

  

Brookfield Renewable, together with BEPC, comprise the Brookfield Renewable group, which will serve as the primary vehicle through which Brookfield will acquire renewable power assets on a global basis, subject to certain exceptions. After the special distribution:

 

•  Each BEPC exchangeable share has been structured with the intention of providing an economic return equivalent to one BEP unit. BEPC therefore expects that the market price of BEPC exchangeable shares will be significantly impacted by the combined business performance of the Brookfield Renewable group as a whole and the market price of the BEP units in a manner that should result in the market price of the BEPC exchangeable shares tracking the market price of the BEP units.

 

•  Following the special distribution, it is expected that dividends on BEPC exchangeable shares will be declared and paid at the same time as distributions are declared and paid on the BEP units and that dividends on each BEPC exchangeable share will be declared and paid in the same amount as are declared and paid on each BEP unit to provide holders of BEPC exchangeable shares with an economic return equivalent to holders of BEP units. BEPC expects to commence paying dividends on BEPC exchangeable shares on the first distribution payment date for the BEP units occurring after the distribution date for the special distribution. Immediately following completion of the special distribution, the aggregate distribution received by a holder on its BEP units and BEPC exchangeable

 

14


Table of Contents

Questions

  

Answers About the Special Distribution

  

    shares (assuming such holder did not dispose of its BEP units or BEPC exchangeable shares) will be the same as it would have received if the special distribution had not been made, with distributions on each BEP unit representing four-fifths (4/5ths) of such aggregate amount as a result of the one (1) for four (4) special distribution, and the dividends on each BEPC exchangeable share being identical to the distributions on each BEP unit after the special distribution.

 

•  Each BEPC exchangeable share will be exchangeable at the option of the holder for one BEP unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BEPC). BEP may elect to satisfy its exchange obligation by acquiring such tendered BEPC exchangeable shares for an equivalent number of BEP units (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BEP).

 

•  Brookfield Renewable will hold a 75% voting interest in BEPC through its holding of BEPC class B shares and will hold all of the BEPC class C shares, which entitle BEP to all of the residual value in BEPC after payment in full of the amount due to holders of BEPC exchangeable shares and BEPC class B shares and subject to the prior rights of holders of BEPC preferred shares. Brookfield Renewable’s ownership of BEPC class C shares will entitle it to receive dividends as and when declared by the BEPC board, subject to the holders of the BEPC exchangeable shares and BEPC class B shares receiving the dividends to which they are entitled and the prior rights of holders of BEPC preferred shares.

  

•  Brookfield Renewable will provide BEPC with an equity commitment in the amount of $1 billion. In addition, BEPC expects to enter into two credit agreements with Brookfield Renewable, one as borrower and one as lender, each providing for a ten-year revolving credit facility to facilitate the movement of cash within the Brookfield Renewable group. Each credit facility will contemplate potential deposit arrangements pursuant to which the lender thereunder would, with the consent of the borrower, deposit funds on a demand basis to such borrower’s account at a reduced rate of interest.

 

•  BEPC expects that the BEPC board will mirror the board of the general partner of BEP, except that there will be one additional non-overlapping board member to assist BEPC with, among other things, resolving any conflicts of interest that may arise from its relationship with Brookfield Renewable. Eleazar de Carvalho Filho will initially serve as the non-overlapping member of the BEPC board. Mr. de Carvalho Filho has served on the board of directors of the general partner of BEP since November 2011 and will resign from such board of directors prior to the special distribution. If in the 12 months following the special distribution, BEPC considers a related party transaction in which BEP is an interested party within the meaning of MI 61-101, Mr. de Carvalho Filho will not be

 

15


Table of Contents

Questions

  

Answers About the Special Distribution

  

considered an independent director under MI 61-101 for purposes of serving on a special committee to consider such transaction.

 

•  If the TERP acquisition is completed, Brookfield and Brookfield Renewable intend to enter into voting agreements with a subsidiary of BEPC, giving BEPC voting control over the TERP common stock held by BEP and its affiliates.

 

For additional information, see “Description of BEPC Share Capital—BEPC Exchangeable Shares”, “Description of BEPC Share Capital—Exchange by Holder—Adjustments to Reflect Certain Capital Events,” and “BEPC Relationship with Brookfield Renewable”.

Will there be any significant shareholders of BEPC after the special distribution?

  

Yes. Brookfield Renewable will hold all of the BEPC class B shares, thereby giving Brookfield Renewable a 75% voting interest, and all of the BEPC class C shares, which entitle BEP to all of the residual value in BEPC after payment in full of the amount due to holders of BEPC exchangeable shares and BEPC class B shares and subject to the prior rights of holders of BEPC preferred shares. In addition, Brookfield will, directly and indirectly, hold approximately 60.5% of BEPC exchangeable shares immediately upon completion of the special distribution as a result of BEPC exchangeable shares distributed to Brookfield in respect of the redeemable partnership units and general partner interests that it holds in BRELP, the BEP units and general partner interest that it holds in BEP (39.5% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares). Together, Brookfield and Brookfield Renewable will hold an approximate 90% voting interest in BEPC (85% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares). See “The Special Distribution—Background to and Purpose of the Special Distribution”.

How will the special distribution work?

  

Immediately prior to the special distribution, BRELP will complete the BRELP Distribution pursuant to which BEP will receive 44.7 million BEPC exchangeable shares. BEP will subsequently make a special distribution to holders of its equity units of these BEPC exchangeable shares. As a result of the special distribution, holders of BEP units will be entitled to receive one (1) BEPC exchangeable share for every four (4) BEP units held as of the distribution record date, provided that the special distribution will be subject to any applicable withholding tax and no holder will be entitled to receive any fractional interests in the BEPC exchangeable shares. Holders who would otherwise be entitled to a fractional exchangeable share will receive a cash payment. For additional information, see “The Special Distribution—Mechanics of the Special Distribution”.

 

The special distribution is, in effect, a stock split of the BEP units. As of the date of this document, there are approximately 308.7 million BEP units outstanding (assuming exchange of the redeemable partnership units of BRELP), which are expected to receive a cash distribution of $0.5425 per BEP unit in the next quarter, for a total of $167.5 million to

 

16


Table of Contents

Questions

  

Answers About the Special Distribution

  

be paid. As a result of the special distribution of one (1) BEPC exchangeable share for every four (4) BEP units held:

 

•  a total of approximately 44.7 million BEPC exchangeable shares will be distributed to unitholders of BEP and 33.1 million BEPC exchangeable shares will be distributed to holders of redeemable partnership units and other equity units of BRELP;

 

•  the distribution level for each BEP unit will immediately be reduced to 4/5ths of the pre-special distribution level, or to $0.4340 per BEP unit in the next quarter, and this will be the same as the initial dividend level for a BEPC exchangeable share;

 

•  each holder of forty (40) BEP units before the special distribution will, after completion of the special distribution, own 50 securities (forty (40) BEP units and ten (10) BEPC exchangeable shares) and will be expected to receive, as would have been the case before the special distribution, an aggregate distribution of $21.70 in the next quarter (assuming the holder continues to own forty (40) BEP units and ten (10) BEPC exchangeable shares);

 

•  a holder who decides to exchange its BEPC exchangeable shares for BEP units will own fifty (50) BEP units in lieu of the forty (40) BEP units pre-distribution (and a holder who decides to sell the ten (10) BEPC exchangeable shares, will now have the cash value of those shares and 4/5ths of its initial investment in BEP);

 

•  the aggregate cash to be paid in distributions on the BEP units by BEP and BEPC (assuming exchange of the redeemable partnership units of BRELP) will be $167.5 million, which is identical to the amount that would have been paid if the special distribution were not affected; and

 

•  if all of the BEPC exchangeable shares are exchanged, there will be approximately 386 million BEP units outstanding (assuming exchange of the redeemable partnership units of BRELP), BEPC will be wholly-owned by BEP and there will more BEP units outstanding, each receiving a lower per BEP unit distribution than before the special distribution.

  

 

The distribution ratio is intended to cause a proportionate split of the market capitalization of BEP between the BEP units and the BEPC exchangeable shares based on the value of the Business to be transferred to BEPC relative to BEP’s market capitalization. The distribution ratio has been determined using the fair market value of the Business to be transferred by BEP to BEPC, the number of the BEP units outstanding (assuming exchange of the redeemable partnership units of BRELP), and the market capitalization of BEP. The fair market value of the Business to be transferred by BEP is determined by BEP’s management using commonly accepted valuation methodologies and the value of the BEPC exchangeable shares and BEP’s market capitalization is determined using the market price for the BEP units, each as of the most recent practicable date.

 

17


Table of Contents

Questions

  

Answers About the Special Distribution

  

 

Holders of BEP’s preferred limited partnership units, which we refer to as the preferred units, and holders of TERP common stock, will not participate in this special distribution.

What is the TERP acquisition?

  

On March 16, 2020, BEP, BEPC, Acquisition Sub, TerraForm Power and TerraForm Power NY Holdings, Inc. entered into the Reorganization Agreement pursuant to which BEP and BEPC have agreed to acquire all of the public TERP shares on the terms and subject to the conditions set forth in the Reorganization Agreement. Pursuant to the Reorganization Agreement, each holder of public TERP shares will be entitled to receive for each public TERP share held by such holder as consideration a number of BEPC exchangeable shares equal to the adjusted exchange ratio or, at the election of such holder, BEP units, in each case as further adjusted to prevent dilution in accordance with the Reorganization Agreement plus any cash paid in lieu of fractional BEP units or BEPC exchangeable shares, as applicable. The adjusted exchange ratio will be determined by multiplying (x) 0.381 by (y) the sum of (i) the number (rounded, if necessary, to three decimal points) of BEPC exchangeable shares to be distributed with respect to each BEP unit upon the consummation of the special distribution and (ii) one. Because holders of BEP units are expected to receive one BEPC exchangeable share for every four BEP units in the special distribution, the adjusted exchange ratio is expected to be equal to 0.47625, in which case holders of public TERP shares will be entitled to receive 0.47625 of a BEPC exchangeable share or BEP unit per public TERP share. Holders of public TERP shares who do not make an election to receive BEP units will receive BEPC exchangeable shares. There is no limit on the number of shares of TERP common stock that may be exchanged for BEPC exchangeable shares or BEP units. The offer of BEPC exchangeable shares and BEP units in connection with the TERP acquisition will be made via a separate proxy statement/prospectus, and if successfully completed, is expected to close immediately after the closing of the special distribution.

 

If the TERP acquisition is completed, Brookfield and Brookfield Renewable intend to enter into voting agreements with a subsidiary of BEPC, giving BEPC voting control over the TERP common stock held by BEP and its affiliates.

 

The TERP acquisition remains subject to the approval of a majority of TerraForm Power’s stockholders not affiliated with Brookfield Renewable and other customary approvals and closing conditions and there can be no assurance that the TERP acquisition will be consummated.

Will shareholders of TerraForm Power participate in the special distribution?

  

No. Pursuant to the terms of the Reorganization Agreement, each holder of the public TERP shares not electing to receive BEP units as consideration will receive BEPC exchangeable shares through the TERP acquisition rather than through the special distribution. However, it is currently anticipated that the TERP acquisition would close immediately after the closing of the special distribution.

Is the special distribution conditional on the TERP acquisition?

  

No. The special distribution is not conditional on the TERP acquisition and will proceed in the event that the TERP acquisition is not consummated.

 

18


Table of Contents

Questions

  

Answers About the Special Distribution

If I am a holder of BEP units, what do I have to do to participate in the special distribution?

  

Nothing. You are not required to pay for the BEPC exchangeable shares that you will receive upon the special distribution or tender or surrender your BEP units or take any other action in connection with the special distribution. No vote of unitholders of BEP will be required for the special distribution. If you own BEP units as of the close of business on the distribution record date, a book-entry account statement reflecting your ownership of the BEPC exchangeable shares will be mailed to you, or your brokerage account will be credited for the BEPC exchangeable shares, on or about                 , 2020.

Are there risks associated with owning the BEPC exchangeable shares or BEP units?

  

Yes, BEPC’s Business and the ownership of BEPC exchangeable shares are subject to both general and specific risks and uncertainties. Owning BEP units also is subject to risks. For a discussion of factors you should consider, please see “Risk Factors”.

How will owning a BEPC exchangeable share be different from owning a BEP unit?

  

Each BEPC exchangeable share will be structured with the intention of providing an economic return equivalent to one BEP unit (subject to adjustment to reflect certain capital events), including identical dividends on a per share basis as are paid on each BEP unit. See “Description of BEPC Share Capital—Exchange by Holder—Adjustments to Reflect Certain Capital Events”. BEPC and BEP currently intend to satisfy any exchange requests on the BEPC exchangeable shares through the delivery of BEP units rather than cash. However, there are certain material differences between the rights of holders of BEPC exchangeable shares and holders of the BEP units under the governing documents of BEPC and BEP and applicable law, such as the right of holders of BEPC exchangeable shares to request an exchange of their BEPC exchangeable shares for an equivalent number of BEP units or its cash equivalent (the form of payment to be determined at the election of the Brookfield Renewable group) and the redemption right of BEPC. These material differences are described in the section entitled “Comparison of Rights of Holders of BEPC Exchangeable Shares and BEP Units”.

What are the key dates associated with the special distribution?

  

The key dates associated with the special distribution are as follows:

 

Special distribution declaration date:             , 2020

 

Commencement of “when-issued” trading of BEPC exchangeable shares:             , 2020

 

Commencement of “due bill” and “ex-distribution” trading of BEP units:             , 2020

 

Distribution Record date:             , 2020

 

Distribution date:             , 2020

 

It is expected that the closing date of the TERP acquisition would occur immediately after the closing of the special distribution.

  

 

19


Table of Contents

Questions

  

Answers About the Special Distribution

  

 

“When-issued” trading in the context of the special distribution refers to a sale or purchase made conditionally on or before the distribution date because the securities of the entity have not yet been distributed. If you own BEP units at the close of business on the distribution record date, you will be entitled to receive BEPC exchangeable shares in the special distribution. You may trade this entitlement to receive BEPC exchangeable shares, without BEP units you own, on the “when-issued” markets established by the NYSE and the TSX under the symbols “                ” and “                ”, respectively. BEPC expects “when-issued” trades of BEPC exchangeable shares to settle within two (2) days after the distribution date.

 

“Due bill” trading in the context of the special distribution refers to a sale or purchase of BEP units that includes a sale or purchase of the entitlement to receive BEPC exchangeable shares in the special distribution. “Ex-distribution” trading in the context of the special distribution refers to a sale or purchase of BEP units that does not include a sale or purchase of the entitlement to receive BEPC exchangeable shares in the special distribution.

How many BEPC exchangeable shares will I receive?

  

You will be entitled to receive one (1) BEPC exchangeable share for every four (4) BEP units you hold as of the distribution record date. Based on the number of BEP units expected to be outstanding on the distribution record date, BEP expects to distribute to holders of BEP units (including Brookfield) approximately 44.7 million BEPC exchangeable shares. As a result of the BRELP Distribution, approximately 33.1 million BEPC exchangeable shares will be distributed to Brookfield on its indirectly owned redeemable partnership units of BRELP and general partner interests in BRELP and BEP. No holder will be entitled to receive any fractional interests in the BEPC exchangeable shares. Holders who would otherwise be entitled to a fractional BEPC exchangeable share will receive a cash payment. For additional information on the distribution, see “The Special Distribution—Mechanics of the Special Distribution”.

 

Holders of BEP’s preferred units and holders of TERP common stock will not receive any BEPC exchangeable shares pursuant to the special distribution.

Can BEP units be exchanged for BEPC exchangeable shares?

  

No, BEP units are not exchangeable. A unitholder of BEP who would like to acquire additional BEPC exchangeable shares would be required to acquire them in the market. However, BEPC or one of its affiliates may in the future consider, subject to market and other conditions, making an offer to unitholders of BEP to permit them to exchange their BEP units for BEPC exchangeable shares.

Is the special distribution taxable for Canadian federal income tax purposes?

  

In general, subject to the conditions and limitations set forth below under the heading “Material Canadian Federal Income Tax Considerations”, the special distribution will reduce the adjusted cost base of a resident holder’s interest in BEP and the special distribution should not be taxable to a non-resident holder for Canadian federal income tax purposes.

 

20


Table of Contents

Questions

  

Answers About the Special Distribution

  

 

Unitholders of BEP who receive BEPC exchangeable shares pursuant to the special distribution should consult their own tax advisors having regard to their particular circumstances.

Is the special distribution taxable for United States federal income tax purposes?

  

In general, subject to the conditions and limitations set forth below under the heading “Material United States Federal Income Tax Considerations”, and based on representations made by the general partner of BEP and the general partner of BRELP, as of the date hereof, Torys LLP is of the opinion that each of BEP and BRELP should quality as an “investment partnership” within the meaning of the Code. If BEP and BRELP so qualify, then the special distribution of BEPC exchangeable shares to a U.S. unitholder that is an “eligible partner” (as defined below) will qualify as a non-taxable distribution of property for U.S. federal income tax purposes. However, the treatment of BEP and BRELP as investment partnerships is not free from doubt, as it depends on the highly factual determination that, for such U.S. federal income tax purposes, neither BEP nor BRELP has ever been engaged in a trade or business since the date of formation. Accordingly, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to any of the positions described herein. Each U.S. unitholder should consult an independent tax advisor regarding the U.S. federal income tax consequences of the special distribution in light of such unitholder’s particular circumstances.

Where will I be able to trade the exchangeable shares?

  

There is currently no public market for BEPC exchangeable shares. BEPC has applied to have the BEPC exchangeable shares listed on the NYSE and the TSX, under the symbol “BEPC”. The listing of BEPC exchangeable shares on the NYSE is subject to BEPC fulfilling all of the requirements of the NYSE and the listing of BEPC exchangeable shares on the TSX is subject to BEPC fulfilling all of the requirements of the TSX. The NYSE and the TSX have not conditionally approved BEPC’s listing application and there is no assurance that the NYSE or the TSX will approve the listing application.

 

BEPC anticipates that trading in BEPC exchangeable shares will begin on a “when-issued” basis as early as one (1) trading day prior to the distribution record date and will continue up to and including the distribution date. “When-issued” trading in the context of a special distribution refers to a sale or purchase made conditionally on or before the distribution date because the securities of the entity have not yet been distributed.

How do I exchange the BEPC exchangeable shares I will receive into BEP units?

  

As a BEPC exchangeable shareholder, you will be entitled to exchange BEPC exchangeable shares for an equivalent number of BEP units (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BEPC) at any time. BEP may elect to satisfy BEPC’s exchange obligation by acquiring such tendered BEPC exchangeable shares for an equivalent number of BEP units (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BEP). BEPC and BEP currently intend to satisfy any exchange requests through the delivery of BEP units rather than cash. For additional information, see “Description of BEPC Share Capital— BEPC Exchangeable Shares” and “—Exchange by Holder—Adjustments to Reflect Certain Capital Events.” However, factors that BEP and BEPC may consider when determining whether to satisfy any

 

21


Table of Contents

Questions

  

Answers About the Special Distribution

  

exchange request for cash rather than BEP units include, without limitation, compliance with applicable securities laws, changes in law (including the Bermuda limited partnership laws), BEP’s and BEPC’s respective available consolidated liquidity, and any change in the tax consequences to BEP or BEPC or to a holder as a result of delivery of BEP units.

 

If you hold your BEP units and BEPC exchangeable shares through a broker, please contact your broker to request an exchange. If you are a registered holder and hold your BEP units and BEPC exchangeable shares in certificated form or in an account directly with the transfer agent, Computershare Inc., please contact the transfer agent to request an exchange.

 

An exchange of BEPC exchangeable shares for an equivalent number of BEP units or its cash equivalent may have tax consequences. See “Material Canadian Federal Income Tax Considerations” and “Material United States Federal Income Tax Considerations”.

Will the number of BEP units I own or the distributions I receive change as a result of the special distribution?

  

No. The number of BEP units that you own will not change as a result of the special distribution. Immediately following completion of the special distribution, the aggregate distribution received by a holder on its BEP units and BEPC exchangeable shares (assuming such holder did not dispose of its BEP units or BEPC exchangeable shares) will be the same as it would have received if the special distribution had not been made, with distributions on each BEP unit representing four-fifths (4/5ths) of such aggregate amount as a result of the one (1) for four (4) special distribution, and the dividends on each BEPC exchangeable share being identical to the distributions on each BEP unit after the special distribution.

What will happen to the listing of the BEP units?

  

Nothing. The BEP units will continue to trade on the TSX under the symbol “BEP.UN” and on the NYSE under the symbol “BEP”.

Whom do I contact for information regarding BEPC and the special distribution?

  

Before the special distribution, you should direct inquiries relating to the special distribution to:

 

Brookfield Renewable Partners L.P.

73 Front Street, 5th Floor

Hamilton HM12, Bermuda

Attention: Jane Sheere

 

After the special distribution, you should direct inquiries relating to the BEPC exchangeable shares to:

 

Brookfield Renewable Corporation

250 Vesey Street, 15th Floor

New York NY 10281-1023

Attention: Investor Relations

Phone: 1-833-236-0278

Email: enquiries@brookfieldrenewable.com

 

After the special distribution, the transfer agent and registrar for the BEPC exchangeable shares will be:

 

Computershare Inc.

100 University Ave, 8th Floor

Toronto, ON M5J 2Y1

 

22


Table of Contents

SUMMARY

This summary highlights selected information contained elsewhere in this document and in the documents incorporated herein by reference and does not contain all of the information you should know about the Brookfield Renewable group, the BEPC exchangeable shares and the BEP units. You should read this entire document carefully, especially the “Risk Factors” section and the more detailed information and financial data and statements contained elsewhere in this document and incorporated herein by reference. Some of the statements in this document constitute forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Information” for more information. Unless otherwise indicated or the context otherwise requires, the disclosure in this document assumes that the special distribution has been completed and BEPC have acquired its operating subsidiaries from Brookfield Renewable, although BEPC will not acquire such subsidiaries until prior to the special distribution. Unless otherwise specified, this document assumes that the TERP acquisition has not been completed. See “Glossary” for the definitions of the various defined terms used throughout this document.

Special Distribution Key Dates

The key dates associated with the special distribution are as follows:

Special distribution declaration date:             , 2020

Commencement of “when-issued” trading of BEPC exchangeable shares:             , 2020

Commencement of “due bill” and “ex-distribution” trading of BEP units:             , 2020

Distribution record date:             , 2020

Distribution date:             , 2020

It is expected that the closing date of the TERP acquisition would occur immediately after the closing of the special distribution.

“When-issued” trading in the context of the special distribution refers to a sale or purchase made conditionally on or before the distribution date because the securities of the entity have not yet been distributed. If you own BEP units at the close of business on the distribution record date, you will be entitled to receive BEPC exchangeable shares in the special distribution. You may trade this entitlement to receive BEPC exchangeable shares, without BEP units you own, on the “when-issued” markets established by the NYSE and the TSX under the symbols “                ” and “                ”, respectively. BEPC expects “when-issued” trades of BEPC exchangeable shares to settle within two (2) days after the distribution date.

“Due bill” trading in the context of the special distribution refers to a sale or purchase of BEP units that includes a sale or purchase of the entitlement to receive BEPC exchangeable shares in the special distribution. “Ex-distribution” trading in the context of the special distribution refers to a sale or purchase of BEP units that does not include a sale or purchase of the entitlement to receive BEPC exchangeable shares in the special distribution.

BEPC’s Business

BEPC is a controlled subsidiary of Brookfield Renewable, whose direct and indirect subsidiaries own and operate hydroelectric power, wind, solar and storage and ancillary assets in the United States and Brazil, and hydroelectric power assets in Colombia. Brookfield Renewable was established by Brookfield as a vehicle to own and operate high-quality renewable power assets globally, and collectively represents one of the largest pure-play public renewable businesses in the world. BEPC leverages Brookfield Renewable’s extensive operating experience to maintain and enhance the value of assets, grow cash flows on an annual basis and cultivate positive relations with local stakeholders.



 

23


Table of Contents

BEPC’s current operations consist of approximately 8,326 MW of installed hydroelectric, wind, storage and ancillary capacity across Brazil, Colombia and the United States, with annualized long-term average generation on a consolidated basis of 33,088 GWh and on a proportionate basis of approximately 16,327 GWh, which exclude a 10% interest of LATAM Holdco that will be retained by Brookfield Renewable. BEPC also currently owns approximately 278 MW of solar assets which are under development in the United States.

BEPC intends to generate a stable, predictable cash flow profile sourced from a portfolio of low operating cost, hydroelectric, wind and solar assets that sell electricity under contracts with creditworthy counterparties. As a controlled subsidiary of BEP, an integral part of BEPC’s strategy is to participate along with institutional investors in Brookfield-sponsored funds, consortia, joint ventures and other arrangements, that target acquisitions that suit BEPC’s profile.

Current Operations

Brazil

Including all technologies, BEPC owns 54 facilities with a total capacity of 1,271 MW located in 10 Brazilian states, representing approximately 60% of the country’s population, and BEPC has several projects in various stages of development, including several solar development projects. As such, BEPC believes its business in Brazil is well positioned to participate in a large and diversified economy with further developmental potential.

BEPC generally focuses on small hydroelectric power plants, or SHPPs, a category of hydroelectric power plant with less than 30 MW of capacity. Of BEPC’s concessions and authorizations, all but three have remaining terms of more than ten years.

In the Brazilian electricity market, energy is typically sold under long-term contracts to either load-serving distribution companies in the regulated market or smaller “free customers” in the free customer market. Approximately 74% of BEPC’s portfolio are with load-serving distribution companies in the regulated market and approximately 26% are with “free customers” in the free customer market. Commencing in 2020, “free customers” whose load is between 0.5 MW and 2 MW can only buy power from renewable sources. BEPC’s Brazilian portfolio has a weighted average (based on MW) remaining contract term of approximately nine years.

Market Opportunity

With the world’s fifth-largest population and eighth-largest economy, Brazil retains strong long-term growth potential despite near-term economic challenges. Electricity consumption has sustained an average annual growth rate of approximately 3.1% over the last 30 years, a trend which is likely to continue in the long-term given that per capita consumption is still less than one-fifth of per capita consumption in the United States. By 2029, Brazil’s energy planning agency projects that around 75,000 MW of new supply will be needed, while only approximately 14,000 MW of capacity is already contracted. Accordingly, BEPC expects Brazil will require over 6,000 MW of new supply annually to meet growing demand. In line with the government’s ten-year planning projections, the renewable power industry is growing, notably wind power and solar. Brazil has approximately 15,160 MW of installed wind capacity, with 5,750 MW under development. Solar PV power generation is also being developed and while current installed solar PV capacity is relatively small (2,220 MW), there are approximately 4,350 MW of solar PV capacity under development in Brazil.

BEPC believes there are two additional aspects of the Brazilian market that make its business compelling. First, the majority of BEPC hydroelectric facilities participate in the hydrological balancing pool administered by the government of Brazil, or the MRE, which significantly reduces the impact of variations in hydrology on BEPC’s cash flows. Second, SHPPs operate in a segment of the market that benefits from certain preferred



 

24


Table of Contents

economic and regulatory rights. Customers that purchase power from these plants benefit from a special discount for the use of the distribution system which, in turn, enables generators like BEPC, since 26% of BEPC’s portfolio is contracted with final consumers, to capture a portion of this discount through higher prices to end-user customers.

Colombia

The Brookfield Renewable group, together with its institutional partners, acquired Isagen in January 2016, which marked their entry into the Colombian market. A subsidiary of the Brookfield Renewable group is the general partner of and controls BEP that holds the consortium’s investment in Isagen. The Brookfield Renewable group consortium’s current interest in Isagen is 99.63% of which BEPC’s share is approximately 24.08%. The Brookfield Renewable group holds BEPC’s 24.08% interest through BRE Colombia Holdings Limited and BRE Colombia Co Invest I L.P., which are subsidiaries of BEP, and through an investment in Brookfield Infrastructure Fund III. Brookfield Infrastructure Fund III holds an additional 22.95% interest, and the Brookfield Renewable group consortium’s remaining 52.59% interest is held by third party co-investors. Public shareholders hold a 0.37% interest.

The consortium holds its interest in Isagen through an entity, which we refer to as Hydro Holdings, which is entitled to appoint a majority of the board of directors of Isagen. The general partner of Hydro Holdings will be a controlled subsidiary of BEPC. The Brookfield Renewable group is entitled to appoint a majority of Hydro Holdings’ board of directors, provided that BAM and its subsidiaries (including the Brookfield Renewable group) collectively are (i) the largest holder of Hydro Holdings’ limited partnership interests, and (ii) hold over 30% of Hydro Holdings’ limited partnership interests. BAM and its subsidiaries (including the Brookfield Renewable group) currently meet such ownership test.

Isagen is Colombia’s third-largest power generation company and owns and operates a 3,032 MW portfolio with an annual average generation of approximately 14,500 GWh. This portfolio accounts for approximately 18% of Colombia’s installed generating capacity and consists of six, largely reservoir-based, hydroelectric facilities and a 300 MW cogeneration plant. The hydroelectric assets include the largest reservoir by volume in Colombia and are collectively able to store approximately 26% of their annualized long-term average generation. Isagen’s portfolio also includes approximately 500 MW of medium to long-term development projects.

Isagen owns all of its power generating assets in perpetuity and currently holds requisite water usage and other rights in respect of each of its assets.

In Colombia, revenues are typically secured through one to five-year bilateral contracts with local distribution companies in the “regulated market”, and with large industrial users in the unregulated market. Isagen’s current long-term contracts’ average term is four years. These contracts reduce the exposure of both suppliers and end-users to price volatility in the spot market by fixing the price payable for given amount of committed energy. Isagen’s PPAs take this approach and its 2020 revenues are approximately 70% contracted.

Market Opportunity

Colombia is an investment-grade rated country based on ratings from multiple agencies. Real gross domestic product has grown at an average rate of approximately 4% per year, while growth in demand for electricity has averaged just under 3%. Over the long-term, BEPC and BEP anticipate that electricity demand growth will be approximately 2.5% per year reflecting BEP’s long-term view of gross domestic product growth and a view that per capita power consumption converges with neighboring countries. Power consumption of approximately 1,300 kWh per year in Colombia is well below that of most regional peers and only 10% of that in the U.S. As peak demand in Colombia is approximately 10 GW, with estimated growth at 2.5%, there will be



 

25


Table of Contents

approximately 250 MW of additional demand each year, which would require an additional 400 MW of generating capacity to maintain adequate reserves.

As of December 31, 2019, BEPC had total installed capacity of over 17 GW in Colombia with hydro accounting for almost 70% of the supply mix and the remainder being supplied by natural gas, coal, and diesel. BEPC expects that meeting Colombia’s growing demand for firm energy will become more difficult over time as the recent problems with the construction and operation of the dam near Ituango has made large-scale hydro development more challenging (despite significant untapped hydro resources) and natural gas imports are increasingly required to meet domestic needs due to falling natural gas production in Colombia. BEPC believes it will be able to leverage BEPC’s underlying hydro business to help the country meet its energy needs by extending the duration of contracts with customers and participating in opportunistic development projects.

United States

BEPC is strategically focused on power markets in the Northeast, Mid-Atlantic, Southeast and California, with additional operations in Arizona and Minnesota. The majority of BEPC’s capacity in the United States is located in New York, Pennsylvania and New England. In New York, BEPC is one of the largest independent power producers with 74 hydroelectric facilities with an aggregate installed capacity of 711 MW. In Pennsylvania, BEPC has four hydroelectric facilities with an aggregate installed capacity of 742 MW. In New England, BEPC has 47 hydroelectric facilities and one pumped storage facility with an aggregate installed capacity of 1,274 MW.

A number of BEPC’s U.S. hydroelectric assets have water storage reservoirs that can collectively store approximately 2,500 GWh, or approximately 21% of their annualized long-term average generation. BEPC also benefits from a 50% joint-venture interest in a 600 MW hydroelectric pumped storage facility located in Massachusetts. Pumped storage is a form of hydroelectric power which allows energy to be stored by pumping water up into a reservoir, and then producing power by releasing the water when power prices are higher.

BEPC also owns seven wind farms located in California, New Hampshire and Arizona with an aggregate installed capacity of 434 MW. The California wind farms account for the majority of this capacity and are primarily located in the Tehachapi area, which has one of the most proven wind resources in the United States and is attractively located near the Los Angeles load center. BEPC also owns one combined cycle, natural gas-fired facility in Syracuse, New York, which sells its power output on a merchant basis and is predominantly used at times of peak demand.

BEPC’s rights to operate BEPC’s hydroelectric facilities in the United States are secured primarily through long-term licenses from the Federal Energy Regulatory Commission, which we refer to as FERC, the federal agency that regulates the licensing of substantially all hydroelectric power plants in the United States.

Market Opportunity

Over the last decade, the United States has maintained consistent, broad-based policy momentum to transition the country’s electricity production to cleaner generation and promote increased energy independence. The United States is the world’s second largest wind market with approximately 90,000 MW of installed wind capacity as of 2018. One of the most significant drivers of renewable power growth in the United States has been the adoption of renewable portfolio standards targets in 29 states and the District of Columbia, with renewable mandates set to as high as 75% of the total supply mix by 2032 and a target of 100 percent carbon-free energy by 2045. In addition, growth has been driven by various government incentive programs and Fortune 100 companies supporting investment in new renewables.



 

26


Table of Contents

The U.S. markets in which BEPC focuses cover approximately 70% of the U.S. population, and most have strong competitive wholesale markets and renewable portfolio standards targets, aging electricity infrastructure and/or pressure to retire coal generation, providing clear opportunities for sustained renewable generation growth.

Operating Philosophy

Like Brookfield Renewable, BEPC intends to employ a hands-on, operations-oriented, long-term owner’s approach to managing BEPC’s portfolio. BEPC believes this approach will enable it to maintain and, where possible, enhance the value of its assets by being able to quickly identify and manage technical, economic or stakeholder issues that may arise. Brookfield Renewable supports BEPC’s operators with a strong corporate team that provides oversight of the functions of BEPC and, among other things, establishes consistent policies for Business on compliance, information technology, health, safety and security, human resources, stakeholder relations, procurement, governance, anti-bribery and anti-corruption.

BEPC also benefits from the expertise of Brookfield, which provides strategic direction, corporate oversight, commercial and business development expertise, and oversees decisions regarding the funding and growth of BEPC’s and Brookfield Renewable’s business. BEPC believes this approach leads to a strong decision-making culture and long-term owner-oriented investment philosophy to build value.

BEPC Management

Similar to Brookfield Renewable, the Service Providers, being wholly-owned subsidiaries of Brookfield, will provide management services to BEPC pursuant to the BEP Master Services Agreement of Brookfield Renewable. Each of the members of the senior management team that is principally responsible for providing services to Brookfield Renewable has substantial operational and transactional origination and execution expertise, including Sachin Shah, who will serve as BEPC’s Chief Executive Officer, Wyatt Hartley, who will serve as BEPC’s Chief Financial Officer, Ruth Kent, who will serve as BEPC’s Chief Operating Officer and Jennifer Mazin, who will serve as BEPC’s General Counsel. See “BEPC Management and the BEP Master Services Agreement” for further details.

Stock Exchange Listing

BEPC has applied to have the BEPC exchangeable shares listed on the NYSE and the TSX, under the symbol “BEPC”. The listing of BEPC exchangeable shares on the NYSE is subject to BEPC fulfilling all of the requirements of the NYSE and the listing of BEPC exchangeable shares on the TSX is subject to BEPC fulfilling all of the requirements of the TSX. The NYSE and the TSX have not conditionally approved BEPC’s listing application and there is no assurance that the NYSE or the TSX will approve the listing application. BEPC expects that trading of BEPC exchangeable shares will begin on a “when-issued” basis as early as one (1) trading day prior to the distribution record date and will continue up to and including the distribution date. “When-issued” trades generally settle within two (2) trading days after the distribution date. On or about the first trading day following the distribution date, any “when-issued” trading of BEPC exchangeable shares will end and “regular-way” trading will begin.

The Special Distribution

The special distribution will entitle unitholders of BEP to receive one (1) BEPC exchangeable share for every four (4) BEP units held as of the distribution record date. The distribution record date is                , 2020 and the distribution date is expected to be on or about                , 2020.



 

27


Table of Contents

BEP believes that certain investors in certain jurisdictions may be dissuaded from investing in BEP because of the tax reporting framework that results from investing in BEP units of a Bermuda-exempted limited partnership. Creating BEPC, a corporation, and distributing BEPC exchangeable shares, with each share structured with the intention of providing an economic return equivalent to one BEP unit is intended to achieve the following objectives:

 

   

Provide investors that would not otherwise invest in BEP with an opportunity to gain access to BEP’s globally diversified portfolio of high-quality renewable power assets.

 

   

Provide investors with the flexibility to own, through the ownership of a BEPC exchangeable share of BEPC, the economic equivalent of a BEP unit because of the ability to exchange into a BEP unit or its cash equivalent and the identical dividends that are expected to be paid on each BEPC exchangeable share.

 

   

Provide investors with a tax reporting framework that may be favored by investors in some jurisdictions over the tax reporting framework provided by an investment in BEP, which BEP believes will attract new investors who will benefit from investing in BEP’s business.

 

   

Create a company that BEP expects to be eligible for inclusion in several indices, which may be attractive to certain investors.

 

   

Provide the Brookfield Renewable group with a greater securityholder base, thereby creating enhanced liquidity for the Brookfield Renewable group’s securityholders.

 

   

Create a company that will provide the Brookfield Renewable group with the ability to access new capital pools.

The special distribution is, in effect, a stock split of the BEP units. As of the date of this document, there are approximately 308.7 million BEP units outstanding (assuming exchange of the redeemable partnership units of BRELP), which are expected to receive a cash distribution of $0.5425 per BEP unit in the next quarter, for a total of $167.5 million to be paid. As a result of the special distribution of one (1) BEPC exchangeable share for every four (4) BEP units held:

 

   

a total of approximately 44.7 million BEPC exchangeable shares will be distributed to unitholders of BEP and 33.1 million BEPC exchangeable shares will be distributed to holders of redeemable partnership units and other equity units of BRELP;

 

   

the distribution level for each BEP unit will immediately be reduced to 4/5ths of the pre-special distribution level, or to $0.4340 per BEP unit in the next quarter, and this will be the same as the initial dividend level for a BEPC exchangeable share;

 

   

each holder of forty (40) BEP units before the special distribution will, after completion of the special distribution, own 50 securities (forty (40) BEP units and ten (10) BEPC exchangeable shares) and will be expected to receive, as would have been the case before the special distribution, an aggregate distribution of $21.70 in the next quarter (assuming the holder continues to own forty (40) BEP units and ten (10) BEPC exchangeable shares);

 

   

a holder who decides to exchange its BEPC exchangeable shares for BEP units will own fifty (50) BEP units in lieu of the forty (40) BEP units pre-distribution (and a holder who decides to sell the ten (10) BEPC exchangeable shares, will now have the cash value of those shares and 4/5ths of its initial investment in BEP);

 

   

the aggregate cash to be paid in distributions on the BEP units by BEP and BEPC (assuming exchange of the redeemable partnership units of BRELP) will be $167.5 million, which is identical to the amount that would have been paid if the special distribution were not effected; and



 

28


Table of Contents
   

if all of the BEPC exchangeable shares are exchanged, there will be approximately 386 million BEP units outstanding (assuming exchange of the redeemable partnership units of BRELP), BEPC will be wholly-owned by BEP and there will more BEP units outstanding, each receiving a lower per BEP unit distribution than before the special distribution.

The special distribution is being effected in a manner that BEP expects will not result in any adverse impact on Brookfield Renewable’s credit rating or its preference shareholders, preferred unitholders, or debtholders. See “The Special Distribution—Background to and Purpose of the Special Distribution” and “BEPC Relationship with Brookfield Renewable—Credit Support” for further details. For additional information regarding Brookfield Renewable, see “Brookfield Renewable Partners L.P.

Proposed Acquisition of TerraForm Power, Inc.

On March 16, 2020, BEP, BEPC, Acquisition Sub, TerraForm Power and TerraForm Power NY Holdings, Inc. entered into the Reorganization Agreement pursuant to which, subject to the terms and conditions of the Reorganization Agreement, TerraForm Power will merge into TerraForm Power NY Holdings, Inc. and the Brookfield Renewable group will acquire all of the public TERP shares. Pursuant to the Reorganization Agreement, each holder of public TERP shares will be entitled to receive for each public TERP share held by such holder as consideration a number of BEPC exchangeable shares equal to the adjusted exchange ratio or, at the election of such holder, BEP units, in each case as further adjusted to prevent dilution in accordance with the Reorganization Agreement plus any cash paid in lieu of fractional BEP units or BEPC exchangeable shares, as applicable. The adjusted exchange ratio will be determined by multiplying (x) 0.381 by (y) the sum of (i) the number (rounded, if necessary, to three decimal points) of BEPC exchangeable shares to be distributed with respect to each BEP unit upon the consummation of the special distribution and (ii) one. Because holders of BEP units are expected to receive one BEPC exchangeable share for every four BEP units in the special distribution, the adjusted exchange ratio is expected to be equal to 0.47625, in which case holders of public TERP shares will be entitled to receive 0.47625 of a BEPC exchangeable share or of a BEP unit per public TERP share. Holders of public TERP shares who do not make an election to receive BEP units will receive BEPC exchangeable shares. There is no limit on the number of shares of TERP common stock that may be exchanged for BEPC exchangeable shares or BEP units. The offer of BEPC exchangeable shares and BEP units in connection with the TERP acquisition will be made via a separate proxy statement/prospectus, and if successfully completed, is expected to close immediately after the closing of the special distribution. However, the special distribution is not conditioned on the successful completion of the TERP acquisition.

Excluding the shares of TERP common stock owned by a subsidiary of BEP, Brookfield currently controls approximately 47% of TERP common stock on behalf of itself and its institutional partners, including BEP. The TERP common stock controlled by Brookfield is not being acquired in the TERP acquisition. Upon completion of the TERP acquisition, TerraForm Power will be controlled as to 47% by Brookfield and as to 53% by BEP (including through its ownership in BEPC), and BEP will have an indirect 67% economic interest. Concurrently with closing of the TERP acquisition, Brookfield and Brookfield Renewable intend to enter into voting agreements with a subsidiary of BEPC, giving BEPC voting control over the TERP common stock held by BEP and its affiliates. As a result, upon completion of the TERP acquisition, BEPC will control TerraForm Power and consolidate TerraForm Power from an accounting point of view.

Ownership and Organization Structure

Prior to the completion of the special distribution and the TERP acquisition, BEPC was an indirect subsidiary of BEP. The following diagram provides an illustration of the simplified corporate structure of the Brookfield Renewable group and TerraForm Power immediately prior to completion of the special distribution and the TERP acquisition.



 

29


Table of Contents

LOGO

 

(1) 

Pursuant to a voting agreement, BRPI has agreed that certain voting rights with respect to BRELP General Partner, BRELP GP LP, and BRELP will be voted in accordance with the direction of BEP.



 

30


Table of Contents
(2) 

BRPI’s limited partnership interest in BRELP is redeemable for cash or exchangeable for BEP units in accordance with the redemption-exchange mechanism contained in BRELP’s limited partnership agreement, which could result in BRPI owning approximately 60.17% of BEP’s issued and outstanding BEP units on a fully-exchanged basis. On a fully-exchanged basis, public holders of BEP units will own approximately 39.83% of BEP and BRPI will not hold any limited partnership units of BRELP.

(3) 

Brookfield has provided an aggregate of $5 million of working capital to LATAM Holdco through a subscription for preferred shares. In addition, BRPI holds special shares the redemption price of which is tied to the successful development of projects in Brazil.

(4) 

Orion US Holdings 1 L.P. is controlled by Brookfield. Third party investors in Brookfield Infrastructure Fund III indirectly hold an approximate 69.3% interest in Orion US Holdings 1 L.P.

(5) 

BEP holds an approximate 29% economic interest in TERP (comprised of an approximate 14% interest owned through Orion US Holdings 1 L.P. and an approximate 15% interest owned through BBHC Orion Holdco L.P.). The remaining 38% interest is held by public TERP shareholders.



 

31


Table of Contents

The following diagram provides an illustration of the simplified corporate structure of BEPC after completion of the special distribution and, if completed, the TERP acquisition.

LOGO

 

(1) 

Pursuant to a voting agreement, BRPI has agreed that certain voting rights with respect to the general partner of BRELP General Partner, BRELP GP LP and BRELP will be voted in accordance with the direction of BEP.

(2) 

BRPI’s limited partnership interest in BRELP is redeemable for cash or exchangeable for BEP units in accordance with the redemption-exchange mechanism contained in BRELP’s limited partnership



 

32


Table of Contents
 

agreement, which could result in BRPI owning approximately 60.17% of BEP’s issued and outstanding BEP units on a fully-exchanged basis. On a fully-exchanged basis, public holders of BEP units own approximately 39.83% of BEP and BRPI will not hold any limited partnership units of BRELP.

(3) 

Holders of BEPC exchangeable shares hold a 25% voting interest in BEPC. See “Description of BEPC Share Capital—Exchangeable Shares—Voting”.

(4) 

Immediately following the special distribution, holders of BEP units, other than Brookfield and its affiliates, will hold approximately 39.5% of the issued and outstanding BEPC exchangeable shares (25.8% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares).

(5) 

Brookfield and its affiliates will hold approximately 60.5% of the issued and outstanding BEPC exchangeable shares (39.5% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares).

(6) 

Holders of the BEPC class B shares hold a 75% voting interest in BEPC. The BEPC class C shares are non-voting. Brookfield Renewable will hold all of the BEPC class B shares and BEPC class C shares upon completion of the special distribution. “Description of BEPC Share Capital—Class B Shares—Voting”.

(7)

Brookfield has provided an aggregate of $5 million of working capital to LATAM Holdco through a subscription for preferred shares. In addition, BRPI holds special shares, the redemption price of which is tied to the successful development of projects in Brazil.

(8) 

This organizational chart reflects TERP’s ownership assuming that the TERP acquisition is completed and all public TERP shares are exchanged for BEPC exchangeable shares. Overall, BEP will hold an approximate 67% economic interest in TERP (comprised of an approximate 14% interest owned through its interest in Orion US Holdings 1 LP, an approximate 15% interest owned through BBHC Orion Holdco L.P. and through its ownership in BEPC). BEPC will hold an approximate 38% economic interest in TERP. If the TERP acquisition is completed, Brookfield and Brookfield Renewable intend to enter into voting agreements with a subsidiary of BEPC, giving BEPC voting control over the public TERP shares currently held by BEP and its affiliates. As a result, upon completion of the TERP acquisition, BEPC will control TERP and consolidate TERP from an accounting point of view.

(9) 

Each holder of public TERP shares will be entitled to receive for each public TERP share held by such holder as consideration a number of BEPC exchangeable shares equal to the adjusted exchange ratio or, at the election of such holder, BEP units, in each case as further adjusted to prevent dilution in accordance with the Reorganization Agreement plus any cash paid in lieu of fractional BEP units or BEPC exchangeable shares, as applicable. The adjusted exchange ratio will be determined by multiplying (x) 0.381 by (y) the sum of (i) the number (rounded, if necessary, to three decimal points) of BEPC exchangeable shares to be distributed with respect to each BEP unit upon the consummation of the special distribution and (ii) one. Because holders of BEP units are expected to receive one BEPC exchangeable share for every four BEP units in the special distribution, the adjusted exchange ratio is expected to be equal to 0.47625, in which case holders of public TERP shares will be entitled to receive 0.47625 of a BEPC exchangeable share or BEP unit per public TERP share.

(10) 

Assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares, public TERP shareholders will own an approximate 34.7% economic interest in BEPC. This percentage is subject to adjustment to the extent holders of public TERP shares elect to receive BEP units.

BEP and BEPC Relationship with Brookfield

BEPC’s organizational and ownership structure involves a number of relationships that may give rise to conflicts of interest between BEPC and BEPC shareholders, on the one hand, and Brookfield and Brookfield Renewable, on the other hand. For example, BEPC expects that the BEPC board will mirror the board of the general partner of BEP, except that BEPC will add one additional non-overlapping board member to assist BEPC with, among other things, resolving any conflicts of interest that may arise from its relationship with Brookfield



 

33


Table of Contents

Renewable. Eleazar de Carvalho Filho will initially serve as the non-overlapping member of the BEPC board. Mr. de Carvalho Filho has served on the board of directors of the general partner of BEP since November 2011 and will resign from such board of directors prior to the special distribution. If in the 12 months following the special distribution, BEPC considers a related party transaction in which BEP is an interested party within the meaning of MI 61-101, Mr. de Carvalho Filho will not be considered an independent director under MI 61-101 for purposes of serving on a special committee to consider such transaction. In certain instances, the interests of Brookfield or Brookfield Renewable may differ from the interests of BEPC and BEPC’s shareholders. Further, Brookfield may make decisions, including with respect to tax or other reporting positions, from time to time that may be more beneficial to one type of investor or beneficiary than another, or to Brookfield rather than to BEPC and BEPC’s shareholders. See “BEP and BEPC Relationship with Brookfield—Conflicts of Interest and Fiduciary Duties” below for more information.

BEPC Dividend Policy

The BEPC board may declare dividends at its discretion. However, each BEPC exchangeable share has been structured with the intention of providing an economic return equivalent to one BEP unit and it is expected that dividends on BEPC exchangeable shares will be declared and paid at the same time as distributions are declared and paid on the BEP units and that dividends on each BEPC exchangeable share will be declared and paid in the same amount as are declared and paid on each BEP unit to provide holders of BEPC exchangeable shares with an economic return equivalent to holders of BEP units. BEPC expects to commence paying dividends on BEPC exchangeable shares on the first distribution payment date for the BEP units occurring after the distribution date for the special distribution. Additionally, pursuant to the Equity Commitment Agreement, BEP has agreed that it will not declare or pay any distribution on the BEP units if on such date BEPC does not have sufficient funds or other assets to enable the declaration and payment of an equivalent dividend on the BEPC exchangeable shares. BEP pursues a strategy which the Brookfield Renewable group expects will provide for highly stable, predictable cash flows sourced from predominantly hydroelectric, wind and solar assets ensuring a sustainable distribution yield. The Brookfield Renewable group’s objective is to pay a distribution that is sustainable on a long-term basis and has set its target payout ratio at approximately 70% of Brookfield Renewable’s FFO.

Participants in BEP’s distribution reinvestment plan will automatically receive the special distribution of BEPC exchangeable shares on the same basis as other unitholders of BEP provided, they continue to own such BEP units on the distribution record date. However, participants should be aware that BEPC does not currently anticipate establishing a similar dividend reinvestment plan for BEPC, and future dividends paid on BEPC exchangeable shares will be paid in cash and not reinvested.

BEPC Capital Structure

Each BEPC exchangeable share will be structured with the intention of providing an economic return equivalent to one BEP unit (subject to adjustment to reflect certain capital events), including identical dividends on a per share basis as are paid on each BEP unit, and will be exchangeable at the option of the holder for one BEP unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BEPC), as more fully described in this document. BEP may elect to satisfy its exchange obligation by acquiring such tendered BEPC exchangeable shares for an equivalent number of BEP units (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of the Brookfield Renewable group). See “Description of BEPC Share Capital—Exchange by Holder—Adjustments to Reflect Certain Capital Events”. BEPC and BEP currently intend to satisfy any exchange requests on the BEPC exchangeable shares through the delivery of BEP units rather than cash. BEP therefore expects that the market price of BEPC exchangeable shares will be significantly impacted by the market price of the BEP units and the combined business performance of the Brookfield Renewable group as a whole. However, there are certain material differences between the rights of holders of BEPC exchangeable



 

34


Table of Contents

shares and holders of the BEP units under the governing documents of BEPC and BEP and applicable law, such as the right of holders of BEPC exchangeable shares to request an exchange of their BEPC exchangeable shares for an equivalent number of BEP units or its cash equivalent (the form of payment to be determined at the election of the Brookfield Renewable group) and the redemption right of BEPC. These material differences are described in the section entitled “Comparison of Rights of Holders of BEPC Exchangeable Shares and BEP Units”. In making an investment decision relating to BEP’s securities, you should also carefully consult the documents prepared by BEP and described in the section of this document entitled “Brookfield Renewable Partners L.P.—Information Regarding the BEP Units”.

Further, the BEPC exchangeable shares will be held by public shareholders and Brookfield, and the BEPC class B shares and BEPC class C shares will be held by Brookfield Renewable. Dividends on each BEPC exchangeable share are expected to be declared and paid at the same time and in the same amount per share as distributions on each BEP unit. Brookfield Renewable’s ownership of BEPC class C shares will entitle it to receive dividends as and when declared by the BEPC board. The holders of the BEPC exchangeable shares will be entitled to one vote for each BEPC exchangeable share held at all meetings of BEPC’s shareholders, except for meetings at which only holders of another specified class or series of shares of BEPC are entitled to vote separately as a class or series. The holders of the BEPC class B shares will be entitled to cast, in the aggregate, a number of votes equal to three times the number of votes attached to the BEPC exchangeable shares. Except as otherwise expressly provided in the BEPC articles or as required by law, the holders of BEPC exchangeable shares and BEPC class B shares will vote together and not as separate classes. Holders of BEPC class C shares will have no voting rights. See “Description of BEPC Share Capital”.

Rights Agreement

Prior to the distribution date, Wilmington Trust, National Association, or the rights agent, and BAM will enter into a rights agreement, which we refer to as the Rights Agreement, pursuant to which BAM has agreed that, until the seventh anniversary of the distribution date (and as automatically renewed for successive periods of two years, unless BAM provides the rights agent with written notice of termination in accordance with the terms of the Rights Agreement) in the event that, on the applicable specified exchange date with respect to any BEPC exchangeable shares submitted for exchange, (i) BEPC has not satisfied its obligation under BEPC articles by delivering the BEP unit amount or its cash equivalent amount and (ii) Brookfield Renewable has not, upon its election in its sole and absolute discretion, acquired such exchanged BEPC exchangeable shares from the holder thereof and delivered the BEP unit amount, BAM will satisfy, or cause to be satisfied, the obligations pursuant to the BEPC articles to exchange such subject BEPC exchangeable shares for the BEP unit amount or its cash equivalent. The holders of BEPC exchangeable shares have a right to receive the BEP unit amount or its cash equivalent in such circumstances, which we refer to as the secondary exchange rights. BAM currently intends to satisfy any exchange requests on the BEPC exchangeable shares through the delivery of BEP units. After the expiry of the Rights Agreement, holders of BEPC exchangeable shares will continue to have all of the rights provided for in the BEPC articles but will no longer be entitled to rely on the secondary exchange rights.

Management Fee and Incentive Distributions

BEPC, like Brookfield Renewable, will be externally managed by the Service Providers. In connection with the completion of the special distribution, the BEP Master Services Agreement will be amended to contemplate BEPC becoming a Service Recipient and receiving management services comparable to the services currently provided to Brookfield Renewable by the Service Providers. Pursuant to the BEP Master Services Agreement, in exchange for the management services provided to Brookfield Renewable by the Service Providers, Brookfield Renewable pays an annual management fee to the Service Providers of $20 million (adjusted annually for inflation at an inflation factor based on year over year United States consumer price index) plus 1.25% of the amount by which the market value of the Brookfield Renewable group exceeds an initial reference value. The



 

35


Table of Contents

base management fee is calculated and paid on a quarterly basis. For purposes of calculating the base management fee, the market value of the Brookfield Renewable group is equal to the aggregate value of all outstanding BEP units on a fully-diluted basis, preferred units and securities of the other Service Recipients (including BEPC exchangeable shares) that are not held by Brookfield Renewable, plus all outstanding third party debt with recourse to a Service Recipient, less all cash held by such entities. BRP Bermuda GP Limited, a subsidiary of Brookfield, also receives incentive distributions based on the amount by which quarterly distributions on BRELP units (other than BRELP Class A Preferred Units), as well as economically equivalent securities of the other Service Recipients, including BEPC, exceed specified target levels as set forth in BRELP’s limited partnership agreement. The value of the special distribution will not be included in the relevant quarterly incentive distribution calculation. There will be no increase to the base management fee and incentive distribution fees currently paid by Brookfield Renewable to the Service Providers, though following completion of the special distribution, BEPC will be responsible for reimbursing Brookfield Renewable for its proportionate share of the base management fee. BEPC’s proportionate share of the base management fee will be calculated on the basis of the value of BEPC’s business relative to that of BEP. See “BEP and BEPC Relationship with Brookfield—Incentive Distributions”.

For additional information, see “BEPC Management and the BEP Master Services Agreement”.

Summary of Material Canadian Federal Income Tax Considerations

In general, subject to the conditions and limitations set forth below under the heading “Material Canadian Federal Income Tax Considerations”, the special distribution will reduce the adjusted cost base of a resident holder’s interest in BEP and the special distribution should not be taxable to a non-resident holder for Canadian federal income tax purposes.

Unitholders of BEP who receive BEPC exchangeable shares pursuant to the special distribution should consult their own tax advisors having regard to their particular circumstances.

Summary of Material United States Federal Income Tax Considerations

In general, subject to the conditions and limitations set forth below under the heading “Material United States Federal Income Tax Considerations”, and based on representations made by the general partner of BEP and the general partner of BRELP, as of the date hereof, Torys LLP is of the opinion that each of BEP and BRELP should qualify as an “investment partnership” within the meaning of the Code. If BEP and BRELP so qualify, then the special distribution of BEPC exchangeable shares to a U.S. unitholder that is an “eligible partner” (as defined below) will qualify as a non-taxable distribution of property for U.S. federal income tax purposes. However, the treatment of BEP and BRELP as investment partnerships is not free from doubt, as it depends on the highly factual determination that, for such U.S. federal income tax purposes, neither BEP nor BRELP has ever been engaged in a trade or business since the date of formation. Accordingly, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to any of the positions described herein. Each U.S. unitholder should consult an independent tax advisor regarding the U.S. federal income tax consequences of the special distribution in light of such unitholder’s particular circumstances.

Corporate Information

BEPC’s head office is at 250 Vesey Street, 15th Floor, New York NY 10281-1023 and BEPC’s registered office is at 1055 West Georgia Street, Suite 1500, P.O Box 11117, Vancouver, British Columbia V6E 4N7. BEPC’s telephone number is +1 (212) 417-7000.



 

36


Table of Contents

Risk Factors

Ownership of BEPC exchangeable shares is subject to a number of risks of which you should be aware. For a discussion of factors you should consider, you are directed to the risks described under “Risk Factors”.

Each BEPC exchangeable share has been structured with the intention of providing an economic return equivalent to the one BEP unit. BEP therefore expects that the market price of BEPC exchangeable shares will be significantly impacted by the market price of the BEP units and the combined business performance of the Brookfield Renewable group as a whole. See “Risk Factors” and the risk factors included in BEP’s Annual Report that BEP has incorporated herein by reference for a discussion of the risk factors applicable to Brookfield Renewable’s business and an investment in BEP units.

Summary of Selected Financial Information

The following tables present selected financial data for the Business and are derived from, and should be read in conjunction with, the audited combined carve-out financial statements of the United States, Colombian and Brazilian operations of BEP as at December 31, 2019 and December 31, 2018 and for each of the years in the three years ended December 31, 2019 and the notes thereto, which is included elsewhere in this document. The information included in this section should also be read in conjunction with BEPC’s and BEP’s Unaudited Pro Forma Financial Statements as at December 31, 2019 and for each of the years in the three years ended December 31, 2019, included elsewhere in this document. Presentation of selected financial information as of December 31, 2017, December 31, 2016 and December 31, 2015 and for the fiscal periods ended December 31, 2016 and December 31, 2015 could not be provided without unreasonable effort or expense.

 

     Year Ended December 31,  
(MILLIONS)    2019     2018     2017  

Statement of Income Data

      

Revenues

   $ 2,236     $ 2,164     $ 2,035  

Other income

     31       16       27  

Direct operating costs

     (801     (816     (832

Management service costs

     (82     (56     (60

Interest expenseborrowings

     (381     (402     (438

Share of earnings from equity accounted investments

     12       17       5  

Foreign exchange and unrealized financial instrument gain (loss)

     9       (14     (9

Depreciation

     (509     (531     (559

Other

     (21     (48 )      8  
  

 

 

   

 

 

   

 

 

 

Income before income tax

     494       330       177  

Current income tax expense

     (59     (26     (38

Deferred income tax (expense) recovery

     (10     58       (76 ) 
  

 

 

   

 

 

   

 

 

 

Net income

   $ 425     $ 362     $ 63  
  

 

 

   

 

 

   

 

 

 

Net income attributable to:

      

Participating non-controlling interestsin operating subsidiaries

   $ 241     $ 286     $ 69  

Parent company

   $ 184     $ 76     $ (6
  

 

 

   

 

 

   

 

 

 


 

37


Table of Contents
     December 31,  
(MILLIONS)    2019      2018  

Statement of Financial Position Data

     

Cash

   $ 67      $ 94  

Total assets

     24,338        23,368  

Non-recourse borrowings

     5,661        5,543  

Equity

     

Participating non-controlling interestsin operating subsidiaries

     6,994        6,613  

Equity in net assets attributable to parent company

     7,748        7,683  
  

 

 

    

 

 

 

Total equity in net assets

   $ 14,742      $ 14,296  
  

 

 

    

 

 

 


 

38


Table of Contents

RISK FACTORS

You should carefully consider the following risk factors in addition to the other information set forth or incorporated by reference in this document. If any of the following risks were actually to occur, BEPC’s business, financial condition and results of operations and the value of the BEPC exchangeable shares would likely suffer. Each BEPC exchangeable share has been structured with the intention of providing an economic return equivalent to one BEP unit. BEPC therefore expects that the market price of BEPC exchangeable shares will be significantly impacted by the market price of the BEP units and the combined business performance of the Brookfield Renewable group as a whole. In addition to carefully considering the risks factors contained in this document and described below, you should carefully consider the risk factors applicable to Brookfield Renewable’s business and an investment in BEP units, which are incorporated by reference from BEP’s Annual Report. For additional information regarding Brookfield Renewable, see “Brookfield Renewable Partners L.P.” and “Where You Can Find More Information”.

Risks Relating to BEPC

Each BEPC exchangeable share has been structured with the intention of providing an economic return equivalent to one BEP unit and therefore BEPC expects that the market price of BEPC exchangeable shares will be significantly impacted by the market price of the BEP units and the combined business performance of the Brookfield Renewable group as a whole.

Each BEPC exchangeable share has been structured with the intention of providing an economic return equivalent to one BEP unit and, in addition to contemplating identical dividends to the distributions paid on the BEP units, each BEPC exchangeable share is exchangeable at the option of the holder for one BEP unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of the Brookfield Renewable group). See “Description of BEPC Share Capital—Exchange by Holder—Adjustments to Reflect Certain Capital Events”. BEPC and BEP currently intend to satisfy any exchange requests on the BEPC exchangeable shares through the delivery of BEP units rather than cash. As a result, the business operations of Brookfield Renewable, and the market price of the BEP units, are expected to have a significant impact on the market price of the BEPC exchangeable shares, which could be disproportionate in circumstances where the business operations and results of BEPC on a standalone basis are not indicative of such market trends. BEPC exchangeable shareholders will have no ability to control or influence the decisions or business of Brookfield Renewable. You should therefore also carefully consider the risk factors applicable to Brookfield Renewable’s business and an investment in BEP units, as described in BEP’s Annual Report, which is incorporated by reference in this document. For additional information regarding Brookfield Renewable, see “Brookfield Renewable Partners L.P.

BEPC is a newly formed corporation with no separate operating history and the historical and pro forma financial information included herein does not reflect the financial condition or operating results BEPC would have achieved during the periods presented, and therefore may not be a reliable indicator of BEPC’s future financial performance.

BEPC was formed on September 9, 2019 and has only recently commenced its activities. Although BEPCs assets and operating businesses have been under Brookfield Renewable’s control prior to the formation of BEPC, their combined results have not previously been reported on a stand-alone basis and the historical and pro forma financial statements included in this document may not be indicative of BEPC’s future financial condition or operating results and will make it difficult to assess BEPC’s ability to operate profitably and pay dividends to BEPC’s shareholders. BEPC has not yet acquired its assets and operating businesses from Brookfield Renewable and will do so prior to the special distribution. A failure by BEPC to acquire its assets and operating businesses from Brookfield Renewable would represent a material change from the business, assets, revenues and operations of BEPC presented in this document.

 

39


Table of Contents

BEPC is a holding company and its material assets consist solely of interests in BEPC’s operating subsidiaries.

BEPC has no independent means of generating revenue. BEPC depends on distributions and other payments from BEPCs operating businesses to provide BEPC with the funds necessary to meet its financial obligations. BEPCs operating businesses are legally distinct from BEPC and some of them are or may become restricted in their ability to pay dividends and distributions or otherwise make funds available to BEPC pursuant to local law, regulatory requirements and their contractual agreements, including agreements governing their financing arrangements. BEPCs operating businesses will generally be required to service their debt obligations before making distributions to BEPC.

A significant portion of BEPC’s assets is located in South America. Changes in regulatory, political, economic and social conditions in South America could adversely affect BEPC’s business, results of operations, financial condition and prospects.

BEPCs financial performance may be negatively affected by regulatory, political, economic and social conditions in South American countries in which BEPC operations or projects are located. In many of these jurisdictions, BEPC is exposed to various risks such as potential renegotiation, nullification or forced modification of existing contracts, expropriation or nationalization of property, foreign exchange controls, changes in local laws, regulations and policies, political instability, bribery, extortion, corruption, civil strife, acts of war, guerilla activities and terrorism. BEPC also faces the risk of having to submit to the jurisdiction of a foreign court or arbitration panel or having to enforce a judgment against a sovereign nation within its own territory. Actual or potential political or social changes and changes in economic policy may undermine investor confidence, which may hamper investment and thereby reduce economic growth, and otherwise may adversely affect the economic and other conditions under which BEPC operates in ways that could have a materially negative effect on BEPCs business.

Further, governments in South America may impose new taxes, raise existing taxes, reduce tax exemptions and benefits, request or force renegotiation of tax stabilization agreements or change the basis on which taxes are calculated in a manner that is unfavorable to BEPC. Governments that have committed to provide a stable taxation or regulatory environment may alter those commitments or shorten their duration. The imposition of or increase in such taxes or charges can significantly increase the risk profile and costs of operations in those jurisdictions. BEPC may also be subject to rising trends of resource nationalism in certain countries in which BEPC operates that can result in constraints on BEPCs operations, increased taxation or even expropriations and nationalizations.

BEPC is expected to be a “foreign private issuer” under U.S. securities law. Therefore, BEPC will be exempt from requirements applicable to U.S. domestic registrants listed on the NYSE.

Although BEPC will be subject to the periodic reporting requirement of the Exchange Act, the periodic disclosure required of foreign private issuers under the Exchange Act is different from periodic disclosure required of U.S. domestic registrants. Therefore, there may be less publicly available information about BEPC than is regularly published by or about other companies in the United States. BEPC is exempt from certain other sections of the Exchange Act to which U.S. domestic issuers are subject, including the requirement to provide BEPC’s shareholders with information statements or proxy statements that comply with the Exchange Act. In addition, insiders and large shareholders of BEPC are not obligated to file reports under Section 16 of the Exchange Act, and BEPC and BEP will be permitted to follow certain home country corporate governance practices (being Bermuda and British Columbia for BEP and BEPC, respectively) instead of those otherwise required under the NYSE Listed Company Manual for domestic issuers. BEPC currently intends to follow the same corporate practices as would be applicable to U.S. domestic companies under the U.S. federal securities laws and NYSE corporate governance standards; however, as BEPC will be externally managed by the Service Providers pursuant to the BEP Master Services Agreement, BEPC will not have a compensation committee.

 

40


Table of Contents

However, BEPC may in the future elect to follow BEPC’s home country law for certain of BEPC’s other corporate governance practices, as permitted by the rules of the NYSE, in which case BEPC’s shareholders would not be afforded the same protection as provided under NYSE corporate governance standards to U.S. domestic registrants. Following BEPC’s home country governance practices as opposed to the requirements that would otherwise apply to a U.S. domestic company listed on the NYSE may provide less protection than is accorded to investors of U.S. domestic issuers.

BEPC’s operations in the future may be different from BEPC’s current Business.

Brookfield Renewable’s operations today include hydroelectric, wind and solar power generation (including BEPCs Business) and biomass power generation, cogeneration and storage businesses in North and South America, Europe and Asia Pacific. BEPC may own interests in other renewable power operations, and BEPC may seek to divest of certain of BEPCs existing operations in the future. In addition, pursuant to the Brookfield Relationship Agreement with Brookfield, Brookfield may (but is not required to) offer BEPC or Brookfield Renewable the opportunity to acquire: (i) an integrated utility even if a significant component of such utility’s operations consist of a non -renewable power generation operation or development, such as a power generation operation that uses coal or natural gas, (ii) a portfolio of power operations, even if a significant component of such portfolio’s operations consist of non-renewable power generation, or (iii) renewable power generation operations or developments that comprise part of a broader enterprise. The risks associated with the operations of Brookfield Renewable, or BEPC’s future operations, may differ from those associated with BEPC’s Business.

The completion of new acquisitions can have the effect of significantly increasing the scale and scope of BEPC’s operations, including operations in new geographic areas and industry sectors, and the Service Providers may have difficulty managing these additional operations. In addition, acquisitions involve risks to BEPC’s business.

A key part of the Brookfield Renewable group’s strategy will involve seeking acquisition opportunities upon Brookfield’s recommendation and allocation of opportunities to BEPC. Acquisitions, such as the TERP acquisition, may increase the scale, scope and diversity of BEPCs operating businesses. BEPC depends on the diligence and skill of Brookfield’s and BEPCs professionals to effectively manage BEPC, integrating acquired businesses with BEPCs existing operations. These individuals may have difficulty managing additional acquired businesses and may have other responsibilities within Brookfield’s asset management business. If any such acquired businesses are not effectively integrated and managed, BEPC’s existing business, financial condition and results of operations may be adversely affected.

Future acquisitions will likely involve some or all of the following risks, which could materially and adversely affect BEPC’s business, financial condition or results of operations: the difficulty of integrating the acquired operations and personnel into BEPC’s current operations; potential disruption of BEPC’s current operations; diversion of resources, including Brookfield’s time and attention; the difficulty of managing the growth of a larger organization; the risk of entering markets in which BEPC has little experience; the risk of becoming involved in labor, commercial or regulatory disputes or litigation related to the new enterprise; risk of environmental or other liabilities associated with the acquired business; and the risk of a change of control resulting from an acquisition triggering rights of third parties or government agencies under contracts with, or authorizations held by the operating business being acquired. While it is BEP’s practice to conduct extensive due diligence investigations into businesses being acquired, it is possible that due diligence may fail to uncover all material risks in the business being acquired, or to identify a change of control trigger in a material contract or authorization, or that a contractual counterparty or government agency may take a different view on the interpretation of such a provision to that taken by BEPC and BEP, thereby resulting in a dispute.

 

41


Table of Contents

BEPC may acquire distressed companies and these acquisitions may subject BEPC and BEP to increased risks, including the incurrence of additional legal or other expenses.

As part of BEPC’s acquisition strategy, BEPC may acquire distressed companies. This could involve acquisitions of securities of companies in event-driven special situations, such as acquisitions, tender offers, bankruptcies, recapitalizations, spinoffs, corporate and financial restructurings, litigation or other liability impairments, turnarounds, management changes, consolidating industries and other catalyst-oriented situations. Acquisitions of this type involve substantial financial and business risks that can result in substantial or total losses. Among the problems involved in assessing and making acquisitions in troubled issuers is the fact that it frequently may be difficult to obtain information as to the condition of such issuer. If, during the diligence process, BEPC fails to identify issues specific to a company or the environment in which BEPC operates, BEPC may be forced to later write down or write off assets, restructure its operations, or incur impairment or other charges that may result in other reporting losses.

As a consequence of BEPC’s role as an acquirer of distressed companies, BEPC may be subject to increased risk of incurring additional legal, indemnification or other expenses, even if BEPC is not named in any action. In distressed situations, litigation often follows when disgruntled shareholders, creditors and other parties seek to recover losses from poorly performing investments. The enhanced litigation risk for distressed companies is further elevated by the potential that Brookfield or BEPC may have controlling or influential positions in these companies.

Government policies providing incentives for renewable energy could change at any time.

Development of new renewable energy sources and the overall growth of the renewable energy industry has generally been supported by state or provincial, national, supranational and international policies. Some of BEPC’s projects benefit from such incentives. The attractiveness of renewable energy to purchasers of renewable assets, as well as the economic return available to project sponsors, is often enhanced by such incentives. Particularly in light of political changes in the United States and other jurisdictions in which BEPC currently or may in the future operate, there is a risk that regulations that provide incentives for renewable energy could change or expire in a manner that adversely impacts the market for renewables generally. Any political changes in the jurisdictions in which BEPC operates may impact the competitiveness of renewable energy generally and the economic value of certain of BEPC projects in particular.

BEPC uses leverage and such indebtedness may result in BEPC or BEPC’s operating businesses being subject to certain covenants that restrict BEPC’s ability to engage in certain types of activities or to make distributions to equity.

Many of BEPC’s operating subsidiaries have entered into or will enter into credit facilities or have incurred or will incur other forms of debt, including for acquisitions. The total quantum of exposure to debt within BEPC is significant, and BEPC may become more leveraged in the future.

Leveraged assets are more sensitive to declines in revenues, increases in expenses and interest rates, and adverse economic, market and industry developments. A leveraged company’s income and net assets also tend to increase or decrease at a greater rate than would otherwise be the case if money had not been borrowed. As a result, the risk of loss associated with a leveraged company, all other things being equal, is generally greater than for companies with comparatively less debt. In addition, the use of indebtedness in connection with an acquisition may give rise to negative tax consequences to certain investors. Leverage may also result in a requirement for short-term liquidity, which may force the sale of assets at times of low demand and/or prices for such assets. This may mean that BEPC is unable to realize fair value for the assets in a sale.

BEPC’s credit facilities also contains, and may contain in the future, covenants applicable to the relevant borrower and events of default. Covenants can relate to matters including limitations on financial indebtedness,

 

42


Table of Contents

dividends, acquisitions, or minimum amounts for interest coverage, adjusted EBITDA, cash flow or net worth. If an event of default occurs, or minimum covenant requirements are not satisfied, this can result in a requirement to immediately repay any drawn amounts or the imposition of other restrictions including a prohibition on the payment of distributions to equity.

Changes in BEPC’s credit ratings may have an adverse effect on BEPC’s financial position and ability to raise capital.

BEPC cannot assure you that any credit rating assigned to BEPC or any of BEPC’s operating subsidiaries or their debt securities or Brookfield Renewable will remain in effect for any given period of time or that any rating will not be lowered or withdrawn entirely by the relevant rating agency. A lowering or withdrawal of such ratings may have an adverse effect on BEPC’s financial position and ability to raise capital.

BEPC is not, and does not intend to become, regulated as an investment company under the Investment Company Act of 1940, or the Investment Company Act (and similar legislation in other jurisdictions) and, if BEPC were deemed an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for BEPC to operate as contemplated.

The Investment Company Act (and similar legislation in other jurisdictions) provides certain protections to investors and imposes certain restrictions on companies that are required to be regulated as investment companies. Among other things, such rules limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities and impose certain governance requirements. BEPC has not been and does not intend to become regulated as an investment company and BEPC intends to conduct its activities so it will not be deemed to be an investment company under the Investment Company Act (and similar legislation in other jurisdictions). In order to ensure that BEPC is not deemed to be an investment company, BEPC may be required to materially restrict or limit the scope of BEPC’s operations or plans. BEPC will be limited in the types of acquisitions that it may make, and BEPC may need to modify its organizational structure or dispose of assets which BEPC would not otherwise dispose of. Moreover, if anything were to happen which would cause BEPC to be deemed an investment company under the Investment Company Act, it would be impractical for BEPC to operate as contemplated. Agreements and arrangements between and among BEPC and Brookfield would be impaired, the type and number of acquisitions that BEPC would be able to make as a principal would be limited and BEPC’s business, financial condition and results of operations would be materially adversely affected. Accordingly, BEPC would be required to take extraordinary steps to address the situation, such as the amendment or termination of the BEP Master Services Agreement, the restructuring of BEPC and BEPC’s operating subsidiaries, the amendment of BEPC’s governing documents or the dissolution of BEPC, any of which could materially adversely affect the value of BEPC exchangeable shares.

BEPC’s failure to maintain effective internal controls could have a material adverse effect on BEPC’s business in the future and the price of BEPC exchangeable shares.

As a public company, BEPC will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and stock exchange rules promulgated in response to the Sarbanes-Oxley Act. A number of BEPC’s current operating subsidiaries are and potential future acquisitions will be private companies and their systems of internal controls over financial reporting may be less developed as compared to public company requirements. Any failure to maintain adequate internal controls over financial reporting or to implement required, new or improved controls, or difficulties encountered in their implementation, could cause material weaknesses or significant deficiencies in BEPC’s internal controls over financial reporting and could result in errors or misstatements in BEPC’s consolidated financial statements that could be material. If BEPC or its independent registered public accounting firm were to conclude that BEPC’s internal controls over financial reporting were not effective, investors could lose confidence in BEPC’S reported financial information and the price of BEPC exchangeable shares could decline. BEPC’S failure to achieve and maintain effective internal controls could have a material adverse effect on BEPC’s business, BEPC’s ability to

 

43


Table of Contents

access capital markets and investors’ perception of BEPC. In addition, material weaknesses in BEPC’s internal controls could require significant expense and management time to remediate.

Risks Relating to the BEPC Exchangeable Shares

BEPC may redeem the BEPC exchangeable shares at any time without the consent of the holders.

The BEPC board, in its sole discretion and for any reason, and without the consent of holders of BEPC exchangeable shares, may elect to redeem all of the then outstanding BEPC exchangeable shares at any time upon sixty (60) days’ prior written notice, including without limitation following the occurrence of any of the following redemption events: (i) the total number of BEPC exchangeable shares outstanding decreases by 50% or more over any twelve-month period; (ii) a person acquires 90% of the BEP units in a take-over bid (as defined by applicable securities law); (iii) unitholders of BEP approve an acquisition of BEP by way of arrangement or amalgamation; (iv) unitholders of BEP approve a restructuring or other reorganization of BEP; (v) there is a sale of all or substantially all of BEP’ assets; (vi) there is a change of law (whether by legislative, governmental or judicial action), administrative practice or interpretation, or a change in circumstances of BEPC and BEPCs shareholders, that may result in adverse tax consequences for BEPC or BEPs shareholders; or (vii) the BEPC board, in its sole discretion, concludes that the unitholders of BEP or holders of BEPC exchangeable shares are adversely impacted by a fact, change or other circumstance relating to BEPC. For greater certainty, unitholders of BEP do not have the ability to vote on such redemption and the boards decision to redeem all of the then outstanding BEPC exchangeable shares will be final. In addition, the holder of BEPC class B shares may deliver a notice to BEPC specifying a redemption date upon which BEPC shall redeem all of the then outstanding BEPC exchangeable shares, and upon sixty (60) days’ prior written notice from BEPC to holders of the BEPC exchangeable shares and without the consent of holders of BEPC exchangeable shares, BEPC shall be required to redeem all of the then outstanding BEPC exchangeable shares on such redemption date. In the event of such redemption, holders of BEPC exchangeable shares will no longer own a direct interest in BEPC and will become unitholders of BEP, even if such holders desired to remain holders of BEPC exchangeable shares. Such redemption could occur at a time when the trading price of the BEPC exchangeable shares is greater than the trading price of the BEP units, in which case holders would receive BEP units with a lower trading price. See “Description of BEPC Share Capital—Exchangeable Shares—Redemption by Issuer”.

In the event that a BEPC exchangeable share held by a holder is redeemed by BEPC or exchanged by the holder, the holder will be considered to have disposed of such BEPC exchangeable share for Canadian income tax purposes. See “Material Canadian Federal Income Tax Considerations” for more information.

Holders of BEPC exchangeable shares do not have a right to elect whether to receive cash or BEP units upon a liquidation, exchange or redemption event. Rather, the Brookfield Renewable group has the right to make such election in its sole discretion.

In the event that (i) there is a liquidation, dissolution or winding up of BEPC or BEP, (ii) BEPC or BEP exercises its right to redeem (or cause the redemption of) all of the then outstanding BEPC exchangeable shares, or (iii) a holder of BEPC exchangeable shares requests an exchange of BEPC exchangeable shares, holders of BEPC exchangeable shares shall be entitled to receive one BEP unit per BEPC exchangeable share held (subject to adjustment to reflect certain capital events described in this document and certain other payment obligations in the case of a liquidation, dissolution or winding up of BEPC or BEP) or in the case of (i) and (iii), its cash equivalent. The form of payment will be determined at the election of the Brookfield Renewable group so a holder will not know whether cash or BEP units, as applicable, will be delivered in connection with any of the events described in clauses (i) and (iii) above. BEPC and BEP currently intend to satisfy any exchange requests on the BEPC exchangeable shares through the delivery of BEP units rather than cash. See “Description of BEPC Share Capital—BEPC Exchangeable Shares”.

 

44


Table of Contents

Any holder requesting an exchange of their BEPC exchangeable shares for which BEPC or BEP elects to provide BEP units in satisfaction of the exchange amount may experience a delay in receiving such BEP units, which may affect the value of the BEP units the holder receives in an exchange.

Each BEPC exchangeable share will be exchangeable at the option of the holder for one BEP unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of the Brookfield Renewable group). See “Description of BEPC Share Capital—Exchange by Holder—Adjustments to Reflect Certain Capital Events”. In the event cash is used to satisfy an exchange request, the amount payable per BEPC exchangeable share will be equal to the NYSE closing price of one BEP unit on the date that the request for exchange is received by the transfer agent. As a result, any decrease in the value of the BEP units after that date will not affect the amount of cash received. However, any holder whose BEPC exchangeable shares are exchanged for BEP units will not receive such BEP units for up to ten (10) business days after the applicable request is received. During this period, the market price of BEP units may decrease. Any such decrease would affect the value of the BEP unit consideration to be received by the holder of BEPC exchangeable shares on the effective date of the exchange.

BEP will be required to maintain an effective registration statement in order to exchange any BEPC exchangeable shares for BEP units. If a registration statement with respect to the BEP units issuable upon any exchange, redemption or purchase of BEPC exchangeable shares (including in connection with any liquidation, dissolution or winding up of BEPC) is not current or is suspended for use by the SEC, no exchange or redemption of BEPC exchangeable shares for BEP units may be effected during such period.

The BEPC exchangeable shares may not trade at the same price as the BEP units.

Although the BEPC exchangeable shares are intended to provide an economic return that is equivalent to the BEP units, there can be no assurance that the market price of BEPC exchangeable shares will be equal to the market price of BEP units at any time. If BEPC redeems the BEPC exchangeable shares (which can be done without the consent of the holders) at a time when the trading price of the BEPC exchangeable shares is greater than the trading price of the BEP units, holders will receive BEP units with a lower trading price. Factors that could cause differences in such market prices may include:

 

   

perception and/or recommendations by analysts, investors and/or other third parties that these securities should be priced differently;

 

   

actual or perceived differences in distributions to holders of BEPC exchangeable shares versus holders of BEP units, including as a result of any legal prohibitions;

 

   

business developments or financial performance or other events or conditions that may be specific to only Brookfield Renewable or BEPC; and

 

   

difficulty in the exchange mechanics between BEPC exchangeable shares and BEP units, including any delays or difficulties experienced by the transfer agent in processing the exchange requests.

If a sufficient amount of BEPC exchangeable shares are exchanged for BEP units, then the BEPC exchangeable shares may be de-listed.

Upon completion of the special distribution, the BEPC exchangeable shares are expected to commence trading on the NYSE and the TSX. However, if a sufficient amount of BEPC exchangeable shares are subsequently exchanged for BEP units , or BEPC exercises its redemption right at any time including if the total number of BEPC exchangeable shares decreases by 50% or more over any twelve-month period, BEPC may fail to meet the minimum listing requirements on the NYSE and the TSX, and the NYSE or the TSX may take steps to de-list the BEPC exchangeable shares. Though holders of BEPC exchangeable shares will still be entitled to exchange each such share at any time for one BEP unit (subject to adjustment to reflect certain capital events described in this document), or its cash equivalent (the form of payment to be determined at the election of the

 

45


Table of Contents

Brookfield Renewable group), a de-listing of the BEPC exchangeable shares would have a significant adverse effect on the liquidity of the BEPC exchangeable shares, and holders thereof may not be able to exit their investments in the market on favorable terms.

The BEPC exchangeable shares have never been publicly traded and an active and liquid trading market for BEPC exchangeable shares may not develop.

There has not been a market for BEPC exchangeable shares and BEPC cannot predict the extent to which investor interest will lead to the development of an active and liquid trading market for BEPC exchangeable shares or, if such a market develops, whether it will be maintained. BEPC cannot predict the effects on the price of BEPC exchangeable shares if a liquid and active trading market for BEPC exchangeable shares does not develop. In addition, if such a market does not develop, relatively small sales of BEPC exchangeable shares may have a significant negative impact on the price of BEPC exchangeable shares. A number of factors, principally factors relating to BEPC but also including factors specific to Brookfield Renewable and its business, financial condition and liquidity, economic and financial market conditions, interest rates, availability of capital and financing sources, volatility levels and other factors could lead to a decline in the value of BEPC exchangeable shares and a lack of liquidity in any market for BEPC exchangeable shares.

The market price of the BEPC exchangeable shares and BEP units may be volatile, and holders of BEPC exchangeable shares and/or BEP units may lose a significant portion of their investment due to drops in the market price of BEPC exchangeable shares and/or BEP units.

The market price of the BEPC exchangeable shares and the BEP units may be volatile and holders of such securities may not be able to resell their securities at or above the implied price at which they acquired such securities due to fluctuations in the market price of such securities, including changes in market price caused by factors unrelated to BEPC or Brookfield Renewable’s operating performance or prospects. Specific factors that may have a significant effect on the market price of the BEPC exchangeable shares and the BEP units:

 

   

changes in stock market analyst recommendations or earnings estimates regarding the BEPC exchangeable shares or BEP units, other companies and partnerships that are comparable to BEPC or Brookfield Renewable or are in the industries that they serve;

 

   

with respect to the BEPC exchangeable shares, changes in the market price of the BEP units, and vice versa;

 

   

actual or anticipated fluctuations in BEPC and BEP’s operating results or future prospects;

 

   

reactions to public announcements by BEPC and Brookfield Renewable;

 

   

strategic actions taken by BEPC or Brookfield Renewable;

 

   

adverse conditions in the financial market or general U.S. or international economic conditions, including those resulting from pandemic, war, incidents of terrorism and responses to such events; and

 

   

sales of such securities by BEPC, Brookfield Renewable or significant stockholders.

Exchanges of BEPC exchangeable shares for BEP units may negatively affect the market price of the BEP units, and additional issuances of BEPC exchangeable shares would be dilutive to the BEP units.

Each BEPC exchangeable share will be exchangeable by the holder thereof for one BEP unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of the Brookfield Renewable group). See “Description of BEPC Share Capital—Exchange by Holder—Adjustments to Reflect Certain Capital Events”. If the Brookfield Renewable group elects to deliver BEP units in satisfaction of any such exchange request, a significant number of additional BEP units may be issued from time

 

46


Table of Contents

to time which could have a negative impact on the market price for BEP units. Additionally, BEPC exchangeable shares issued by BEPC in the future will also be exchangeable for BEP units, and accordingly, any future exchanges satisfied by the delivery of BEP units would dilute the percentage interest of existing holders of the BEP units and may reduce the market price of the BEP units.

BEPC or BEP may issue additional shares or BEP units in the future, including in lieu of incurring indebtedness, which may dilute holders of BEPC’s and BEP’s equity securities. BEPC or BEP may also issue securities that have rights and privileges that are more favorable than the rights and privileges accorded to BEPC’s and BEP’s equity holders.

Subject to the terms of any of BEPC’s securities then outstanding, BEPC may issue additional securities, including BEPC exchangeable shares, BEPC class B shares, BEPC class C shares, preference shares, options, rights and warrants for any purpose and for such consideration and on such terms and conditions as the BEPC board may determine. Subject to the terms of any of BEPC’s securities then outstanding, the BEPC board will be able to determine the class, designations, preferences, rights, powers and duties of any additional securities, including any rights to share in BEPC’s profits, losses and dividends, any rights to receive BEPC’s assets upon BEPC’s dissolution or liquidation and any redemption, conversion and exchange rights. Subject to the terms of any of BEPC’s securities then outstanding, the BEPC board may use such authority to issue such additional securities, which would dilute holders of such securities, or to issue securities with rights and privileges that are more favorable than those of BEPC exchangeable shares.

Similarly, under BEP’s limited partnership agreement, subject to the terms of any preferred units then outstanding, BEP’s general partner may issue additional partnership securities, including BEP units, preferred units, options, rights, warrants and appreciation rights relating to partnership securities for any purpose and for such consideration and on such terms and conditions as the board of BEP’s general partner may determine. Subject to the terms of any of BEP securities then outstanding, the board of BEP’s general partner will be able to determine the class, designations, preferences, rights, powers and duties of any additional partnership securities, including any rights to share in BEP’s profits, losses and dividends, any rights to receive BEP’s assets upon its dissolution or liquidation and any redemption, conversion and exchange rights. Subject to the terms of any of BEP securities then outstanding, the board of BEP’s general partner may use such authority to issue such additional partnership securities, which would dilute holders of such securities, or to issue securities with rights and privileges that are more favorable than those of the BEP units.

The sale or issuance of a substantial number of BEPC exchangeable shares, the BEP units or other equity securities of BEPC or BEP in the public markets (and including in connection with the TERP acquisition), or the perception that such sales or issuances could occur, could depress the market price of BEPC exchangeable shares and impair BEPC’s ability to raise capital through the sale of additional BEPC exchangeable shares. BEPC cannot predict the effect that future sales or issuances of its exchangeable shares, BEP units or other equity securities would have on the market price of BEPC exchangeable shares. Subject to the terms of any of BEPC’s securities then outstanding, holders of BEPC exchangeable shares will not have any pre-emptive right or any right to consent to or otherwise approve the issuance of any securities or the terms on which any such securities may be issued.

BEPC cannot assure you that it will be able to pay dividends equal to the levels currently paid by BEP and holders of BEPC exchangeable shares may not receive dividends equal to the distributions paid on the BEP units and, accordingly, may not receive the intended economic equivalence of those securities.

The BEPC exchangeable shares are intended to provide an economic return per BEPC exchangeable share equivalent to one BEP unit (subject to adjustment to reflect certain capital events). See “Description of BEPC Share Capital—Exchange by Holder—Adjustments to Reflect Certain Capital Events”. Pursuant to the equity commitment, BEP has agreed that it will not declare or pay any distribution on the BEP units if on such date BEPC does not have sufficient funds or other assets to enable the declaration and payment of an equivalent dividend on the BEPC exchangeable shares. However, dividends are at the discretion of the BEPC board of

 

47


Table of Contents

directors and unforeseen circumstances (including legal prohibitions) may prevent the same dividends from being paid on each security. Accordingly, there can be no assurance that dividends and distributions will be identical for each BEPC exchangeable share and BEP unit, respectively, in the future, which may impact the market price of these securities. Dividends on BEPC exchangeable shares may not equal the levels currently paid by BEP for various reasons, including, but not limited to, the following:

 

   

BEPC may not have enough unrestricted funds to pay such dividends due to changes in BEPC’s cash requirements, capital spending plans, cash flow or financial position;

 

   

decisions on whether, when and in which amounts to make any future dividends will be dependent on then-existing conditions, including BEPC’s financial conditions, earnings, legal requirements, including limitations under British Columbia law, restrictions on BEPC’s borrowing agreements that limit its ability to pay dividends and other factors BEPC deems relevant; and

 

   

BEPC may desire to retain cash to improve BEPC’s credit profile or for other reasons.

Non-U.S. shareholders will be subject to foreign currency risk associated with BEPC’s dividends.

A significant number of BEPC’s shareholders will reside in countries where the U.S. dollar is not the functional currency. BEP’s dividends are denominated in U.S. dollars but are settled in the local currency of the shareholder receiving the dividend. For each non-U.S. shareholder, the value received in the local currency from the dividend will be determined based on the exchange rate between the U.S. dollar and the applicable local currency at the time of payment. As such, if the U.S. dollar depreciates significantly against the local currency of the non-U.S. shareholder, the value received by such shareholder in its local currency will be adversely affected.

U.S. investors in BEPC’s exchangeable shares may find it difficult or impossible to enforce service of process and enforcement of judgments against BEPC and the BEPC board and the Service Providers.

BEPC was established under the laws of the Province of British Columbia, Canada, and a significant number of BEPC’s subsidiaries are organized in jurisdictions outside of the United States. In addition, BEPC’s executive officers and the experts identified in this document are located outside of the United States. Certain of BEPC’s directors and officers and the Service Providers reside outside of the United States. A substantial portion of BEPC’s assets are, and the assets of BEPC’s directors and officers and the Service Providers and the experts identified in this document may be located outside of the United States. It may not be possible for investors to effect service of process within the United States upon BEPC’s directors and officers and the Service Providers or the experts identified in this document. It may also not be possible to enforce against BEPC, the experts identified in this document, or BEPC’s directors and officers and the Service Providers, judgments obtained in U.S. courts predicated upon the civil liability provisions of applicable securities law in the United States.

Risks Relating to the TERP acquisition

Failure to complete the TERP acquisition could negatively impact the stock prices and the future business and financial results of BEP and BEPC.

The completion of the TERP acquisition is subject to a number of conditions, including, among other things, the affirmative vote of a majority of outstanding shares of TERP common stock entitled to vote that are not owned, directly or indirectly, by BEP and its affiliates. If the TERP acquisition is not completed, the ongoing businesses of BEP and BEPC may be adversely affected and BEP and BEPC will be subject to several risks, including the following:

 

   

having to pay certain costs relating to the proposed TERP acquisition, such as legal, accounting, financial advisor, filing, printing and mailing fees;

 

   

under the Reorganization Agreement, each of BEP and BEPC being subject to certain restrictions on the conduct of its business outside of the ordinary course, which may adversely affect its ability to execute certain business strategies; and

 

48


Table of Contents
   

the focus of management of each of the companies on the TERP acquisition instead of on pursuing other opportunities that could be beneficial to the companies;

in each case, without realizing any of the benefits of having the TERP acquisition completed. In addition, if the TERP acquisition is not completed, BEP and/or BEPC may experience negative reactions from the financial markets and from their respective customers and employees. If the TERP acquisition is not completed, BEP and BEPC cannot assure their respective unitholders or shareholders that these risks will not materialize and will not adversely affect the business, financial results and unit or stock prices of BEP or BEPC.

The TERP acquisition may be subject to litigation, which could delay the TERP acquisition and prevent the TERP acquisition from being completed.

BEP, BEPC and TerraForm Power may in the future be party to legal proceedings and claims related to the TERP acquisition. Legal challenges to the TERP acquisition could result in an injunction, preventing or delaying the completion of the TERP acquisition.

The TERP acquisition is subject to the receipt of numerous approvals, including from TERP stockholders. Failure to obtain these approvals would prevent the completion of the TERP acquisition.

In addition to the required regulatory clearances and the applicable TERP stockholder approvals, the TERP acquisition is subject to a number of other conditions beyond BEP’s, BEPC’s and TerraForm Power’s control that may prevent, delay or otherwise materially adversely affect its completion. BEP, BEPC and TerraForm Power cannot predict whether and when these other conditions will be satisfied. Furthermore, the requirements for obtaining the required clearances and approvals could delay the completion of the TERP acquisition for a significant period of time or prevent it from occurring at all.

The Reorganization Agreement subjects BEP, BEPC and TerraForm Power to restrictions on their respective business activities prior to completion of the TERP acquisition.

The Reorganization Agreement obligates BEP, BEPC and TerraForm Power to generally operate their respective businesses in the ordinary course in all material respects consistent with past practice prior to completion of the TERP acquisition and, subject to certain exceptions, to refrain from certain actions during that time. These restrictions could prevent BEP, BEPC and TerraForm Power from pursuing attractive business opportunities that arise prior to the completion of the TERP acquisition and are outside the ordinary course of business.

The TERP acquisition and the integration of TerraForm Power will involve substantial costs.

BEP, BEPC and TerraForm Power have incurred and expect to continue to incur substantial costs and expenses relating directly to the TERP acquisition, including fees and expenses payable to financial advisors, other professional fees and expenses, insurance premium costs, fees and costs relating to regulatory filings and notices, SEC filing fees, printing and mailing costs and other transaction-related costs, fees and expenses. The Brookfield Renewable group is also expected to incur substantial expenses in connection with the integration of TerraForm Power’s business, policies, procedures, operations, technologies and systems. There are many systems that must be integrated, including management information, purchasing, accounting and finance, sales, billing, payroll and benefits, fixed asset and lease administration systems and regulatory compliance, and there are a number of factors that could affect the total amount or the timing of all of the expected integration expenses. Moreover, many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. These expenses could, particularly in the near term, exceed the savings that the Brookfield Renewable group expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the integration of the businesses following the completion of the TERP acquisition.

 

49


Table of Contents

Following the TERP acquisition, the combined company may be unable to integrate successfully the businesses of TerraForm Power and realize the anticipated benefits of the TERP acquisition.

The combined company will be required to devote significant management attention and resources to integrating the business practices and operations of TerraForm Power. The combined company may fail to realize some or all of the anticipated benefits of the TERP acquisition if the integration process takes longer than expected or is costlier than expected. Potential difficulties the combined company may encounter in the integration process include the following:

 

   

the inability to successfully combine the businesses of BEPC and TerraForm Power in a manner that permits the combined company to achieve the cost savings and other benefits anticipated to result from the TERP acquisition, which would result in the anticipated benefits of the transaction not being realized partly or wholly in the time frame currently anticipated or at all;

 

   

complexities associated with managing the combined businesses;

 

   

integrating personnel from the two companies;

 

   

creation of uniform standards, controls, procedures, policies and information systems;

 

   

potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the TERP acquisition; and

 

   

performance shortfalls as a result of the diversion of management’s attention caused by completing the TERP acquisition and integrating TerraForm Power’s operations.

The market price of BEP units or the BEPC exchangeable shares may decline in the future as a result of the TERP acquisition.

The market price of BEP units and/or BEPC exchangeable shares may decline in the future as a result of the TERP acquisition for a number of reasons, including the unsuccessful integration of BEPC and TerraForm Power (including for the reasons set forth in the preceding risk factor) or the failure of BEPC to achieve the perceived benefits of the transaction, including financial results, as rapidly as or to the extent anticipated by financial or industry analysts. These factors are, to some extent, beyond the control of BEP or BEPC.

The future results of the Brookfield Renewable group may suffer if the combined company does not effectively manage its expanded operations following the TERP acquisition.

Following the TERP acquisition, the size of the business of the combined company will increase, and the combined company may continue to expand its operations through additional acquisitions or other strategic transactions. The Brookfield Renewable group’s future success depends, in part, upon its ability to manage its expanded business, which may pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurances that the combined company will be successful or that it will realize the expected economies of scale, cost savings, and other benefits currently anticipated from the TERP acquisition or anticipated from any additional acquisitions or strategic transactions.

This document includes unaudited pro forma financial information which is preliminary and the actual results of operations, cash flows and financial position after the special distribution and the TERP acquisition may differ materially.

This document includes unaudited pro forma financial information which is presented for informational purposes only and is not necessarily indicative of the combined financial position or results of operations that would have been realized had the special distribution and TERP acquisition occurred as of the dates indicated, nor is it meant to be indicative of any anticipated combined financial position or future results of operations that

 

50


Table of Contents

BEP and BEPC will experience after the completion of the special distribution and the TERP acquisition. The unaudited pro forma adjustments are based upon the best available information and certain assumptions that BEP, BEPC and TerraForm Power believe to be reasonable. See “Unaudited Pro Forma Financial Statements”.

Risks Relating to BEPC’s Operations and the Renewable Power Industry

Changes to hydrology at BEPC’s hydroelectric facilities, wind conditions at BEPC’s wind energy facilities, irradiance at BEPC’s solar facilities or weather conditions generally, as a result of climate change or otherwise, at any of BEPC’s facilities could materially adversely affect the volume of electricity generated.

The revenues generated by BEPC’s facilities are correlated to the amount of electricity generated, which in turn is dependent upon available water flows and upon wind, irradiance and weather conditions generally. Hydrology, wind, irradiance and weather conditions have natural variations from season to season and from year to year and may also change permanently because of climate change or other factors.

If one or more of BEPC’s generation facilities were to be subject in the future to flooding, extreme weather conditions (including severe droughts), fires, natural disasters, or if unexpected geological or other adverse physical conditions were to develop at any of BEPC’s generation facilities, the generation capacity of that facility could be significantly reduced or eliminated. For example, BEPC’s hydroelectric facilities depend on the availability of water flows within the watersheds in which BEPC operates and could be materially impacted by changes to hydrology patterns, such as droughts. In the event of severe flooding, BEPC’s hydrology facilities may be damaged. Wind energy and solar energy are highly dependent on weather conditions and, in particular, on wind conditions and irradiance, respectively. The profitability of a wind farm depends not only on observed wind conditions at the site, which are inherently variable, but also on whether observed wind conditions are consistent with assumptions made during the project development phase or when a given project was acquired. Similarly, projections of solar resources depend on assumptions about weather patterns, shading and irradiance, which are inherently uncertain and may not be consistent with actual conditions at the site. A sustained decline in water flow at BEPC’s hydroelectric facilities or in wind conditions at BEPC’s wind energy facilities could lead to a material adverse change in the volume of electricity generated, revenues and cash flow.

Climate change may increase the frequency and severity of severe weather conditions and may have the long-term effect of changing weather patterns, which could result in more frequent and severe disruptions to BEPC’s generation facilities. In addition, customers’ energy needs generally vary with weather conditions, primarily temperature and humidity. To the extent weather conditions are affected by climate change, customers’ energy use could increase or decrease depending on the duration and magnitude of changing weather conditions, which could adversely affect BEPC’s business, results of operations and cash flows.

Supply and demand in the energy market is volatile and such volatility could have an adverse impact on electricity prices and a material adverse effect on BEPC’s assets, liabilities, business, financial condition, results of operations and cash flow.

A portion of BEPC’s revenues are tied, either directly or indirectly, to the wholesale market price for electricity in the markets in which BEPC operates. Wholesale market electricity prices are impacted by a number of factors including: the price of fuel (for example, natural gas) that is used to generate electricity; the management of generation and the amount of excess generating capacity relative to load in a particular market; the cost of controlling emissions of pollution, including the cost of emitting carbon dioxide; the structure of the electricity market; and weather conditions (such as extremely hot or cold weather) that impact electrical load. More generally, there is uncertainty surrounding the trend in electricity demand growth, which is influenced by: macroeconomic conditions; absolute and relative energy prices; and energy conservation and demand-side management. Correspondingly, from a supply perspective, there are uncertainties associated with the timing of generating plant retirements—in part driven by environmental regulations—and with the scale, pace and structure of replacement capacity, again reflecting a complex interaction of economic and political pressures and

 

51


Table of Contents

environmental preferences. This volatility and uncertainty in the power market generally, including the non-renewable power market, could have a material adverse effect on BEPC’s assets, liabilities, business, financial condition, results of operations and cash flow.

As BEPC’s contracts expire, it may not be able to replace them with agreements on similar terms.

Certain PPAs in BEPC’s portfolio will be subject to re-contracting in the future. If the price of electricity in power markets is declining at the time of such re-contracting, it may impact BEPC’s ability to re-negotiate or replace these contracts on terms that are acceptable to BEPC, or at all. In addition, a concentrated pool of potential buyers for electricity generated by BEPC’S renewable energy facilities in certain jurisdictions may restrict BEPC’s ability to negotiate favorable terms under new PPAs or existing PPAs that are subject to re-contracting. BEPC cannot provide any assurance that it will be able to re-negotiate or replace these contracts once they expire, and even if it is able to do so, BEPC cannot provide any assurance that it will be able to obtain the same prices or terms it currently receives. If BEPC is unable to re-negotiate or replace these contracts, or unable to secure prices at least equal to the current prices it receives, its business, financial condition, results of operation and prospects could be adversely affected.

Increases in water rental costs (or similar fees) or changes to the regulation of water supply may impose additional obligations on BEPC.

Water rights are generally owned or controlled by governments that reserve the right to control water levels or impose water-use requirements as a condition of license renewal that differ from those arrangements in place today. BEPC is required to pay taxes, make rental payments or pay similar fees for use of water and related rights once BEPC’s hydroelectric projects are in commercial operation. Significant increases in water rental costs or similar fees or changes in the way that governments regulate water supply could, if imposed at a material number of BEPC assets in BEPC’s portfolio, have a material adverse effect on BEPC’s assets, liabilities, business, financial condition, results of operations and cash flow.

Advances in technology could impair or eliminate the competitive advantage of BEPC projects.

Technology related to the production of renewable power and conventional power generation are continually advancing, resulting in a gradual decline in the cost of producing electricity. If advances in technology further reduce the cost of producing power, the competitive advantage of BEPC’s existing projects may be significantly impaired or eliminated and BEPC’s assets, liabilities, business, financial condition, results of operations and cash flow could be materially and adversely affected as a result.

The amount of uncontracted generation in BEPC’s portfolio may increase.

As at December 31, 2019, approximately 73% of the Brookfield Renewable group’s generation (on a proportionate basis) was contracted over the following five years under long-term, fixed price contracts with creditworthy counterparties. In 2018 and 2019, approximately 90% of the Brookfield Renewable group’s generation (on a proportionate basis) was contracted in each of those calendar years. The portion of the Brookfield Renewable group’s portfolio that is uncontracted may increase over time which would increase BEPC’s exposure to variability in power prices, which could, in certain circumstances, have an adverse effect on BEPC’s business, financial condition, results of operations and cash flows.

There are general industry risks associated with the power markets in which BEPC operates.

BEPC’s operating subsidiaries currently operate in power markets in the United States and South America, each of which is affected by competition, price, supply of and demand for power, the location of import/export transmission lines and overall political, economic and social conditions and policies. BEPC’s operations are also concentrated in three countries, and accordingly are exposed to country-specific risks (such as weather

 

52


Table of Contents

conditions, local economic conditions or political/regulatory environments) that could disproportionately affect them. A general and extended decline in the North American or South American economies, or in the economies of the Brazil, Colombia and the United States, or sustained conservation efforts to reduce electricity consumption, could have the effect of reducing demand for electricity and could thereby have an adverse effect on BEPC’s business, financial condition, results of operations and cash flows.

The MRE could be terminated or changed or BEPC’s reference amount revised downward.

In Brazil, hydroelectric power generators have access to the MRE, which seeks to stabilize hydrology by assuring that all participant plants in the MRE receive a reference amount of electricity, approximating long-term average regardless of the actual volume of energy generated. Substantially all BEPC’s assets in Brazil are part of that pool. In cases of nationwide drought, when the pool as a whole is in shortfall relative to the long-term average, an asset can expect to share the nationwide shortfall pro-rata with the rest of the pool. In addition, specific rules provide the minimum percentages of the reference amount of electricity that must be actually generated each year for assuring participation in the MRE. The energy reference amount is assessed yearly according to the criteria of such regulation and can be adjusted positively or negatively. For example, the energy reference amount of plants with installed capacity above 50 MW is assessed every five years, and can be adjusted positively or negatively. For plants with installed capacity of 50 MW or lower, the energy reference amount is assessed annually and is subject to similar adjustments. The regulations establishing the assessments of energy reference amounts for plants with installed capacity of 50 MW or lower were challenged by certain energy producers in Brazil and are currently suspended. If BEPC’s reference amount is revised, BEPC’S share of the balancing pool could be reduced. If the MRE is terminated or changed, BEPC’s financial results would be more exposed to variations in hydrology at certain hydroelectric facilities in Brazil. In either case, this could have an adverse effect on BEPC’s results of operations and cash flows.

BEPC’s operations are highly regulated and may be exposed to increased regulation, which could result in additional costs to BEPC.

BEPC’s generation assets are subject to extensive regulation by various government agencies and regulatory bodies in different countries at the federal, regional, state, provincial and local level. As legal requirements frequently change and are subject to interpretation and discretion, BEPC may be unable to predict the ultimate cost of compliance with these requirements or their effect on its operations. Any new law, rule or regulation could require additional expenditure to achieve or maintain compliance or could adversely impact BEPC’s ability to generate and deliver energy. Also, operations that are not currently regulated may become subject to regulation, which could result in additional cost to its business. Further, changes in wholesale market structures or rules, such as generation curtailment requirements or limitations to access the power grid, could have a material adverse effect on BEPC’s ability to generate revenues from BEPC facilities. For example, in North America, many of BEPC’s assets are subject to the operating and market-setting rules determined by independent system operators. These independent system operators could introduce rules that adversely impact BEPC operations. With an increasing global focus and public sensitivity to environmental sustainability and environmental regulation becoming more stringent, BEPC could also be subject to increasing environmental related responsibilities and more onerous permitting requirements. These changes may result in increased costs to BEPC’s operations.

A significant portion of BEPC’s current operations and related assets are subject to foreign laws and regulations, and it may pursue acquisitions in new markets that are subject to foreign laws or regulations that are more onerous or uncertain than the laws and regulations BEPC is currently subject to.

A significant portion of BEPC’s current operations and related assets are in Brazil and Colombia, and BEPC may pursue acquisitions in new foreign markets that are regulated by foreign governments and regulatory authorities and subject to foreign laws. Foreign laws or regulations may not provide for the same type of legal certainty and rights in connection with their contractual relationships in such countries as are afforded to projects

 

53


Table of Contents

in, for example, the United States, which may adversely affect their ability to receive revenues or enforce their rights in connection with their foreign operations. In addition, the laws and regulations of some countries may limit BEPC’s ability to hold a majority interest in some of the projects that it may develop or acquire, thus limiting its ability to control the development, construction and operation of such projects. Any existing or new operations may be subject to significant political, economic and financial risks, which vary by country, and may include: (i) changes in government policies, including protectionist policies, or personnel; (ii) changes in general economic conditions; (iii) restrictions on currency transfer or convertibility; (iv) changes in labor relations; (v) political instability and civil unrest; (vi) regulatory or other changes in the local electricity market; (vii) less developed or efficient financial markets than in North America; (viii) the absence of uniform accounting, auditing and financial reporting standards, practices and disclosure requirements; (ix) less government supervision and regulation; (x) a less developed legal or regulatory environment; (xi) heightened exposure to corruption risk; (xii) political hostility to investments by foreign investors; (xiii) less publicly available information in respect of companies; (xiv) adversely higher or lower rates of inflation; (xv) higher transaction costs; (xvi) difficulty in enforcing contractual obligations, breach or repudiation of important contractual undertakings by governmental entities and expropriation and confiscation of assets and facilities for less than fair market value; and (xvii) fewer investor protections.

There is a risk that BEPC concessions and licenses will not be renewed.

BEPC holds concessions and licenses and it has rights to operate its facilities which generally include rights to the land and water required for power generation and which are subject to renewal at the end of their terms. BEPC generally expects that its concessions and licenses will be renewed. However, if it is not granted renewal rights, or if its concessions or licenses are renewed subject to conditions which impose additional costs or impose additional restrictions such as setting a price ceiling for energy sales, BEPC’s profitability and operational activity could be adversely impacted.

BEPC’s use and enjoyment of real property rights for its wind and solar renewable energy facilities may be adversely affected by the rights of lienholders and leaseholders that are superior to those of the grantors of those real property rights to BEPC.

Wind and solar renewable energy facilities generally are and are likely to be located on land occupied by the facility pursuant to long-term easements and leases. The ownership interests in the land subject to these easements and leases may be subject to mortgages securing loans or other liens (such as tax liens) and other easement and lease rights of third parties (such as leases of oil or mineral rights) that were created prior to the facility’s easements and leases. As a result, the facility’s rights under these easements or leases may be subject, and subordinate, to the rights of those third parties. Although BEPC takes certain measures to protect itself against these risks, such measures may, however, be inadequate to protect BEPC against all risk of loss of its rights to use the land on which its wind and solar renewable energy facilities are located, which could have an adverse effect on BEPC’s business, financial condition and results of operations.

The cost of operating BEPC plants could increase for reasons beyond its control.

While BEPC currently maintains an appropriate and competitive cost position, there is a risk that increases in its cost structure that are beyond its control could materially adversely impact its financial performance. Examples of such costs include compliance with new conditions imposed during a relicensing process, municipal property taxes, water rental fees and the cost of procuring materials and services required for its maintenance activities.

BEPC may fail to comply with the conditions in, or may not be able to maintain, its governmental permits.

BEPC’s generation assets and construction projects are, and any assets which it may acquire will be, required to comply with numerous supranational, federal, regional, state, provincial and local statutory and

 

54


Table of Contents

regulatory standards and to maintain numerous licenses, permits and governmental approvals required for operation. Some of the licenses, permits and governmental approvals that have been issued to BEPC operations contain conditions and restrictions, or may have limited terms. If BEPC fails to satisfy the conditions or comply with the restrictions imposed by its licenses, permits and governmental approvals, or the restrictions imposed by any statutory or regulatory requirements, BEPC may become subject to regulatory enforcement or be subject to fines, penalties or additional costs or revocation of regulatory approvals, permits or licenses. In addition, if BEPC is not able to renew, maintain or obtain all necessary licenses, permits and governmental approvals required for the continued operation or further development of its projects, the operation or development of its assets may be limited or suspended. BEPC’s failure to renew, maintain or obtain all necessary licenses, permits or governmental approvals may have a material adverse effect on its assets, liabilities, business, financial condition, results of operations and cash flow.

BEPC may experience equipment failure, including failures relating to wind turbines and solar panels.

BEPC generation assets may not continue to perform as they have in the past and there is a risk of equipment failure due to wear and tear, latent defect, design error, operator error or early obsolescence, among other things, which could have a material adverse effect on its assets, liabilities, business, financial condition, results of operations and cash flow. Wind turbines and solar panels have shorter lifespans than hydroelectric assets. Spare parts for wind turbines and solar panels and key pieces of equipment may be difficult to acquire as a result of a limited number of suppliers of solar panels, modules, turbines, towers and other system components and equipment associated with wind and solar power plants. Any resulting delay in replacing equipment could result in significant delays in returning facilities to full operation, which could adversely impact BEPC’s business and financial condition. Equipment failure at BEPC generation assets could also result in significant personal injury or loss of life, damage to and destruction of property, plant and equipment and contamination of, or damage to, the environment and suspension of operations. The occurrence of any one of these events may result in BEPC being named as a defendant in lawsuits asserting claims for substantial damages, including for environmental cleanup costs, personal injury and property damage and fines and/or penalties.

The occurrence of dam failures could result in a loss of generating capacity and damage to the environment, third parties or the public, which could require BEPC to expend significant amounts of capital and other resources and expose BEPC to significant liability.

The occurrence of dam failures at any of BEPC hydroelectric generating stations or the occurrence of dam failures at other generating stations or dams operated by third parties whether upstream or downstream of its hydroelectric generating stations could result in a loss of generating capacity until the failure has been repaired. If the failure is at one of BEPC’s facilities, repairing such failure could require BEPC to expend significant amounts of capital and other resources. Such failures could result in damage to the environment or damages and harm to third parties or the public, which could expose BEPC to significant liability. A dam failure at a generating station or dam operated by a third party could result in new and potentially onerous regulations that could impact BEPC facilities. Any such new regulations could require material capital expenditures to maintain compliance and BEPC’s financial position could be adversely affected.

BEPC may be exposed to force majeure events.

The occurrence of a significant event that disrupts the ability of BEPC generation assets to produce or sell power for an extended period, including events which preclude customers from purchasing electricity, could have a material adverse effect on its assets, liabilities, business, financial condition, results of operations and cash flow. In addition, force majeure events affecting its assets could result in damage to the environment or harm to third parties or the public, which could expose BEPC to significant liability. BEPC generation assets could be exposed to severe weather conditions, natural disasters and potentially catastrophic events. An assault or an act of malicious destruction, cyber-attacks, sabotage or terrorism committed on BEPC generation assets could also disrupt its ability to generate or sell power. In certain cases, there is the potential that some events may not

 

55


Table of Contents

excuse BEPC from performing its obligations pursuant to agreements with third parties and therefore may expose BEPC to liability. In addition, many of BEPC generation assets are located in remote areas which may make access for repair of damage difficult.

Developments associated with the COVID-19 pandemic could have an adverse effect on the Brookfield Renewable group’s business.

The rapid spread of the COVID-19 virus, which was declared by the World Health Organization to be a pandemic on March 11, 2020, and actions taken globally in response to COVID-19, have significantly disrupted international business activities. In addition, the Brookfield Renewable group’s business relies, to a certain extent, on free movement of goods, services, and capital from around the world, which has been significantly restricted as a result of COVID-19. The Brookfield Renewable group has implemented a response plan to maintain its operations despite the outbreak of the virus. However, the Brookfield Renewable group may experience direct or indirect impacts from the pandemics, including delays in development or construction activities in its business and has some risk that its contract counterparties could fail to meet their obligations.

Given the ongoing and dynamic nature of the circumstances surrounding COVID-19, it is difficult to predict how significant the impact of COVID-19, including any responses to it, will be on the global economy and the business of the Brookfield Renewable group or for how long any disruptions are likely to continue. The extent of such impact will depend on future developments, which are highly uncertain, rapidly evolving and difficult to predict, including new information which may emerge concerning the severity of COVID-19 and additional actions which may be taken to contain COVID-19. Such developments could have an adverse effect on the Brookfield Renewable group’s assets, liabilities, business, financial condition, results of operations and cash flow.

BEPC may be exposed to uninsurable losses and may become subject to higher insurance premiums.

While BEPC maintains certain insurance coverage, such insurance may not continue to be offered on an economically feasible basis, may not cover all events that could give rise to a loss or claim involving BEPC’s assets or operations, and may not cover all of its assets. If BEPC’s insurance coverage is insufficient and it is forced to bear such losses or claims, its financial position could be materially and adversely affected. In addition, BEPC participates in certain shared insurance arrangements with Brookfield, allowing BEPC to benefit from lower premiums and other economies of scale. In particular, BEPC shares third party excess liability, crime, employee dishonesty, director and officer, and errors and omissions insurance coverage. Under such shared policies, claim limits may also be shared between BEPC and Brookfield meaning that any claim by one insured party in a given year reduces the amount that each other insured party can claim. Consequently, there is a risk that BEPC’s ability to claim in a given year could be eroded by claims made by Brookfield affiliates who are also covered by a shared policy but that are not part of BEPC, which could have an adverse effect on BEPC’s financial position. BEPC’s insurance policies may cover losses as a result of certain types of natural disasters or sabotage, among other things, but such coverage is not always available in the insurance market on commercially reasonable terms and is often capped at predetermined limits that may not be adequate. BEPC’s insurance policies are subject to review by its insurers and may not be renewed on similar or favorable terms or at all.

BEPC is subject to foreign currency risk, which may adversely affect the performance of its operations and its ability to manage such risk depends, in part, on BEPC’s ability to implement an effective hedging strategy.

A substantial portion of BEPC’s current operations are in countries where the U.S. dollar is not the functional currency. These operations pay distributions in currencies other than the U.S. dollar, which BEPC must convert to U.S. dollars prior to making such distributions. A significant depreciation in the value of such foreign currencies, including the Brazilian real and the Colombia peso, measures introduced by foreign governments to control inflation or deflation, currency exchange or export controls may have a material adverse effect on BEPC’s business, financial condition, results of operations and cash flows. When managing BEPC’s exposure to currency risks, BEPC uses foreign currency forward contracts and other strategies to mitigate currency risk and there can be no assurances that these strategies will be successful.

 

56


Table of Contents

The ability to deliver electricity to BEPC’s various counterparties requires the availability of and access to interconnection facilities and transmission systems.

BEPC’s ability to sell electricity is impacted by the availability of, and access to, the various transmission systems to deliver power to its contractual delivery point and the arrangements and facilities for interconnecting the generation projects to the transmission systems. The absence of this availability and access, BEPC’s inability to obtain reasonable terms and conditions for interconnection and transmission agreements, the operational failure or decommissioning of existing interconnection facilities or transmission facilities, the lack of adequate capacity on such interconnection or transmission facilities, curtailment as a result of transmission facility downtime, or the failure of any relevant jurisdiction to expand transmission facilities, may have a material adverse effect on BEPC’s ability to deliver electricity to its various counterparties or the requirement of counterparties to accept and pay for energy delivery, which could materially and adversely affect BEPC’s assets, liabilities, business, financial condition, results of operations and cash flow.

BEPC’s operations are exposed to health, safety, security and environmental risks.

The ownership, construction and operation of BEPC generation assets carry an inherent risk of liability related to health, safety, security and the environment, including the risk of government-imposed orders to remedy unsafe conditions and/or to remediate or otherwise address environmental contamination or damage. BEPC could also be exposed to potential penalties for contravention of health, safety, security and environmental laws and potential civil liability. In the ordinary course of business, BEPC incurs capital and operating expenditures to comply with health, safety, security and environmental laws, to obtain and comply with licenses, permits and other approvals and to assess and manage related risks. The cost of compliance with these laws (and any future laws or amendments enacted) may increase over time and result in additional material expenditures. BEPC may become subject to government orders, investigations, inquiries or other proceedings (including civil claims) relating to health, safety, security and environmental matters as a result of which its operations may be limited or suspended. The occurrence of any of these events or any changes, additions to or more rigorous enforcement of health, safety, security and environmental laws could have a material and adverse impact on operations and result in additional material expenditures. Additional environmental, health and safety issues relating to presently known or unknown matters may require unanticipated expenditures, or result in fines, penalties or other consequences (including changes to operations) that may be material and adverse to BEPC’s business and results of operations.

BEPC may be involved in disputes, governmental and regulatory investigations and possible litigation.

In the normal course of BEPC operations, BEPC is involved in various legal actions that could expose it to liability for damages and potential negative publicity associated with such legal actions. The outcome with respect to outstanding, pending or future actions cannot be predicted with certainty and may be adverse to BEPC and as a result could have a material adverse effect on BEPC’s assets, liabilities, business, financial condition, results of operations, cash flow and reputation. BEPC and its affiliates are subject to governmental or regulatory investigations from time to time. Governmental and regulatory investigations, regardless of its outcome, are generally costly, divert management attention, and have the potential to damage BEPC’s reputation. The unfavorable resolution of any governmental or regulatory investigation could result in criminal liability, fines, penalties or other monetary or non-monetary remedies and could materially affect BEPC’s business or results of operations.

Counterparties to BEPC contracts may not fulfill its obligations.

If, for any reason, any of the purchasers of power under BEPC PPAs, are unable or unwilling to fulfill its contractual obligations under the relevant PPA or if they refuse to accept delivery of power pursuant to the relevant PPA, BEPC’s assets, liabilities, business, financial condition, results of operations and cash flow could be materially and adversely affected as BEPC may not be able to replace the agreement with an agreement on

 

57


Table of Contents

equivalent terms and conditions. External events, such as a severe economic downturn, could impair the ability of some counterparties to the PPAs or some customers to pay for electricity received. In addition, inadequate performance by counterparties to operation and maintenance contracts related to certain of its assets or investments may increase the risk of operational or mechanical failures of such facilities.

Seeking to enforce a contract through the courts may take significant amounts of time and expense with no certainty of success.

BEPC’s business could be adversely affected if it is required to enforce contracts through the courts and it is unsuccessful or incurs significant amounts of time and expenses seeking to do so. High litigation costs and long delays make resolving commercial disputes in court time consuming and expensive. Such costs can be difficult to calculate with certainty. In addition, in certain jurisdictions in which BEPC currently conducts business or may seek to conduct business in the future, there can be uncertainty regarding the interpretation and application of laws and regulations relating to the enforceability of contractual rights.

The operation of BEPC generating facilities could be affected by local communities.

BEPC may become impacted by the interests of local communities and stakeholders, including in some cases, Indigenous peoples, that affect the operation of its facilities. Certain of these communities may have or may develop interests or objectives which are different from or even in conflict with its objectives, including the use of BEPC’s project lands and waterways near BEPC facilities. Any such differences could have a negative impact on the successful operation of BEPC facilities. As well, disputes surrounding, and settlements of, Indigenous land claims regarding lands on or near BEPC generating assets could interfere with operations and/or result in additional operating costs or restrictions, as well as adversely impact the use and enjoyment of BEPC’s real property rights with respect to its generating assets.

The Brookfield Renewable group may suffer a significant loss resulting from fraud, bribery, corruption, other illegal acts, inadequate or failed internal processes or systems, or from external events.

The Brookfield Renewable group may suffer a significant loss resulting from fraud, bribery, corruption, other illegal acts, inadequate or failed internal processes or systems, or from external events, such as security threats affecting its ability to operate. The Brookfield Renewable group operates in multiple jurisdictions and it is possible that its operations will expand into new jurisdictions. Doing business in multiple jurisdictions requires the Brookfield Renewable group to comply with the laws and regulations of the U.S. government as well as those of various non-U.S. jurisdictions. These laws and regulations may apply to BEPC, BEPC’s Service Provider, BEPC’s subsidiaries, individual directors, officers, employees and third-party agents. In particular, BEPC’s non-U.S. operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the Foreign Corrupt Practices Act of 1977, as amended, or the FCPA. The FCPA, among other things, prohibits companies and their officers, directors, employees and third-party agents acting on their behalf from corruptly offering, promising, authorizing or providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. BEPC and its officers, directors, employees and third-party agents regularly deal with government bodies and government owned and controlled businesses, the employees and representatives of which may be considered foreign officials for purposes of the FCPA. Also, as BEPC makes acquisitions, it may expose itself to the FCPA or other corruption related risks if its due diligence processes are unable to uncover or detect violations of applicable anti-corruption laws.

BEPC relies on its infrastructure, controls, systems and personnel, as well as central groups focusing on enterprise-wide management of specific operational risks such as fraud, trading, outsourcing, and business disruption, to manage the risk of illegal and corrupt acts or failed systems. BEPC also relies on its employees and certain third parties to comply with its policies and processes as well as applicable laws. Specific programs, policies, standards, methodologies and training have been developed to support the management of these risks

 

58


Table of Contents

and, as BEPC expands into new markets and makes new investments, it updates and implements its programs, policies, standards, methodologies and training to address the risks that it perceives. The failure to adequately identify or manage these risks could result in direct or indirect financial loss, regulatory censure and/or harm to the reputation of BEPC. The acquisition of businesses with weak internal controls to manage the risk of illegal or corrupt acts may create additional risk of financial loss, regulatory censure and/or harm to the reputation of BEPC. In addition, programs, policies, standards, methodologies and training, no matter how well designed, do not provide absolute assurance of effectiveness.

BEPC relies on computerized business systems, which could expose BEPC to cyber-attacks.

BEPC’s business relies on information technology. In addition, its business relies upon telecommunication services to remotely monitor and control BEPC’s assets and interface with regulatory agencies, wholesale power markets and customers. The information and embedded systems of key business partners, including suppliers of the information technology systems on which they rely, and regulatory agencies are also important to its operations. In light of this, BEPC may be subject to cyber security risks or other breaches of information technology security intended to obtain unauthorized access to BEPC proprietary information and that of its business partners, destroy data or disable, degrade, or sabotage these systems through the introduction of computer viruses, fraudulent emails, cyber attacks and other means, and such breaches could originate from a variety of sources including BEPC’s own employees or unknown third parties. There can be no assurance that measures implemented to protect the integrity of these systems will provide adequate protection, and any such breach of BEPC’s information technology could go undetected for an extended period of time. A breach of BEPC’s cyber security measures or the failure or malfunction of any of its computerized business systems, associated backup or data storage systems could cause BEPC to suffer a disruption in one or more parts of its business and experience, among other things, financial loss, a loss of business opportunities, misappropriation or unauthorized release of confidential or personal information, damage to its systems and those with whom it does business, violation of privacy and other laws, litigation, regulatory penalties and remediation and restoration costs as well as increased costs to maintain its systems. Cyber-security breaches or failures of BEPC’s information technology systems could have a material adverse effect on BEPC’s business operations, financial reporting, financial condition and results of operations, and result in reputational damage.

There can be no guarantee that newly developed technologies that BEPC invests in will perform as anticipated.

BEPC may invest in and use newly developed, less proven, technologies in its development projects or in maintaining or enhancing its existing assets. There is no guarantee that such new technologies will perform as anticipated. The failure of a new technology to perform as anticipated may materially and adversely affect the profitability of a particular development project or existing asset.

Performance of BEPC operating entities may be harmed by future labor disruptions and economically unfavorable collective bargaining agreements.

Certain of BEPC subsidiaries are parties to collective agreements that expire periodically and those subsidiaries may not be able to renew its collective agreements without a labor disruption or without agreeing to significant increases in cost. In the event of a labor disruption such as a strike or lock-out, the ability of BEPC generation assets to generate electricity may be impaired and its results from operations and cash flow could be materially and adversely affected.

 

59


Table of Contents

Some of the Brookfield Renewable group’s transactions and current operations are structured as joint ventures, partnerships and consortium arrangements, including its interest in Isagen, and the Brookfield Renewable group intends to continue to operate in this manner in the future, which may reduce Brookfield’s and the Brookfield Renewable group’s influence over the Brookfield Renewable group’s operating subsidiaries and may subject the Brookfield Renewable group to additional obligations.

Some of the Brookfield Renewable group’s transactions and current operations are structured as joint ventures, partnerships and consortium arrangements, including its interest in Isagen. An integral part of the Brookfield Renewable group’s strategy is to participate with institutional investors in Brookfield-sponsored or co-sponsored consortiums for single asset acquisitions and as a partner in or alongside Brookfield-sponsored or co-sponsored partnerships that target acquisitions that suit the Brookfield Renewable group’s profile. These arrangements are driven by the magnitude of capital required to complete acquisitions of generating assets, strategic partnering arrangements to access operating expertise, and other industrywide trends that the Brookfield Renewable group believes will continue. Such arrangements involve risks not present where a third party is not involved, including the possibility that partners or co-venturers might become bankrupt or otherwise fail to fund its share of required capital contributions. Additionally, partners or co-venturers might at any time have economic or other business interests or goals different from the Brookfield Renewable group and Brookfield.

While the Brookfield Renewable group’s strategy is to structure these arrangements to afford the Brookfield Renewable group certain protective rights in relation to operating and financing activities, joint ventures, partnerships and consortium investments may provide for a reduced level of influence over an acquired company because governance rights are shared with others. Accordingly, decisions relating to the underlying operations and financing activities, including decisions relating to the management and operation, the investment of capital within the arrangement, and the timing and nature of any exit, will be made by a majority or supermajority vote of the investors or by separate agreements that are reached with respect to individual decisions. For example, although BEPC owns a controlling stake in Brookfield Renewables interest in Isagen, the arrangements in place with Brookfield Renewable consortium partners require that certain actions with respect to their investment in Isagen and the Brookfield Renewable groups influence over business operations require supermajority approval of the consortium. In addition, the Brookfield Renewable groups ability to continue to exercise control over Isagen depends on Brookfield (including the Brookfield Renewable group) meeting certain ownership thresholds in the entity entitled to appoint the Isagen board of directors. See “BEPC BusinessCurrent OperationsColombia”. As a further example, when the Brookfield Renewable group participates with institutional investors in Brookfield-sponsored or co-sponsored consortiums for asset acquisitions and as a partner in or alongside Brookfield-sponsored or co-sponsored partnerships, there is often a finite term to the investment or a date after which partners are granted liquidity rights, which may lead to the investment being sold prior to the date the Brookfield Renewable group would otherwise choose. In addition, such operations may be subject to the risk that other investors may make business, financial or management decisions with which the Brookfield Renewable group does not agree, or the management of the applicable company may take risks or otherwise act in a manner that does not serve the Brookfield Renewable group’s interests. Because the Brookfield Renewable group may have a reduced level of influence over such operations, the Brookfield Renewable group may not be able to realize some or all of the benefits that it believes will be created from the Brookfield Renewable group’s and Brookfield’s involvement. If any of the foregoing were to occur, the Brookfield Renewable group’s business, financial condition and results of operations could suffer as a result.

In addition, because some of the Brookfield Renewable group’s transactions and current operations are structured as joint ventures, partnerships or consortium arrangements, including its interest in Isagen, the sale or transfer of interests in some of the Brookfield Renewable group’s operations are or may be subject to rights of first refusal or first offer, tag along rights or drag along rights and some agreements provide for buy-sell or similar arrangements. Such rights may be triggered at a time when the Brookfield Renewable group may not want them to be exercised and such rights may inhibit the Brookfield Renewable group’s ability to sell its interest in an entity within the Brookfield Renewable group’s desired time frame or on any other desired basis.

 

60


Table of Contents

Risks Relating to BEPC’s Relationship with Brookfield and Brookfield Renewable

Brookfield exercises substantial influence over the Brookfield Renewable group and it is highly dependent on the Service Providers.

Brookfield will, directly and indirectly, hold approximately 60.5% of BEPC exchangeable shares immediately upon completion of the special distribution (39.5% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares). In addition, Brookfield Renewable, which itself is controlled by Brookfield, holds all of the issued and outstanding BEPC class B shares, having a 75% voting interest, and BEPC class C shares. Through their ownership of BEPC exchangeable shares and BEPC class B shares, Brookfield and Brookfield Renewable will collectively hold an approximate 90% voting interest in BEPC (85% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares). As a result, Brookfield is able to control the appointment and removal of BEPC directors and the directors of BEP’s general partner and, accordingly, exercise substantial influence over the Brookfield Renewable group. In addition, the Service Providers, which include wholly-owned subsidiaries of Brookfield, provide management and administration services to the Brookfield Renewable group pursuant to the BEP Master Services Agreement. With the exception of the Brookfield Renewable group’s operating subsidiaries, the Brookfield Renewable group generally does not have any employees and depends on the management and administration services provided by the Service Providers. The partners, members, shareholders, directors, officers and employees of Brookfield, or Brookfield Personnel, and support staff that provide services to the Brookfield Renewable group are not required to have as its primary responsibility the management and administration of the Brookfield Renewable group or to act exclusively for the Brookfield Renewable group. Any failure to effectively manage the Brookfield Renewable group’s current operations or to implement its strategy could have a material adverse effect on the Brookfield Renewable group’s business, financial condition and results of operations.

Brookfield has no obligation to source acquisition opportunities for the Brookfield Renewable group and the Brookfield Renewable group may not have access to all renewable power acquisitions that Brookfield identifies.

The Brookfield Renewable groups ability to grow through acquisitions depends on Brookfield’s ability to identify and present the Brookfield Renewable group with acquisition opportunities. Brookfield established the Brookfield Renewable group to hold and acquire, directly or indirectly, renewable power generating operations and development projects on a global basis. However, Brookfield’s obligations to the Brookfield Renewable group under the BEP Master Services Agreement and the Brookfield Relationship Agreement are subject to a number of exceptions and Brookfield has no obligation to source acquisition opportunities specifically for the Brookfield Renewable group. In addition, Brookfield has not agreed to commit any minimum level of dedicated resources to the Brookfield Renewable group for the pursuit of renewable power-related acquisitions. Currently, pursuant to a relationship agreement between TerraForm Power and Brookfield, Brookfield has, subject to certain exceptions, designated TerraForm Power (of which Brookfield Renewable currently owns approximately 30%) as its primary vehicle for the acquisition of operating solar and wind assets in North America and Western Europe. However, this relationship agreement is expected to be terminated upon completion of the TERP acquisition. There are a number of factors which could materially and adversely impact the extent to which suitable acquisition opportunities are made available by Brookfield, for example:

 

   

it is an integral part of Brookfield’s (and the Brookfield Renewable group) strategy to pursue the acquisition or development of renewable power assets through consortium arrangements with institutional investors, strategic partners and/or financial sponsors and to form partnerships (including private funds, joint ventures and similar arrangements) to pursue such acquisitions on a specialized or global basis. Although Brookfield has agreed that it will not enter any such arrangements that are suitable for the Brookfield Renewable group without giving the Brookfield Renewable group an opportunity to participate in them, there is no minimum level of participation to which the Brookfield Renewable group will be entitled;

 

61


Table of Contents
   

the same professionals within Brookfield’s organization that are involved in sourcing and executing acquisitions that are suitable for the Brookfield Renewable group are responsible for sourcing and executing opportunities for the vehicles, consortiums and partnerships referred to above, as well as having other responsibilities within Brookfield’s broader asset management business. Limits on the availability of such individuals will likewise result in a limitation on the availability of acquisition opportunities for BEPC;

 

   

Brookfield will only recommend acquisition opportunities that it believes are suitable and appropriate for the Brookfield Renewable group. The Brookfield Renewable group’s focus is on assets where it believes that its operations-oriented approach can be deployed to create value. Accordingly, opportunities where Brookfield cannot play an active role in influencing the underlying assets may not be consistent with the Brookfield Renewable group’s acquisition strategy and, therefore, may not be suitable for the Brookfield Renewable group, even though it may be attractive from a purely financial perspective. Legal, regulatory, tax and other commercial considerations will likewise be an important consideration in determining whether an opportunity is suitable and/or appropriate for the Brookfield Renewable group and will limit its ability to participate in certain acquisitions; and

 

   

in addition to structural limitations, the question of whether a particular acquisition is suitable and/or appropriate is highly subjective and is dependent on a number of portfolio construction and management factors including the Brookfield Renewable group’s liquidity position at the relevant time, the expected risk return profile of the opportunity, its fit with the balance of its investments and related operations, other opportunities that the Brookfield Renewable group may be pursuing or otherwise considering at the relevant time, Brookfield Renewable’s interest in preserving capital in order to secure other opportunities and/or to meet other obligations, and other factors. If Brookfield determines that an opportunity is not suitable or appropriate for BEPC, it may still pursue such opportunity on its own behalf, on behalf of Brookfield Renewable or on behalf of a Brookfield-sponsored vehicle, partnership or consortium.

In making determinations about acquisition opportunities and investments, consortium arrangements or partnerships, Brookfield may be influenced by factors that result in a misalignment or conflict of interest and may take the interests of others into account, as well as BEPC’s own interests and the interests of Brookfield Renewable.

Among others, BEPC may pursue acquisition opportunities indirectly through investments in Brookfield-sponsored vehicles, consortiums and partnerships or directly (including by investing alongside such vehicles, consortiums and partnerships). Any references to BEPC’s acquisitions, investments, assets, expenses, portfolio companies or other terms should be understood to mean such items held, incurred or undertaken directly by BEPC or indirectly by BEPC through its investment in such Brookfield-sponsored vehicles, consortiums and partnerships.

The departure of some or all of Brookfield’s professionals could prevent BEPC and Brookfield Renewable from achieving their objectives.

The Brookfield Renewable group depends on the diligence, skill and business contacts of Brookfield’s professionals and the information and opportunities they generate during the normal course of their activities. The Brookfield Renewable group’s future success will depend on the continued service of these individuals, who are not obligated to remain employed with Brookfield. Brookfield has experienced departures of key professionals in the past and may do so in the future, and the Brookfield Renewable group cannot predict the impact that any such departures will have on the Brookfield Renewable group’s ability to achieve its objectives. The departure of a significant number of Brookfield’s professionals 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 the Brookfield Renewable group’s ability to achieve its objectives. The BEP Master Services Agreement does not require Brookfield to maintain the employment of any of its professionals or to cause any particular professionals to provide services to BEPC or on the Brookfield Renewable group’s behalf.

 

62


Table of Contents

Brookfield’s and Brookfield Renewable’s ownership position of BEPC entitles them to a significant percentage of BEPC dividends, and Brookfield may increase its ownership relative to other shareholders.

Brookfield will own, directly and indirectly, approximately 60.5% of BEPC exchangeable shares (39.5% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares), entitling it to the same dividends that other BEPC exchangeable shareholders will receive. In addition, Brookfield Renewable will own all of the issued and outstanding BEPC class B shares, which represent a 75% voting interest and all of the issued and outstanding BEPC class C shares which entitle BEP to all of the residual value in BEPC after payment in full of the amount due to holders of BEPC exchangeable shares and BEPC class B shares and subject to the prior rights of holders of BEPC preferred shares. Together, Brookfield and Brookfield Renewable will hold an approximate 90% voting interest in BEPC (85% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares). Brookfield Renewable’s ownership of BEPC class C shares will entitle it to receive dividends as and when declared by the BEPC board. Accordingly, Brookfield and Brookfield Renewable’s ownership position of BEPC exchangeable shares and BEPC class C shares allows them to receive a substantial percentage of BEPC dividends. In addition, Brookfield may increase its ownership position in BEPC. Brookfield may purchase additional BEPC exchangeable shares in the open market or pursuant to a private placement, which may result in Brookfield increasing its ownership of BEPC exchangeable shares relative to other shareholders, which could reduce the amount of cash available for distribution to public shareholders.

None of British Columbia corporate law, the BEP Master Services Agreement and BEPC’s other arrangements with Brookfield impose on Brookfield any fiduciary duties to act in the best interests of BEPC shareholders or unitholders.

None of British Columbia corporate law, the BEP Master Services Agreement and BEPC’s other arrangements with Brookfield impose on Brookfield any duty (statutory or otherwise) to act in the best interests of the Service Recipients, nor do they impose other duties that are fiduciary in nature.

BEPC’s organizational and ownership structure may create significant conflicts of interest that may be resolved in a manner that is not in the best interests of BEPC or the best interests of BEPC shareholders.

BEPC’s organizational and ownership structure involves a number of relationships that may give rise to conflicts of interest between BEPC and BEPC shareholders, on the one hand, and Brookfield and Brookfield Renewable, on the other hand. For example, BEPC expects that the BEPC board will mirror the board of the general partner of BEP, except that prior to the completion of the special distribution, BEPC will add one additional non-overlapping board member to assist BEPC with, among other things, resolving any conflicts of interest that may arise from its relationship with Brookfield Renewable. In certain instances, the interests of Brookfield or Brookfield Renewable may differ from the interests of BEPC and BEPC shareholders, including with respect to the types of acquisitions made, the timing and amount of dividends by BEPC, the reinvestment of returns generated by BEPC’S operations, the use of leverage when making acquisitions and the appointment of outside advisors and service providers. Further, Brookfield may make decisions, including with respect to tax or other reporting positions, from time to time that may be more beneficial to one type of investor or beneficiary than another, or to Brookfield rather than to BEPC and BEPC shareholders.

It is expected that Brookfield will, directly and indirectly, hold approximately 60.5% of BEPC exchangeable shares immediately upon completion of the special distribution (39.5% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares). In accordance with the BEPC articles, the holders of the BEPC class B shares will be entitled to cast, in the aggregate, a number of votes equal to three times the number of votes attached to the BEPC exchangeable shares (which carry one vote per BEPC exchangeable share), and except as otherwise expressly provided in the BEPC articles or as required by law, the holders of BEPC exchangeable shares and BEPC class B shares will vote together and not as separate classes. Brookfield Renewable, which itself is controlled by Brookfield, will hold all of the issued and

 

63


Table of Contents

outstanding BEPC class B shares, having a 75% voting interest in BEPC, and BEPC class C shares, which entitle BEP to all of the residual value in BEPC after payment in full of the amount due to holders of BEPC exchangeable shares and BEPC class B shares, subject to the prior rights of holders of any BEPC preferred shares. As a result, Brookfield is able to control the election and removal of BEPC directors and the directors of BEP’s general partner and, accordingly, exercises substantial influence over the Brookfield Renewable group.

In addition, the Service Providers, being wholly-owned subsidiaries of Brookfield, will provide management services to BEPC pursuant to the BEP Master Services Agreement. Pursuant to the BEP Master Services Agreement, in exchange for the management services provided to the Brookfield Renewable group by the Service Providers, Brookfield Renewable pays an annual base management fee to the Service Providers of $20 million (adjusted annually for inflation at an inflation factor based on year-over-year United States consumer price index) plus 1.25% of the amount by which the market value of the Brookfield Renewable group exceeds an initial reference value. The base management fee is calculated and paid on a quarterly basis. BEPC will reimburse Brookfield Renewable for its proportionate share of such fee. BEPC’s proportionate share of the base management fee will be calculated on the basis of the value of BEPC’s business relative to that of BEP. For purposes of calculating the base management fee, the market value of Brookfield Renewable is equal to the aggregate value of all outstanding BEP units on a fully-diluted basis, preferred units and securities of the other Service Recipients (including BEPC exchangeable shares) that are not held by Brookfield Renewable, plus all outstanding third-party debt with recourse to a Service Recipient, less all cash held by such entities. BRP Bermuda GP Limited, a subsidiary of Brookfield, also receives incentive distributions based on the amount by which quarterly distributions on BRELP units (other than BRELP Class A Preferred Units) as well as economically equivalent securities, such as the BEPC exchangeable shares, of the other Service Recipients exceed specified target levels as set forth in BRELP’s limited partnership agreement. This relationship may give rise to conflicts of interest between BEPC and BEPC shareholders, on the one hand, and Brookfield, on the other, as Brookfield’s interests may differ from the interests of Brookfield Renewable, BEPC or BEPC shareholders.

Brookfield Renewable’s arrangements with Brookfield, which will apply to BEPC, were negotiated in the context of an affiliated relationship and may contain terms that are less favorable than those which otherwise might have been obtained from unrelated parties.

The terms of Brookfield Renewable’s arrangements with Brookfield, that will apply to BEPC, were effectively determined by Brookfield. These terms, including terms relating to compensation, contractual or fiduciary duties, conflicts of interest and Brookfield’s ability to engage in outside activities, including activities that compete with BEPC, BEPC’s activities and limitations on liability and indemnification, may be less favorable than otherwise might have resulted if the negotiations had involved unrelated parties.

The liability of the Service Providers is limited under BEPC’s arrangements with them and BEPC and the other Service Recipients, including Brookfield Renewable, have agreed to indemnify the Service Providers against claims that they may face in connection with such arrangements, which may lead them to assume greater risks when making decisions relating to BEPC than they otherwise would if acting solely for their own account.

Under the BEP Master Services Agreement, the Service Providers have not assumed any responsibility other than to provide or arrange for the provision of the services described in the BEP Master Services Agreement in good faith and will not be responsible for any action that BEPC takes in following or declining to follow their advice or recommendations. The liability of the Service Providers under the BEP Master Services Agreement is limited to the fullest extent permitted by law to conduct involving bad faith, fraud or willful misconduct or, in the case of a criminal matter, action that was known to have been unlawful, except that the Service Providers are also liable for liabilities arising from gross negligence. In addition, BEPC and the other Service Recipients, including Brookfield Renewable, have agreed to indemnify the Service Providers to the fullest extent permitted by law from and against any claims, liabilities, losses, damages, costs or expenses incurred by an indemnified person or threatened in connection with BEPC’s operations, investments and activities or in respect of or arising from the

 

64


Table of Contents

BEP Master Services Agreement or the services provided by the Service Providers, except to the extent that the claims, liabilities, losses, damages, costs or expenses are determined to have resulted from the conduct in respect of which such persons have liability as described above. These protections may result in the Service Providers tolerating greater risks when making decisions than otherwise would be the case, including when determining whether to use leverage in connection with acquisitions. The indemnification arrangements to which the Service Providers are a party may also give rise to legal claims for indemnification that are adverse to BEPC and BEPC shareholders.

The role and ownership of Brookfield may change.

The Brookfield Renewable group’s arrangements with Brookfield does not require Brookfield to maintain any ownership level in the Brookfield Renewable group, and Brookfield may sell the BEP units or BEPC exchangeable shares that it holds in BEP or BEPC, respectively. Brookfield may sell or transfer all or part of its interests in the Service Providers without the approval of the Brookfield Renewable group, which could result in changes to the management of the Brookfield Renewable group and its current growth strategy. Additionally, the Brookfield Renewable group cannot predict with any certainty the effect that any changes in ownership level of Brookfield of the Brookfield Renewable group would have on the trading price of BEPC exchangeable shares, the BEP units or the Brookfield Renewable group’s ability to raise capital or make investments in the future. As a result, the future of the Brookfield Renewable group would be uncertain and its business, financial condition and results of operations may suffer.

BEPC is not entitled to terminate the BEP Master Services Agreement. Only the general partner of BEP may terminate the BEP Master Services Agreement, and it may be unable or unwilling to do so.

BEPC is not entitled to terminate the BEP Master Services Agreement. Only the general partner of BEP may terminate the BEP Master Services Agreement, and it may be unable or unwilling to do so. The BEP Master Services Agreement provides that the Service Recipients may terminate the agreement only if: the Service Providers 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 to the Service Recipients and the default continues unremedied for a period of sixty (60) days after written notice of the breach is given to the Service Providers; the Service Providers engage in any act of fraud, misappropriation of funds or embezzlement against any Service Recipient that results in material harm to BEPC; the Service Providers are grossly negligent in the performance of their duties under the agreement and such negligence results in material harm to the Service Recipients; or upon the happening of certain events relating to the bankruptcy or insolvency of the Service Providers. The BEP Master Services Agreement cannot be terminated for any other reason, including if the Service Providers or Brookfield experience a change of control or due solely to the poor performance or under-performance of the Brookfield Renewable group’s operations or assets, and the agreement continues in perpetuity, until terminated in accordance with its terms. Because the general partner of BEP is an affiliate of Brookfield, it may be unwilling to terminate the BEP Master Services Agreement, even in the case of a default. If the Service Providers’ performance does not meet the expectations of investors, and the general partner of BEP is unable or unwilling to terminate the BEP Master Services Agreement, the Brookfield Renewable group is not entitled to terminate the agreement and the market price of BEPC exchangeable shares or the BEP units could suffer. Furthermore, the termination of the BEP Master Services Agreement would terminate the Brookfield Renewable group’s rights under the Brookfield Relationship Agreement and the Licensing Agreement. See “BEP and BEPC Relationship with Brookfield—Brookfield Relationship Agreement” and “BEP and BEPC Relationship with Brookfield—Licensing Agreement” for more details.

BEPC guarantees certain debt obligations of Brookfield Renewable, which may adversely affect BEPC’s financial health and make BEPC more vulnerable to adverse economic conditions.

An indirect wholly-owned subsidiary of BEPC is expected to fully and unconditionally guarantee certain unsecured debt securities and preferred securities issued by Brookfield Renewable, as well as Brookfield

 

65


Table of Contents

Renewable’s obligations under, certain credit facilities, thereby causing BEPC to become liable for such obligations. In light of the guarantees, BEPC is exposed to the credit risk of Brookfield Renewable. If Brookfield Renewable is unable or fails to pay any of its indebtedness in respect of which BEPC has provided a guarantee, BEPC may be required to pay all amounts due under such indebtedness, which may affect BEPC’s financial health and make BEPC more vulnerable to adverse economic conditions. See “BEPC Relationship with Brookfield Renewable—Credit Support” for more details.

Risks Relating to Taxation

The exchange of BEPC exchangeable shares for BEP units may result in the U.S. federal income taxation of any gain realized by a U.S. unitholder.

Depending on the facts and circumstances, a U.S. unitholder’s exchange of BEPC exchangeable shares for BEP units may result in the U.S. federal income taxation of any gain realized by such U.S. unitholder. In general, a U.S. unitholder exchanging BEPC exchangeable shares for BEP units pursuant to the exercise of the exchange right will recognize capital gain or loss (i) if the exchange request is satisfied by the delivery of BEP units by BAM pursuant to the Rights Agreement or (ii) if the exchange request is satisfied by the delivery of BEP units by BEPC and the exchange is, within the meaning of Section 302(b) of the Code, in “complete termination” of the U.S. unitholder’s equity interest in BEPC, a “substantially disproportionate” redemption of stock, or “not essentially equivalent to a dividend”, applying certain constructive ownership rules that take into account not only the BEPC exchangeable shares and other equity interests in BEPC actually owned but also other equity interests in BEPC treated as constructively owned by such U.S. unitholder for U.S. federal income tax purposes. If an exchange request satisfied by the delivery of BEP units by BEPC is not treated as a sale or exchange under the foregoing rules, then it will be treated as a distribution equal to the amount of cash and the fair market value of property received (such as BEP units), taxable under the rules generally applicable to distributions on stock of a corporation.

In general, if BEP satisfies an exchange request by delivering BEP units to a U.S. unitholder pursuant to BEP’s exercise of the BEP call right, then the U.S. unitholder’s exchange of BEPC exchangeable shares for BEP units will qualify as tax-free under Section 721(a) of the Code, unless, at the time of such exchange, BEP (i) is a publicly traded partnership treated as a corporation or (ii) would be an “investment company” if it were incorporated for purposes of Section 721(b) of the Code. In the case described in (i) or (ii) of the preceding sentence, a U.S. unitholder may recognize gain upon the exchange. The general partner of BEP believes that BEP will be treated as a partnership and not as a corporation for U.S. federal income tax purposes. In addition, based on the shareholders’ rights in the event of the liquidation or dissolution of BEPC (or BEP) and the terms of the BEPC exchangeable shares, which are intended to provide an economic return equivalent to the economic return on BEP units (including identical distributions), and taking into account the expected relative values of BEP’s assets and its ratable share of the assets of its subsidiaries for the foreseeable future, the general partner of BEP currently expects that a U.S. unitholder’s exchange of BEPC exchangeable shares for BEP units pursuant to the exercise of the BEP call right will not be treated as a transfer to an investment company for purposes of Section 721(b) of the Code. Accordingly, the general partner of BEP currently expects a U.S. unitholder’s exchange of BEPC exchangeable shares for BEP units pursuant to BEP’s exercise of the BEP call right to qualify as tax-free under Section 721(a) of the Code. However, no definitive determination can be made as to whether any such future exchange will qualify as tax-free under Section 721(a) of the Code, as this will depend on the facts and circumstances at the time of the exchange. Many of these facts and circumstances are not within the control of BEP, and no assurance can be provided as to the position, if any, taken by the general partner of BEP with regard to the U.S. federal income tax treatment of any such exchange. Nor can any assurance be given that the IRS will not assert, or that a court would not sustain, a position contrary to any future position taken by BEP. In addition, based on the highly factual nature of such future exchange, and taking into account that many of the relevant facts and circumstances are not within the control of BEP, Torys LLP has rendered no opinion with respect to whether any such future exchange of BEPC exchangeable shares for BEP units pursuant to the exercise of the BEP call right will qualify as tax-free under Section 721(a) of the Code. If Section 721(a) of the Code does

 

66


Table of Contents

not apply, then a U.S. unitholder who exchanges BEPC exchangeable shares for BEP units pursuant to BEP’s exercise of the BEP call right will be treated as if such holder had sold in a taxable transaction such holder’s BEPC exchangeable shares to BEP for cash in an amount equal to the value of the BEP units received.

Even if a U.S. unitholder’s transfer of BEPC exchangeable shares in exchange for BEP units pursuant to BEP’s exercise of the BEP call right qualifies as tax-free under Section 721(a) of the Code, such U.S. unitholder will be subject to special rules that may result in the recognition of additional taxable gain or income. Under Section 704(c)(1) of the Code, if appreciated property is contributed to a partnership, the contributing partner must recognize any gain that was realized but not recognized for U.S. federal income tax purposes with respect to the property at the time of the contribution (referred to as “built-in gain”) if the partnership sells such property (or otherwise transfers such property in a taxable exchange) at any time thereafter or distributes such property to another partner within seven years of the contribution in a transaction that does not otherwise result in the recognition of “built-in gain” by the partnership. Under Section 737 of the Code, such U.S. unitholder could be required to recognize built-in gain if BEP were to distribute any BEP property other than money (or, in certain circumstances, BEPC exchangeable shares) to such former holder of BEPC exchangeable shares within seven years of exercise of the BEP call right. Under Section 707(a) of the Code, such U.S. unitholder could be required to recognize built-in gain if BEP were to make distributions (other than “operating cash flow distributions”, unless another exception were to apply) to such U.S. unitholder within two years of exercise of the BEP call right. If a distribution to a U.S. unitholder within two years of the transfer of BEPC exchangeable shares in exchange for BEP units is treated as part of a deemed sale transaction under Section 707(a) of the Code, such U.S. unitholder will recognize gain or loss in the year of the transfer of BEPC exchangeable shares in exchange for BEP units, and, if such U.S. unitholder has already filed a tax return for such year, such unitholder may be required to file an amended return. In such a case, the U.S. unitholder may also be required to report some amount of imputed interest income.

For a more complete discussion of the U.S. federal income tax consequences of the exchange of BEPC exchangeable shares for BEP units, see “Material United States Federal Income Tax Considerations—Consequences to U.S. Unitholders—Ownership and Disposition of BEPC Exchangeable Shares” below. The U.S. federal income tax consequences of exchanging BEPC exchangeable shares for BEP units are complex, and each U.S. unitholder should consult an independent tax advisor regarding such consequences in light of such unitholder’s particular circumstances.

Distributions on BEPC exchangeable shares made to non-U.S. unitholders may be subject to U.S. withholding tax if Section 871(m) of the Code applies.

Distributions on BEPC exchangeable shares made to non-U.S. unitholders and proceeds from the sale or other disposition of BEPC exchangeable shares by non-U.S. unitholders generally will not be subject to U.S. federal income tax. Upon the completion of the TERP acquisition, however, BRELP is expected to own stock of a U.S. corporation directly, in which case U.S. withholding tax may apply to any portion of a distribution made on BEPC exchangeable shares that is treated as a deemed dividend under Section 871(m) of the Code. Specifically, a 30% withholding tax generally applies to deemed dividend amounts (“dividend equivalents”) with respect to certain contractual arrangements held by non-U.S. persons which reference any interest in an entity if that interest could give rise to a U.S.-source dividend. Under Treasury Regulations promulgated under the Code, a Section 871(m) transaction is treated as directly referencing the assets of a partnership that holds significant investments in certain securities (such as stock of a U.S. corporation). BEP indirectly holds stock of a U.S. corporation through BRELP, and the BEPC exchangeable shares are intended to be structured so that distributions are identical to distributions on BEP units. Accordingly, the contractual arrangements relating to the BEPC exchangeable shares could be subject to Section 871(m) of the Code, as discussed below.

Whether U.S. withholding tax applies with respect to a Section 871(m) transaction depends, in part, on whether it is classified for purposes of Section 871(m) of the Code as a “simple” contract or “complex” contract. No direct authority addresses whether the contractual arrangements relating to the BEPC exchangeable shares

 

67


Table of Contents

constitute a simple contract or a complex contract. In the absence of direct authority, Torys LLP has rendered no opinion regarding the classification of the contractual arrangements relating to the BEPC exchangeable shares as a simple contract or a complex contract for purposes of Section 871(m) of the Code and the Treasury Regulations thereunder. BEPC intends to take the position and believes that such contractual arrangements do not constitute a simple contract. In such case, under Treasury Regulations, as modified by an IRS Notice, such contractual arrangements should not be subject to Section 871(m) of the Code before January 1, 2023, and no portion of a distribution made on BEPC exchangeable shares before such date should be subject to U.S. withholding tax by reason of treatment as a dividend equivalent under Section 871(m). For distributions made on BEPC exchangeable shares on or after January 1, 2023, Section 871(m) of the Code will apply if the contractual arrangements relating to the BEPC exchangeable shares meet a “substantial equivalence” test. If this is the case, BEPC expects to withhold U.S. federal income tax, generally at a rate of 30%, on any portion of a distribution on BEPC exchangeable shares that is treated as a dividend equivalent and paid on or after January 1, 2023.

This 30% withholding tax may be reduced or eliminated under the Code or an applicable income tax treaty, provided that the non-U.S. unitholder properly certifies its eligibility by providing an IRS Form W-8. If, notwithstanding the foregoing, BEPC is unable to accurately or timely determine the tax status of a non-U.S. unitholder for purposes of establishing whether reduced rates of withholding apply, then U.S. withholding tax at a rate of 30% may apply to any portion of a distribution on BEPC exchangeable shares that is treated as a dividend equivalent under Section 871(m) of the Code. A dividend equivalent may also be subject to a 30% withholding tax under the Foreign Account Tax Compliance (“FATCA”) provisions of the Hiring Incentives to Restore Employment Act of 2010, unless a non-U.S. unitholder properly certifies its FATCA status on IRS Form W-8 or other applicable form and satisfies any additional requirements under FATCA.

Notwithstanding the foregoing, BEPC’s position that the contractual arrangements relating to the BEPC exchangeable shares do not constitute a simple contract does not bind the IRS. The Treasury Regulations under Section 871(m) of the Code require complex determinations with respect to contractual arrangements linked to U.S. equities, and the application of these regulations to the BEPC exchangeable shares is uncertain. Accordingly, the IRS could challenge BEPC’s position and assert that the contractual arrangements relating to the BEPC exchangeable shares constitute a simple contract, in which case U.S. withholding tax currently would apply, generally at a rate of 30% (subject to reduction or elimination under the Code or an applicable income tax treaty), to that portion, if any, of a distribution on BEPC exchangeable shares that is treated as referencing a U.S.-source dividend paid to BEP or BRELP. Each non-U.S. unitholder should consult an independent tax advisor regarding the implications of Section 871(m) of the Code and FATCA for the ownership of BEPC exchangeable shares with respect to such holder’s particular circumstances.

For a more complete discussion of the U.S. federal income tax consequences to non-U.S. unitholders of owning BEPC exchangeable shares, see “Material United States Federal Income Tax Considerations—Consequences to Non-U.S. Unitholders—Ownership and Disposition of BEPC Exchangeable Shares” below. The U.S. federal income tax consequences of owning BEPC exchangeable shares are complex, and each non-U.S. unitholder should consult an independent tax advisor regarding such consequences in light of such unitholder’s particular circumstances.

Canadian federal income tax considerations described herein may be materially and adversely impacted by certain events.

If BEPC ceases to qualify as a “mutual fund corporation” under the Tax Act, the income tax considerations described under the heading “Material Canadian Federal Income Tax Considerations” would be materially and adversely different in certain respects.

In general, there can be no assurance that Canadian federal income tax laws respecting the treatment of mutual fund corporations or otherwise respecting the treatment of BEPC will not be changed in a manner that adversely affects the shareholders of BEPC, or that such tax laws will not be administered in a way that is less advantageous to BEPC or the shareholders of BEPC.

 

68


Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

This document contains “forward-looking information” within the meaning of applicable securities laws. Forward-looking information may relate to the Brookfield Renewable group’s outlook and anticipated events or results and may include information regarding the financial position, business strategy, growth strategy, budgets, operations, financial results, taxes, dividends, distributions, plans and objectives of the Brookfield Renewable group, including as may relate to the TERP acquisition. Particularly, information regarding future results, performance, achievements, prospects or opportunities of the Brookfield Renewable group or the Canadian, U.S. or international markets is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “targets”, “expects” or “does not expect”, “is expected”, “an opportunity exists”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate” or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might”, “will” or “will be taken”, “occur” or “be achieved”.

Discussions containing forward-looking information may be found, among other places, under “Risk Factors”, “BEP and BEPC Capitalization”, “BEPC Business” and “Managements Discussion and Analysis of Financial Condition and Results of Operations of the United States, Brazilian and Colombian Operations of BEP”.

The forward-looking statements are based on BEPC’s beliefs, assumptions and expectations of BEPC’s future performance, taking into account all information currently available to BEPC. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to BEPC or within its control. If a change occurs, BEPC’s business, financial condition, liquidity and results of operations may vary materially from those expressed in its forward-looking statements. The following factors, among others, which are discussed in greater detail in the “Risk Factors” section of this document, could cause BEPC’s actual results to vary from its forward-looking statements:

 

   

BEPC’s lack of operating history;

 

   

changes to hydrology at BEPC’s hydroelectric facilities, to wind conditions at BEPC wind energy facilities, to irradiance at BEPC’s solar facilities or to weather generally, as a result of climate change or otherwise, at any of the BEPC facilities;

 

   

volatility in supply and demand in the energy markets;

 

   

BEPC’s inability to re-negotiate or replace expiring PPAs on similar terms;

 

   

increases in water rental costs (or similar fees) or changes to the regulation of water supply;

 

   

advances in technology that impair or eliminate the competitive advantage of BEPC projects;

 

   

an increase in the amount of uncontracted generation in BEPC’s portfolio;

 

   

industry risks relating to the power markets in which BEPC operates;

 

   

the termination of, or a change to, the MRE balancing pool in Brazil;

 

   

increased regulation of BEPC operations;

 

   

concessions and licenses expiring and not being renewed or replaced on similar terms;

 

   

BEPC real property rights for wind and solar renewable energy facilities being adversely affected by the rights of lienholders and leaseholders that are superior to those granted to BEPC;

 

   

increases in the cost of operating BEPC facilities;

 

   

BEPC’s failure to comply with conditions in, or its inability to maintain, governmental permits;

 

   

equipment failures;

 

   

dam failures and the costs and potential liabilities associated with such failures;

 

69


Table of Contents
   

force majeure events;

 

   

uninsurable losses and higher insurance premiums;

 

   

changes to laws, rules or regulations that impact BEPC or BEPC’s businesses;

 

   

availability and access to interconnection facilities and transmission systems;

 

   

health, safety, security and environmental risks;

 

   

changes to general economic and political conditions in the markets in which the Brookfield Renewable group operates;

 

   

counterparties to BEPC contracts not fulfilling its obligations;

 

   

the time and expense of enforcing contracts against non-performing counter-parties and the uncertainty of success;

 

   

fraud, bribery, corruption, other illegal acts or inadequate or failed internal processes or systems;

 

   

BEPC’s reliance on computerized business systems, which could expose it to cyber-attacks;

 

   

newly developed technologies in which BEPC invests not performing as anticipated;

 

   

fluctuations in the returns and values of securities in BEPC’s investment portfolio;

 

   

fluctuations in interest rates;

 

   

BEPC’s inability to finance its operations due to the status of the capital markets;

 

   

operating and financial restrictions imposed on BEPC by its loan, debt and security agreements;

 

   

an inability to obtain financing or a downgrade in BEPC’s credit ratings;

 

   

adverse changes in currency exchange rates and BEPC’s inability to effectively manage foreign currency exposure;

 

   

BEPC’s inability to identify sufficient investment opportunities and complete transactions, including the TERP acquisition;

 

   

uncertainties as to whether TerraForm Power’s stockholders not affiliated with Brookfield Renewable will approve any transaction;

 

   

uncertainties as to whether the other conditions to the TERP acquisition will be satisfied or satisfied on the anticipated schedule;

 

   

the growth of BEPC’s portfolio and BEPC’s inability to realize the expected benefits of its transactions or acquisitions, including the TERP acquisition;

 

   

BEPC’s inability to develop greenfield projects or find new sites suitable for the development of greenfield projects;

 

   

delays, cost overruns and other problems associated with the construction and operation of generating facilities and risks associated with the arrangements BEPC enters into with communities and joint venture partners;

 

   

Brookfield’s election not to source acquisition opportunities the Brookfield Renewable group and BEPC and BEP’s lack of access to all renewable power acquisitions that Brookfield identifies;

 

   

BEPC does not have control over all of its operations or investments;

 

   

political instability or changes in government policy;

 

   

foreign laws or regulation to which BEPC becomes subject as a result of future acquisitions in new markets;

 

70


Table of Contents
   

changes to government policies that provide incentives for renewable energy;

 

   

BEPC is not subject to the same disclosure requirements as a U.S. domestic issuer;

 

   

the separation of economic interest from control within BEPC’s organizational structure;

 

   

the incurrence of debt at multiple levels within BEPC’s organizational structure;

 

   

being deemed an “investment company” under the Investment Company Act;

 

   

the effectiveness of BEPC’s internal controls over financial reporting;

 

   

BEPC’s dependence on Brookfield and Brookfield Renewable and Brookfield’s significant influence over BEPC;

 

   

the departure of some or all of Brookfield’s key professionals;

 

   

BEPC’s lack of independent means of generating revenue;

 

   

changes in how Brookfield or Brookfield Renewable elects to hold ownership interests in BEPC;

 

   

Brookfield acting in a way that is not in the best interests of BEPC;

 

   

the severity, duration and spread of the COVID-19 outbreak, as well as the direct and indirect impacts that the virus may have;

 

   

broader impact of climate change;

 

   

failure of BEPC’s systems technology;

 

   

involvement in disputes, governmental and regulatory investigations and litigation;

 

   

any changes in the market price of the BEP units; and

 

   

the redemption of BEPC exchangeable shares by BEPC at any time or upon notice from the holder of BEPC class B shares.

These statements and other forward-looking information are based on opinions, assumptions and estimates made by BEPC and BEP in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors that they believe are appropriate and reasonable in the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Accordingly, readers should not place undue reliance on forward-looking information. BEPC and BEP do not undertake to update any forward-looking information contained herein, except as required by applicable securities laws.

THE SPECIAL DISTRIBUTION

Background to and Purpose of the Special Distribution

BEP is a leading global renewable power company that owns and operates high-quality hydroelectric, wind, solar and biomass power, cogeneration and storage assets in North and South America, Europe and Asia Pacific and represents one of the largest, public pure play renewable businesses globally. BEP is focused on leveraging its extensive operating experience to maintain and enhance the value of assets, grow cash flows on an annual basis and cultivate positive relations with local stakeholders. Because each BEPC exchangeable share has been structured with the intention of providing an economic return equivalent to one BEP unit, BEP expects that the market price of BEPC exchangeable shares will be significantly impacted by the market price of the BEP units and the combined business performance of the Brookfield Renewable group as a whole.

BEP believes that certain investors in certain jurisdictions may be dissuaded from investing in BEP because of the tax reporting framework that results from investing in BEP units of a Bermuda-exempted limited

 

71


Table of Contents

partnership. Creating BEPC, a corporation, and distributing BEPC exchangeable shares, which have been structured with the intention of providing an economic return equivalent to the BEP units, is intended to achieve the following objectives:

 

   

Provide investors that would not otherwise invest in BEP with an opportunity to gain access to BEP’s globally diversified portfolio of high-quality renewable power assets.

Provide investors with the flexibility to own, through the ownership of a BEPC exchangeable share, the economic equivalent of a BEP unit because of the ability to exchange into a BEP unit and the identical dividends that are expected to be paid on each BEPC exchangeable share.

 

   

Provide investors with a tax reporting framework that may be favored by investors in some jurisdictions over the tax reporting framework provided by an investment in BEP, which BEP believes will attract new investors who will benefit from investing in its business.

 

   

Create a company that BEP expects to be eligible for inclusion in several indices, which may be attractive to certain investors.

 

   

Provide the Brookfield Renewable group with a greater securityholder base, thereby creating enhanced liquidity for the Brookfield Renewable group’s securityholders.

 

   

Create a company that will provide the Brookfield Renewable group with the ability to access new capital pools.

The special distribution is being effected in a manner that BEP expects will not result in any adverse impact on Brookfield Renewable’s credit rating or its preference shareholders, preferred unitholders or debtholders. See “BEPC Relationship with Brookfield Renewable—Credit Support” for further details.

Transactions Occurring Prior to the Special Distribution

 

TIMING

  

TRANSACTION

After the distribution record date and prior to the special distribution

  

The BEPC articles will be amended to provide for, among other share classes as described in “Description of BEPC Share Capital”, the BEPC exchangeable shares, BEPC class B shares and BEPC class C shares.

 

BRELP will transfer its interest in LATAM Holdco (excluding a 10% interest, which will be retained by BEP), and 100% of its interests in BPUSHA and Holdings IV in consideration for approximately 77.8 million BEPC exchangeable shares and approximately 123 million BEPC class C shares, such shares constituting all of the issued and outstanding BEPC exchangeable shares and BEPC class C shares.

On the same date as and immediately prior to the special distribution

  

BRELP will declare the BRELP Distribution pursuant to which all of its holders of equity units (excluding preferred partnership units) will receive one BEPC exchangeable share for every four equity units, for an aggregate of approximately 77.8 million BEPC exchangeable shares. The BRELP Distribution is being made proportionately to BRELP unitholders’ equity interests. The holders of equity units of BRELP include:

 

•  Brookfield Renewable Power Inc. receiving approximately 19.6 million BEPC exchangeable shares;

 

•  BRP Canada GP LP receiving approximately 11.9 million BEPC exchangeable shares;

 

•  Brookfield Energy Marketing LP receiving approximately 830,000 BEPC exchangeable shares;

 

72


Table of Contents

TIMING

  

TRANSACTION

  

 

•  BEP receiving approximately 44.7 million BEPC exchangeable shares; and

 

•  BREP Holding L.P. receiving approximately 663,000 BEPC exchangeable shares.

 

The 44.7 million BEPC exchangeable shares received by BEP will be distributed to holders of BEP units through the special distribution.

Mechanics of the Special Distribution

BEP is a holding entity and its only substantial asset is its limited partnership interests in BRELP. Prior to the special distribution, BEP will receive BEPC exchangeable shares though a special distribution by BRELP of the BEPC exchangeable shares to all the holders of its equity units (which does not include preferred partnership units), including Brookfield who has a current approximate 60% economic interest in BEP including through its ownership of redeemable partnership units of BRELP will also receive BEPC exchangeable shares through the BRELP Distribution.

As a result of the special distribution, holders of BEP units will be entitled to receive one (1) BEPC exchangeable share (less any BEPC exchangeable shares withheld to satisfy withholding tax obligations) for every four (4) BEP units held as of the distribution record date. Because each BEPC exchangeable share is structured with the intention of providing an economic return equivalent to one BEP unit, including identical dividends on a per share basis as are paid on each BEP unit, BEPC expects that the market price of BEPC exchangeable shares will be significantly impacted by the market price of the BEP units and combined business performance of the Brookfield Renewable group as a whole. Each BEPC exchangeable share will be exchangeable at the option of the holder for one BEP unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BEPC). BEP may elect to satisfy its exchange obligation by acquiring such tendered BEPC exchangeable shares for an equivalent number of BEP units (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BEP). See “Description of BEPC Share Capital—Exchange by Holder—Adjustments to Reflect Certain Capital Events”. BEPC and BEP currently intend to satisfy any exchange requests on the BEPC exchangeable shares through the delivery of BEP units rather than cash. However, factors that BEP and BEPC may consider when determining whether to satisfy any exchange request for cash rather than BEP units include, without limitation, compliance with applicable securities laws, changes in law (including the Bermuda limited partnership laws), BEP’s and BEPC’s respective available consolidated liquidity, and any change in the tax consequences to BEP or BEPC or to a holder as a result of delivery of BEP units.

Based on approximately 179 million BEP units that BEP expects to be outstanding on the distribution record date for the special distribution, BEP intends to make a special distribution to holders of BEP units (including Brookfield) of approximately 44.7 million BEPC exchangeable shares. An additional approximate 33.1 million BEPC exchangeable shares will be distributed to Brookfield on the redeemable partnership units that it holds in BRELP and the general partner interests that it holds in BEP and BRELP.

Holders of BEP units as of the distribution record date will not be required to take any action in connection with the special distribution, and no vote of unitholders of BEP will be required to approve the special distribution. If a holder owns BEP units as of the close of business on the distribution record date, a book-entry account statement reflecting the holder’s ownership of the BEPC exchangeable shares will be mailed to the holder, or the holder’s brokerage account will be credited for the BEPC exchangeable shares, on the distribution date. The number of BEP units that a holder owns will not change as a result of the special distribution. However, immediately following completion of the special distribution, the aggregate distribution received by a holder on its BEP units and BEPC exchangeable shares (assuming such holder did not dispose of its BEP units or BEPC exchangeable shares) will be the same as it would have received if the special distribution had not been made,

 

73


Table of Contents

with distributions on each BEP unit representing four-fifths (4/5ths) of such aggregate amount as a result of the one (1) for four (4) special distribution, and the dividends on each BEPC exchangeable share being identical to the distributions on each BEP unit after the special distribution.

For example, assuming a unitholder of BEP owns 40 BEP units prior to the special distribution, it would be entitled to receive an aggregate of $21.70 in distributions (based on a quarterly distribution amount per BEP unit of $0.5425) for the distribution period immediately prior to the special distribution. Based on the distribution ratio of one BEPC exchangeable share for four BEP units, the unitholder of BEP is expected to receive 10 BEPC exchangeable shares and therefore immediately after the special distribution the holder would own 50 securities (40 BEP units and 10 BEPC exchangeable shares). The holder will still receive an aggregate distribution of $21.70 (assuming the holder continues to own the 40 BEP units and 10 BEPC exchangeable shares), but that $21.70 would be divided among the 40 BEP units it owns and the 10 BEPC exchangeable shares it owns immediately after the special distribution. Therefore, while the aggregate distributions to be received by the holder for the distribution period immediately after the special distribution would remain the same (i.e., $21.70), the per BEP unit distribution amount/per share dividend amount would no longer be $0.5425 but rather $0.4340 per BEP unit and $0.4340 per BEPC exchangeable share. Therefore, the distribution/dividend amount per BEP unit/BEPC exchangeable share immediately post-closing will be identical (i.e., $0.4340), but on a per BEP unit/BEPC exchangeable share basis it will be reduced from the amount immediately pre-closing to take into account that there are more securities outstanding (50 rather than 40, in the above example) that will be entitled to receive distributions/dividends. This effect on the quarterly distribution level mirrors what would happen in the event of a stock split.

The BEP units will continue to be traded on the NYSE under the symbol “BEP” and on the TSX under the symbol “BEP.UN”. No holder will be entitled to receive any fractional interests in the BEPC exchangeable shares. Holders who would otherwise be entitled to a fractional BEPC exchangeable share will receive a cash payment. BEP will use the volume-weighted average of the trading price of the BEPC exchangeable shares for the five (5) trading days immediately following the special distribution date to determine the value of the BEPC exchangeable shares for the purpose of calculating the cash payable in lieu of any fractional interests.

Holders of BEP’s preferred units and holders of TERP common stock will not participate in the special distribution and will not receive any BEPC exchangeable shares as a direct result of the special distribution.

Transaction Agreements

Prior to the special distribution, BEPC will acquire its operating subsidiaries from Brookfield Renewable (excluding a 10% interest, which will continue to be held indirectly by BEP) pursuant to securities purchase agreements and other agreements. These transfer agreements will each contain customary representations and warranties and related indemnities to BEPC from Brookfield Renewable, including representations and warranties concerning: (i) organization and good standing; (ii) authorization, execution, delivery and enforceability of the agreement and all agreements executed in connection therewith; and (iii) title to the securities being transferred to BEPC. The transfer agreements will not contain representations and warranties or indemnities relating to the underlying assets and operations.

In connection with the reorganization that results in the transfer of the Business to BEPC, Brookfield Renewable will receive BEPC class B and BEPC class C shares. The determination to transfer the hydroelectric power assets in Brazil and Colombia from Brookfield Renewable to BEPC was based on the size of such businesses and related regulatory, financial, legal and tax considerations. The distribution ratio is intended to cause a proportionate split of the market capitalization of BEP between the BEP units and the BEPC exchangeable shares based on the value of the Business to be transferred to BEPC relative to BEP’s market capitalization. The distribution ratio has been determined using the fair market value of the Business to be transferred by BEP to BEPC, the number of the BEP units outstanding (assuming exchange of the redeemable partnership units of BRELP), and the market capitalization of BEP. The fair market value of the Business to be

 

74


Table of Contents

transferred by BEP is determined by BEP’s management using commonly accepted valuation methodologies and the value of the BEPC exchangeable shares and BEP’s market capitalization is determined using the market price for the BEP units, each as of the most recent practicable date.

BEPC and Brookfield Renewable have determined that it is desirable for BEPC to have control over certain of the entities through which BEPC holds its interest in its operating subsidiaries. Accordingly, BEPC will enter into a voting agreement to provide BEPC with voting rights over such entities. See “BEPC Relationship with Brookfield Renewable—BEPC Voting Agreements”.

Trading of BEPC Exchangeable Shares

BEPC anticipates that trading in BEPC exchangeable shares will begin on a “when-issued” basis as early as one (1) trading day prior to the distribution record date for the special distribution and continue up to and including the distribution date. “When-issued” trading in the context of the special distribution refers to a sale or purchase made conditionally on or before the distribution date because the securities of the entity have not yet been distributed. If a unitholder owns BEP units at the close of business on the distribution record date, that unitholder will be entitled to receive BEPC exchangeable shares in the special distribution. Such unitholder may trade this entitlement to receive BEPC exchangeable shares, without BEP units owned, on the “when-issued” markets established by the NYSE and the TSX under the symbols “    ” and “    ”, respectively. BEPC expects “when-issued” trades of BEPC exchangeable shares to settle within two (2) days after the distribution date. On the first trading day following the distribution date, BEPC expects that “when-issued” trading of BEPC exchangeable shares will end and “regular-way” trading will begin.

BEPC also anticipates that, as early as one (1) trading day prior to the distribution record date and continuing up to and including the distribution date, there will be two markets in BEP units: a “due bill” market and an “ex-distribution” market. BEP units that trade on the due bill market will trade with an entitlement to receive BEPC exchangeable shares in the special distribution. BEP units that trade on the ex-distribution market will trade without an entitlement to receive BEPC exchangeable shares in the special distribution. Therefore, if a unitholder sells BEP units in the due bill market up to and including the distribution date, this means selling one’s right to receive BEPC exchangeable shares in the special distribution. However, if a unitholder owns BEP units at the close of business on the distribution record date and sells those BEP units on the ex-distribution market up to and including the distribution date, such unitholder will still receive BEPC exchangeable shares that they would otherwise be entitled to receive in the special distribution.

BEPC has applied to have the BEPC exchangeable shares listed on the NYSE and the TSX, under the symbol “BEPC”. The listing of BEPC exchangeable shares on the NYSE is subject to BEPC fulfilling all of the requirements of the NYSE and the listing of BEPC exchangeable shares on the TSX is subject to BEPC fulfilling all of the requirements of the TSX. The NYSE and the TSX have not conditionally approved BEPC’s listing application and there is no assurance that the NYSE or the TSX will approve the listing application. BEPC expects that trading of BEPC exchangeable shares will commence on the first trading day following the distribution date.

PROPOSED ACQUISITION OF TERRAFORM POWER, INC.

On March 16, 2020, BEP, BEPC, Acquisition Sub, TerraForm Power and TerraForm Power NY Holdings, Inc. entered into the Reorganization Agreement pursuant to which, subject to the terms and conditions of the Reorganization Agreement, TerraForm Power will merge into TerraForm Power NY Holdings, Inc. and the Brookfield Renewable group will acquire all of the public TERP shares through a series of transactions. Pursuant to the Reorganization Agreement, each holder of public TERP shares will be entitled to receive for each public TERP share held by such holder as consideration a number of BEPC exchangeable shares equal to the adjusted exchange ratio or, at the election of such holder, BEP units, in each case as further adjusted to prevent dilution in

 

75


Table of Contents

accordance with the Reorganization Agreement plus any cash paid in lieu of fractional BEP units or BEPC exchangeable shares, as applicable. The adjusted exchange ratio will be determined by multiplying (x) 0.381 by (y) the sum of (i) the number (rounded, if necessary, to three decimal points) of BEPC exchangeable shares to be distributed with respect to each BEP unit upon the consummation of the special distribution and (ii) one. Because holders of BEP units are expected to receive one BEPC exchangeable share for every four BEP units in the special distribution, the adjusted exchange ratio is expected to be equal to 0.47625, in which case holders of public TERP shares will be entitled to receive 0.47625 of a BEPC exchangeable share or of a BEP unit per public TERP share. Holders of public TERP shares who do not make an election to receive BEP units will receive BEPC exchangeable shares. There is no limit on the number of shares of TERP common stock that may be exchanged for BEPC exchangeable shares or BEP units. The offer of BEPC exchangeable shares and BEP units in connection with the TERP acquisition will be made via a separate proxy statement/prospectus, and if successfully completed, is expected to close immediately after the closing of the special distribution. However, the special distribution is not conditioned on the successful completion of the TERP acquisition.

Excluding the shares of TERP common stock owned by a subsidiary of BEP, Brookfield currently controls approximately 47% of TERP common stock on behalf of itself and its institutional partners, including BEP. The TERP common stock controlled by BEP and its affiliates is not being acquired in the TERP acquisition. Upon completion of the TERP acquisition, TerraForm Power will be controlled as to 47% by Brookfield and as to 53% by BEP (including through its ownership in BEPC), and BEP will have an indirect 67% economic interest. Concurrently with closing of the TERP acquisition, Brookfield and Brookfield Renewable intend to enter into voting agreements with a subsidiary of BEPC, giving BEPC voting control over the TERP common stock held by BEP and its affiliates. As a result, upon completion of the TERP acquisition, BEPC will control TerraForm Power and consolidate TerraForm Power from an accounting point of view.

USE OF PROCEEDS

Neither BEPC, BEP nor Brookfield, as selling unitholder, will receive any proceeds from the transactions described in this document.

BEPC DIVIDEND POLICY

The BEPC board may declare dividends at its discretion. However, each BEPC exchangeable share has been structured with the intention of providing an economic return equivalent to one BEP unit and it is expected that dividends on BEPC exchangeable shares will be declared and paid at the same time as distributions are declared and paid on the BEP units and that dividends on each BEPC exchangeable share will be declared and paid in the same amount as are declared and paid on each BEP unit to provide holders of BEPC exchangeable shares with an economic return equivalent to holders of BEP units. BEPC expects to commence paying dividends on BEPC exchangeable shares on the first distribution payment date for the BEP units occurring after the distribution date for the special distribution. Additionally, pursuant to the Equity Commitment Agreement, BEP has agreed that it will not declare or pay any distribution on the BEP units if on such date BEPC does not have sufficient funds or other assets to enable the declaration and payment of an equivalent dividend on the BEPC exchangeable shares. BEP pursues a strategy which the Brookfield Renewable group expects will provide for highly stable, predictable cash flows sourced from predominantly long-life hydroelectric assets ensuring a sustainable distribution yield. The Brookfield Renewable group’s objective is to pay a distribution that is sustainable on a long-term basis and has set its target payout ratio at approximately 70% of Brookfield Renewable’s FFO.

Participants in BEP’s distribution reinvestment plan will automatically receive the special distribution of BEPC exchangeable shares on the same basis as other unitholders of BEP, provided they continue to own such BEP units on the distribution record date. However, participants should be aware that BEPC does not currently anticipate establishing a similar dividend reinvestment plan for BEPC, and future dividends paid on BEPC exchangeable shares will be paid in cash and not reinvested.

 

76


Table of Contents

See “Brookfield Renewable Partners L.P.—Distribution Policy and Distribution History” for further information on BEP’s distribution policy and Brookfield Renewable’s distribution history for the last two years ended December 31, 2019. Future distributions by Brookfield Renewable will be at the discretion of the board of directors of its general partner, and dividends on the BEPC exchangeable shares also will be made at the discretion of the BEPC board of directors, and while Brookfield Renewable expects future distributions to be made in accordance with its distribution policy, there can be no assurance that Brookfield Renewable or BEPC will make comparable distributions or dividends in the future or at all. Further, immediately following completion of the special distribution, the aggregate distribution received by a holder on its BEP units and BEPC exchangeable shares (assuming such holder did not dispose of its BEP units or BEPC exchangeable shares) will be the same as it would have received if the special distribution had not been made, with distributions on each BEP unit representing four-fifths (4/5ths) of such aggregate amount as a result of the one (1) for four (4) special distribution, and the dividends on each BEPC exchangeable share being identical to the distributions on each BEP unit after the special distribution. See “Risk Factors”. BEPC cannot assure investors that it will be able to pay dividends equal to the levels currently paid by BEP and holders of BEPC exchangeable shares may not receive dividends equal to the distributions paid on the BEP units and, accordingly, may not receive the intended economic equivalence of those securities.

After completion of the special distribution, BEPC does not expect there to be any material restrictions (contractual or otherwise) on its ability or the ability of its subsidiaries to declare or pay dividends.

LISTING OF BEPC EXCHANGEABLE SHARES AND BEP UNITS

BEPC has applied to have the BEPC exchangeable shares listed on the NYSE and the TSX, under the symbol “BEPC”. BEP has also applied to list the BEP units issued in connection with an exchange, redemption or repurchase of the BEPC exchangeable shares on the TSX and the NYSE. The listing of BEPC exchangeable shares on the NYSE is subject to BEPC fulfilling all of the requirements of the NYSE and the listing of BEPC exchangeable shares on the TSX is subject to BEPC fulfilling all of the requirements of the TSX. The NYSE and the TSX have not conditionally approved BEPC’s listing application and there is no assurance that the NYSE or the TSX will approve the listing application.

The BEP units are listed for trading under the symbol “BEP.UN” on the TSX and “BEP” on the NYSE.

BEP AND BEPC CAPITALIZATION

BEPC Capitalization

The following table sets forth BEPC’s cash and capitalization as at December 31, 2019 on an actual basis and on a pro forma basis to give effect to the special distribution, the TERP acquisition, as well as the other transactions referred to in the BEPC Unaudited Pro Forma Financial Statements included elsewhere in this document, as though they had occurred on December 31, 2019. Pro forma adjustments for the TERP acquisition have been prepared with the assumption that the TERP acquisition will be settled entirely with the issuance of BEPC exchangeable shares in exchange for the public TERP shares.

This information should be read in conjunction with the information under the heading “Managements Discussion and Analysis of Financial Condition and Results of Operations of the United States, Brazilian and Colombian Operations of BEP”, the “Brookfield Renewable Corporation Unaudited Pro Forma Financial Statements” and the audited combined carve-out financial statements of the United States, Colombian and Brazilian operations of BEP as at December 31, 2019 and for each of the years in the three years ended December 31, 2019 and December 31, 2018 included elsewhere in this document.

 

77


Table of Contents

The BEPC exchangeable shares are exchangeable at the option of the holder. Accordingly, the BEPC exchangeable shares have been presented as a financial liability and therefore excluded from the total equity in net assets in the pro forma capitalization.

 

     December 31, 2019  
(MILLIONS)    Actual(1)      BEPC special
distribution

pro forma(2)
     TERP acquisition
pro forma(3)
 

Cash and cash equivalents

   $ —        $ 67      $ 304  

Liabilities

  

BEPC exchangeable shares(4)

     —          2,895        4,443  

Non-recourse borrowings(5)

     —          5,697        11,979  
  

 

 

    

 

 

    

 

 

 

Total Liabilities

     —          8,592        16,422  

Equity in net assets

        

Non-controlling interests:

        

Participating non-controlling interestin operating subsidiaries

     —          6,994        9,061  

Participating non-controlling interestin a holding company

     —          271        271  
  

 

 

    

 

 

    

 

 

 

Total non-controlling interests

     —          7,265        9,332  

Equity in net assets attributable to parent company(6)

     —          4,577        4,226  
  

 

 

    

 

 

    

 

 

 

Total equity in net assets

     —          11,842        13,558  
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $ —        $ 20,434      $ 29,980  
  

 

 

    

 

 

    

 

 

 

 

(1)

Brookfield Renewable Corporation was formed on September 9, 2019.

(2)

Our BEPC Distribution pro forma total equity of approximately $11.8 billion as of December 31, 2019 is comprised of (a) participating non-controlling interest in operating subsidiaries in the amount of approximately $7.0 billion, (b) the participating non-controlling interest in a holding subsidiary held by Brookfield Renewable in the amount of approximately $271 million, and (c) the BEPC class C shares held by Brookfield Renewable in the amount of approximately $4.6 billion received as partial consideration for the net assets contributed.

(3)

The TERP acquisition pro forma total equity of approximately $13.6 billion as of December 31, 2019 is comprised of (a) participating non-controlling interest in operating subsidiaries in the amount of approximately $9.1 billion, (b) the participating non-controlling interest in a holding subsidiary held by Brookfield Renewable in the amount of approximately $271 million, and (c) the BEPC class C shares held by Brookfield Renewable in the amount of approximately $4.2 billion received as partial consideration for the net assets contributed.

(4)

Assumes approximately 77.8 million of BEPC exchangeable shares and BEPC Class B shares in aggregate will be issued in the special distribution and an additional 41.6 million of exchangeable shares will be issued in the TerraForm Power Transaction.

(5) 

Non-recourse borrowings exclude deferred financing fees and unamortized premiums.

(6)

Reflects approximately 123.0 million BEPC class C shares expected to be distributed to Brookfield Renewable in the special distribution.

BEP Capitalization

The following table sets forth the consolidated capitalization of BEP as at December 31, 2019. The table below should be read together with the detailed information and financial statements of BEP and TERP included or incorporated by reference in this document, including the financial statements of BEP and TERP contained in BEP’s Annual Report.

 

78


Table of Contents

This information should be read in conjunction with in the information under the headings “Managements Discussion and Analysis of Financial Condition and Results of Operations of the United States, Brazilian and Colombian Operations of BEP”, the “Brookfield Renewable Partners L.P. Unaudited Pro Forma Financial Statements” and the audited combined carve-out financial statements of the United States, Colombian and Brazilian operations of BEP as at December 31, 2019 and December 31, 2018 and for each of the years in the three years ended December 31, 2019, included elsewhere in this document.

The effect of the special distribution on BEP’s financial statements will be such that the BEPC exchangeable shares issued by BEPC will be classified as non-controlling interests within the consolidated financial statements of BEP on the basis that these BEPC exchangeable shares represent equity in a subsidiary not attributable, directly or indirectly, to the parent, being BEP. Consequently, partnership capital attributed to limited partners’ equity, non-controlling interest—redeemable/exchangeable partnership units held by Brookfield and the general partnership interest in a holding subsidiary held by Brookfield, will be reduced by $917 million, $665 million, and $14 million, respectively, as at the effective date of the special distribution with a corresponding increase in the amount of non-controlling interest attributable to the BEPC exchangeable shares.

The effect of the TERP acquisition on BEP’s financial statements will be such that the public TERP shares will be acquired in exchange of BEPC exchangeable shares or BEP units. The consolidated capitalization of BEP has been calculated below with the assumption that all holders of public TERP shares will elect to receive BEPC exchangeable shares. Consequently, partnership capital attributed to limited partners’ equity, non-controlling interest—redeemable/exchangeable units held by Brookfield, the general partnership interest in a holding subsidiary held by Brookfield and the BEPC exchangeable shares, will be increased by $149 million, $109 million, $2 million, and $947 million, respectively, and the Participating non-controlling interests – in operating subsidiaries, will increase by $1,142 million, as at the effective date of the TERP acquisition with a corresponding increase to the consolidated net assets of BEP.

 

79


Table of Contents

The effect of the special distribution and the TERP acquisition on the consolidated financial statements of BEP relating to partnership capital, net income attributable to the unitholders and non-controlling interest attributable to BEPC exchangeable shares, and basic and diluted earnings per unit attributable to limited partners is as follows:

 

(MILLIONS)

As at December 31, 2019

   Actual      As adjusted for the
BEPC Special
Distribution
     As adjusted for the
special distribution
and the TERP
acquisition
 

Cash and cash equivalents

   $ 115      $ 115      $ 352  

Liabilities

        

Medium term notes(1)

     1,808        1,808        1,808  

Non-recourse borrowings(1)

     8,964        8,964        15,245  
  

 

 

    

 

 

    

 

 

 

Total Borrowings

     10,772        10,772        17,053  

Equity

        

Non-controlling interests

        

Participating non-controlling interests—in operating subsidiaries

     8,742        8,742        9,884  

General partnership interest in a holding subsidiary held by Brookfield

     68        54        56  

Participating non-controlling interests—in a holding subsidiary—Redeemable/Exchangeable units held by Brookfield

     3,315        2,650        2,759  

Participating non-controlling interest—BEPC

     —          1,591        2,538  

Preferred equity

     597        597        597  

Preferred limited partners’ equity

     833        833        833  

Limited partners’ equity

     4,576        3,659        3,808  
  

 

 

    

 

 

    

 

 

 

Total Equity

     18,131        18,126        20,475  
  

 

 

    

 

 

    

 

 

 

Total Capitalization

   $ 28,903      $ 28,898      $ 37,528  
  

 

 

    

 

 

    

 

 

 

 

(1) 

Medium term notes and non-recourse borrowings exclude deferred financing fees and unamortized premiums.

PRIOR SALES

On September 9, 2019, BEPC issued one common share to Brookfield Renewable in exchange for $100.

CORPORATE STRUCTURE

BEPC was incorporated under the Business Corporations Act (British Columbia), or the BCBCA, on September 9, 2019. BEPC’s head office is located at 250 Vesey Street, 15th Floor, New York NY 10281-1023 and BEPC’s registered office is located at 1055 West Georgia Street, Suite 1500, P.O Box 11117, Vancouver, British Columbia V6E 4N7. As illustrated in the following organizational chart, unitholders of BEP other than Brookfield and its affiliates will hold approximately 39.5% of the issued and outstanding BEPC exchangeable shares (25.8% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares), and Brookfield and its affiliates will hold approximately 60.5% of the issued and outstanding BEPC exchangeable shares (39.5% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares). Assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares, holders of public TERP shares will hold approximately 34.7% of the issued and the outstanding BEPC exchangeable shares.

 

80


Table of Contents

NA Holdco, an indirect subsidiary of BEP, will own all of the issued and outstanding BEPC class B shares which represent a 75% voting interest in BEPC, and all of the issued and outstanding BEPC class C shares, which entitle BEP to all of the residual value in BEPC after payment in full of the amount due to holders of BEPC exchangeable shares and BEPC class B shares and subject to the prior rights of holders of BEPC preferred shares. Holders of BEPC exchangeable shares are expected to hold an aggregate 25% voting interest in BEPC. Brookfield, through its ownership of BEPC exchangeable shares, will initially hold an approximate 15% voting interest in BEPC. Holders of BEPC exchangeable shares, excluding Brookfield, will initially hold an approximate 10% aggregate voting interest in BEPC. Together, Brookfield and Brookfield Renewable will hold an approximate 90% voting interest in BEPC (85% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares).

 

81


Table of Contents

Prior to the completion of the special distribution and the TERP acquisition, BEPC was an indirect subsidiary of BEP. The following diagram provides an illustration of the simplified corporate structure of the Brookfield Renewable group and TerraForm Power immediately prior to completion of the special distribution and the TERP acquisition.

LOGO

 

82


Table of Contents
(1) 

Pursuant to a voting agreement, BRPI has agreed that certain voting rights with respect to BRELP General Partner, BRELP GP LP, and BRELP will be voted in accordance with the direction of BEP.

(2) 

BRPI’s limited partnership interest in BRELP is redeemable for cash or exchangeable for BEP units in accordance with the redemption-exchange mechanism contained in BRELP’s limited partnership agreement, which could result in BRPI owning approximately 60.17% of BEP’s issued and outstanding BEP units on a fully-exchanged basis. On a fully-exchanged basis, public holders of BEP units will own approximately 39.83% of BEP and BRPI will not hold any limited partnership units of BRELP.

(3) 

Brookfield has provided an aggregate of $5 million of working capital to LATAM Holdco through a subscription for preferred shares. In addition, BRPI holds special shares the redemption price of which is tied to the successful development of projects in Brazil.

(4) 

Orion US Holdings 1 L.P. is controlled by Brookfield. Third party investors in Brookfield Infrastructure Fund III indirectly hold an approximate 69.3% interest in Orion US Holdings 1 L.P.

(5) 

BEP holds an approximate 29% economic interest in TERP (comprised of an approximate 14% interest owned through Orion US Holdings 1 L.P. and an approximate 15% interest owned through BBHC Orion Holdco L.P.). The remaining 38% interest is held by public TERP shareholders.

 

83


Table of Contents

The following diagram provides an illustration of the simplified corporate structure of the Brookfield Renewable group after completion of the special distribution and, if completed, the TERP acquisition.

LOGO

 

(1) 

Pursuant to a voting agreement, BRPI has agreed that certain voting rights with respect to the general partner of BRELP General Partner, BRELP GP LP and BRELP will be voted in accordance with the direction of BEP.

(2) 

BRPI’s limited partnership interest in BRELP is redeemable for cash or exchangeable for BEP units in accordance with the redemption-exchange mechanism contained in BRELP’s limited partnership agreement, which could result in BRPI owning approximately 60.17% of BEP’s issued and outstanding BEP units on a fully-exchanged basis. On a fully-exchanged basis, public holders of BEP units own approximately 39.83% of BEP and BRPI will not hold any limited partnership units of BRELP.

 

84


Table of Contents
(3) 

Holders of BEPC exchangeable shares hold a 25% voting interest in BEPC. See “Description of BEPC Share Capital—Exchangeable Shares—Voting”.

(4) 

Immediately following the special distribution, holders of BEP units, other than Brookfield and its affiliates, will hold approximately 39.5% of the issued and outstanding BEPC exchangeable shares (25.8% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares).

(5) 

Brookfield and its affiliates will hold approximately 60.5% of the issued and outstanding BEPC exchangeable shares (39.5% assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares).

(6) 

Holders of the BEPC class B shares hold a 75% voting interest in BEPC. The BEPC class C shares are non-voting. Brookfield Renewable will hold all of the BEPC class B shares and BEPC class C shares upon completion of the special distribution. “Description of BEPC Share Capital—Class B Shares—Voting”.

(7)

Brookfield has provided an aggregate of $5 million of working capital to LATAM Holdco through a subscription for preferred shares. In addition, BRPI holds special shares, the redemption price of which is tied to the successful development of projects in Brazil.

(8) 

This organizational chart reflects TERP’s ownership assuming that the TERP acquisition is completed and all public TERP shares are exchanged for BEPC exchangeable shares. Overall, BEP will hold an approximate 67% economic interest in TERP (comprised of an approximate 14% interest owned through its interest in Orion US Holdings 1 LP, an approximate 15% interest owned through BBHC Orion Holdco L.P. and through its ownership in BEPC). BEPC will hold an approximate 38% economic interest in TERP. If the TERP acquisition is completed, Brookfield and Brookfield Renewable intend to enter into voting agreements with a subsidiary of BEPC, giving BEPC voting control over the public TERP shares currently held by BEP and its affiliates. As a result, upon completion of the TERP acquisition, BEPC will control TERP and consolidate TERP from an accounting point of view.

(9) 

Each holder of public TERP shares will be entitled to receive for each public TERP share held by such holder as consideration a number of BEPC exchangeable shares equal to the adjusted exchange ratio or, at the election of such holder, BEP units, in each case as further adjusted to prevent dilution in accordance with the Reorganization Agreement plus any cash paid in lieu of fractional BEP units or BEPC exchangeable shares, as applicable. The adjusted exchange ratio will be determined by multiplying (x) 0.381 by (y) the sum of (i) the number (rounded, if necessary, to three decimal points) of BEPC exchangeable shares to be distributed with respect to each BEP unit upon the consummation of the special distribution and (ii) one. Because holders of BEP units are expected to receive one BEPC exchangeable share for every four BEP units in the special distribution, the adjusted exchange ratio is expected to be equal to 0.47625, in which case holders of public TERP shares will be entitled to receive 0.47625 of a BEPC exchangeable share or BEP unit per public TERP share.

(10) 

Assuming the TERP acquisition is completed and the TERP acquisition consideration consists solely of BEPC exchangeable shares, public TERP shareholders will own an approximate 34.7% economic interest in BEPC. This percentage is subject to adjustment to the extent holders of public TERP shares elect to receive BEP units.

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

Unaudited Pro Forma Financial Statements for BEPC

These Unaudited Pro Forma Financial Statements of BEPC have been prepared to illustrate the effects of the following transactions (collectively, the “BEPC Transactions”):

 

   

The issuance of BEPC exchangeable shares, BEPC class B shares and BEPC class C shares in connection with the transfer of the Business (as defined below).

 

   

the delivery of BEPC exchangeable shares to holders of equity units of BRELP (which does not include preferred partnership units) through the BRELP Distribution;

 

85


Table of Contents
   

the delivery of BEPC exchangeable shares to the holders of equity units of BEP (which does not include preferred partnership units) through the special distribution;

 

   

the execution of the voting agreements whereby certain indirect subsidiaries of BAM will transfer the power to vote their respective shares held in TERP to BEPC, which we refer to as the “Common Control Acquisition”; and

 

   

the TERP acquisition, whereby BEPC will acquire the 38% interest in TERP not currently owned by BEP and its affiliates and assuming that no TERP stockholder will elect to receive BEP units and all unaffiliated TERP stockholders will receive their consideration in the form of BEPC exchangeable shares.

Prior to the completion of the special distribution, BEPC expects to enter into the Subordinated Credit Facilities, each providing for a ten-year $1.75 billion revolving credit facility to permit the movement of cash within the Brookfield Renewable group. It is expected that no amounts will be drawn under these credit facilities as of the date of the special distribution. In addition, BEP will provide to BEPC an equity commitment in the amount of $1 billion which may be called upon by BEPC in exchange for the issuance of BEPC class C shares to BEP. The rationale for the Subordinated Credit Facilities and the equity commitment is to provide BEPC with access to debt financing and equity capital on an as-needed basis and to maximize BEPC’s flexibility.

It is currently anticipated that immediately following the special distribution, (i) holders of BEP units will hold approximately 39.5% of the issued and outstanding BEPC exchangeable shares, (ii) Brookfield and its affiliates will hold 60.5% of the issued and outstanding BEPC exchangeable shares, and (iii) a subsidiary of BEP will own all of BEPC’s issued and outstanding BEPC class B shares which represents a 75% voting interest, and all of the issued and outstanding BEPC class C shares. Together, Brookfield and BEP will hold an approximate 90.1% aggregate voting interest in BEPC (84.9% assuming all of the public TERP shares are exchanged for BEPC exchangeable shares in the TERP acquisition).

The information in the Unaudited Pro Forma Condensed Combined Statements of Operating Results for each of the years in the three-year period ended December 31, 2019 give effect to the Common Control Acquisition as if it occurred at the beginning of the earliest period presented. The information in the Unaudited Pro Forma Condensed Combined Statements of Financial Position and Statement of Operating Results as of and for the year ended December 31, 2019 gives further effect to the special distribution and TERP acquisition as if they had been consummated on December 31, 2019 and January 1, 2019, respectively. All financial data in the Unaudited Pro Forma Financial Statements is presented in U.S. dollars and has been prepared using accounting policies that are consistent with IFRS as issued by the IASB. The Unaudited Pro Forma Financial Statements have been derived by the application of pro forma adjustments to the financial statements of BEPC and the audited combined carve-out financial statements of the United States, Colombian and Brazilian operations of BEP included elsewhere in this document, to give effect to the BEPC Transactions for the relevant periods. For the purposes of the Unaudited Pro Forma Financial Statements, the consolidated financial statements of TERP for the relevant periods presented have been reconciled to IFRS and BEPC’s accounting policies for material accounting policy differences based on available information.

The historical financial information has been adjusted in the Unaudited Pro Forma Financial Statements to give effect to pro forma adjustments that are (1) directly attributable to the BEPC Transactions, (2) factually supportable, and (3) with respect to the Unaudited Pro Forma Condensed Combined Statement of Operating Results, expected to have a continuing impact on the combined results of the Business. The Unaudited Pro Forma Financial Statements are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable. The notes to the Unaudited Pro Forma Financial Statements provide a detailed discussion of how such adjustments were derived and presented in the Unaudited Pro Forma Financial Statements. Subsequent to December 31, 2019, financial markets have been negatively impacted by the novel Coronavirus or COVID-19, which has resulted in economic uncertainty. BEPC is not able to predict or forecast the extent or duration of the economic uncertainty, and consequently, it is

 

86


Table of Contents

difficult to reliably measure the potential impact of this uncertainty on future financial results. These Unaudited Pro Forma Financial Statements and the notes thereto should be read together with ‘‘BEP and BEPC Capitalization,” “Selected Historical Financial Information of the United States, Brazilian and Colombian Operations of BEP,” “Managements Discussion and Analysis of Financial Condition and Results of Operations of the United States, Brazilian and Colombian Operations of BEP,” the audited combined carve-out financial statements of the United States, Colombian and Brazilian operations of BEP as at December 31, 2019 and 2018 and for each of the years in the three years ended December 31, 2019, the financial statements of BEPC as at and for the period ending December 31, 2019 and related notes thereto included elsewhere in this document, and TERP’s audited consolidated financial statements and the notes thereto as of December 31, 2019 and December 31, 2018 and for each of the years in the three years ended December 31, 2019 which are incorporated by reference into this document. The Unaudited Pro Forma Financial Statements have been prepared for illustrative purposes only and are not necessarily indicative of BEPC’s financial position or results of operations had the BEPC Transactions for which we are giving pro forma effect occurred on the dates or for the periods indicated, nor is such pro forma financial information necessarily indicative of the results to be expected for any future period. A number of factors may affect BEPC’s results.

 

87


Table of Contents

Unaudited Pro Forma Condensed Combined Statement of Financial Position

 

(MILLIONS)

As at December 31, 2019

  BEPC     United States,
Colombian
and Brazilian
operations
    Share
capital
    Transaction
fees
    Special
Distribution
    TERP
(U.S.
GAAP)
    Reclassification
to conform
presentation
    IFRS
Adjustments
    TERP
(IFRS)
    TERP
acquisition
    BEPC
Transactions
Pro Forma
 
    (1a)     (1b)     (3)     (5)                       (2)     (1c)     (4)        

Assets

                     

Current assets

                     

Cash and cash equivalents

  $ —       $ 67     $ —       $ —       $ 67     $ 237     $ —       $ —       $ 237     $ —       $ 304  

Restricted cash

    —         125       —         —         125       36       —         —         36       —         161  

Accounts receivable, net

    —         —         —         —         —         168       (168     —         —         —         —    

Trade receivables and other current assets

    —         413       —         —         413       —         264       —         264       —         677  

Financial instrument assets

    —         25       —         —         25       —         16       —         16       —         41  

Due from related parties

    —         181       —         —         181       —         —         —         —         —         181  

Prepaid expenses

    —         —         —         —         —         14       (14     —         —         —         —    

Derivative assets, current

    —         —         —         —         —         16       (16     —         —         —         —    

Deposit on acquisitions

    —         —         —         —         —         25       (25     —         —         —         —    

Other current assets

    —         —         —         —         —         57       (57     —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    —         811       —         —         811       553       —         —         553       —         1,364  

Financial instrument assets

    —         2       —         —         2       —         58       —         58       —         60  

Equity-accounted investments

    —         348       —         —         348       —         13       —         13       —         361  

Property, plant and equipment, at fair value

    —         22,306       —         —         22,306       —         7,428       2,922       10,350       —         32,656  

Renewable energy facilities, net

    —         —         —         —         —         7,405       (7,405     —         —         —         —    

Intangible assets, net

    —         —         —         —         —         1,793       (232     (1,561     —         —         —    

Goodwill

    —         821       —         —         821       128         —         128       —         949  

Restricted cash

    —         —         —         —         —         76       (76     —         —         —         —    

Derivative assets

    —         —         —         —         —         58       (58     —         —         —         —    

Deferred income tax assets

    —         3       —         1       4       —         —         1       1       —         5  

Other long-term assets

    —         47       —         —         47       45       272       —         317       —         364  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ —       $ 24,338     $ —       $ 1     $ 24,339     $ 10,058     $ —       $ 1,362     $ 11,420     $ —       $ 35,759  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

88


Table of Contents

Unaudited Pro Forma Condensed Combined Statement of Financial Position (Continued)

 

(MILLIONS)

As at December 31, 2019

  BEPC     United States,
Colombian
and Brazilian
operations
    Share
capital
    Transaction
fees
    Special
Distribution
    TERP
(U.S.
GAAP)
    Reclassification
to conform
presentation
    IFRS
Adjustments
    TERP
(IFRS)
    TERP
acquisition
    BEPC
Transactions
Pro Forma
 
    (1a)     (1b)     (3)     (5)                       (2)     (1c)     (4)bb        

Liabilities

                     

Current liabilities

                     

Current portion of long-term debt and financing lease obligations

  $ —       $ —       $ —       $ —       $ —       $ 442     $ (442   $ —       $ —       $ —       $ —    

Accounts payable and accrued liabilities

    —         316       —         6       322       179       (2     —         177       —         499  

Financial instrument liabilities

    —         18       —         —         18       —         34       73       107       —         125  

Due to related parties

    —         189       —         —         189       11       —         —         11       —         200  

Derivative liabilities, current

    —         —         —         —         —         34       (34     —         —         —         —    

Non-recourse borrowings

    —         156       —         —         156       —         442       6       448       —         604  

BEPC exchangeable shares

    —         —         2,895       —         2,895       —         —         —         —         1,548       4,443  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    —         679       2,895       6       3,580       666       (2     79       743       1,548       5,871  

Long-term debt and financing obligations

    —         —         —         —         —         5,793       (5,793     —         —         —         —    

Operating lease obligations

    —         —         —         —         —         273       (273     —         —         —         —    

Asset retirement obligations

    —         —         —         —         —         287       (287     —         —         —         —    

Derivative liabilities

    —         —         —         —         —         101       (101     —         —         —         —    

Financial instrument liabilities

    —         3       —         —         3       —         125       316       441       —         444  

Due to related parties

    —         —         —         —         —         —         —         —         —         —         —    

Non-recourse borrowings

    —         5,505       —         —         5,505       —         5,793       55       5,848       —         11,353  

Deferred income tax liabilities

    —         3,139       —         —         3,139       195       —         123       318       —         3,457  

Other long-term liabilities

    —         270       —         —         270       112       561       133       806       —         1,076  

Equity

                     

Redeemable non-controlling interests

    —         —         —         —         —         23       (23     —         —         —         —    

Stockholder’s equity:

                     

Class A common stock

    —         —         —         —         —         2       (2     —         —         —         —    

Additional paid-in capital

    —         —         —         —         —         2,512       (2,512     —         —         —         —    

accumulated deficit

    —         —         —         —         —         (508     508       —         —         —         —    

Accumulated other comprehensive income

    —         —         —         —         —         12       (12     —         —         —         —    

Treasury stock

    —         —         —         —         —         (15     15       —         —         —         —    

Non-controlling interests

    —         —         —         —         —         605       (605     —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

    —         —         —         —         —         2,608       (2,608     —         —         —         —    

Non-controlling interests:

                     

Participating non-controlling interests—in operating subsidiaries

    —         6,994       —         —         6,994       —         2,608       656       3,264       (1,197     9,061  

Participating non-controlling interests—in a holding company

    —         —         271       —         271       —         —         —         —         —         271  

Equity in net assets attributable to parent company

    —         7,748       (3,166     (5     4,577       —         —         —         —         (351     4,226  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity in net assets

    —         14,742       (2,895     (5     11,842       2,608       —         656       3,264       (1,548     13,558  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity in net assets

  $ —       $ 24,338     $ —       $ 1     $ 24,339     $ 10,058     $ —       $ 1,362     $ 11,420     $ —       $ 35,759  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

89


Table of Contents

Unaudited Pro Forma Condensed Combined Statement of Operating Results

 

 

(MILLIONS)
Year ended December 31, 2019

  BEPC     United States,
Colombian
and Brazilian
operations
    Share
capital
    Transaction
fees
    Special
Distribution
    TERP
(U.S.
GAAP)
    Reclassification
to conform
presentation
    IFRS
Adjustments
    TERP
(IFRS)
    TERP
acquisition
    BEPC
Transactions
Pro Forma
 
    (1a)     (1b)     (3)     (5)                       (2)     (1c)     (4)        

Revenues

  $ —       $ 2,236     $ —       $ —       $ 2,236     $ —       $ 941     $ 50     $ 991     $ —       $ 3,227  

Operating revenues, net

    —         —         —         —         —         941       (941     —         —         —         —    

Other income

    —         31       —         —         31       —         48       —         48       —         79  

Direct operating costs

    —         (801     —         —         (801     —         (252     —         (252     —         (1,053

Operating costs and expenses:

                     

Cost of operations

    —         —         —         —         —         (280     280       —         —         —         —    

General and administrative expenses

    —         —         —         —         —         (81     81       —         —         —         —    

General and administrative expenses—affiliate

    —         —         —         —         —         (28     28       —         —         —         —    

Acquisition costs

    —         —         —         —         —         (4     4       —         —         —         —    

Acquisition costs—affiliate

    —         —         —         —         —         (1     1       —         —         —         —    

Depreciation, accretion and amortization expense

    —         —         —         —         —         (434     434       —         —         —         —    

Management service costs

    —         (82     —         —         (82     —         (27     —         (27     —         (109

Interest expense—borrowings

    —         (381     —         —         (381     —         (290     (29     (319     —         (700

Share of earnings from equity-accounted investments

    —         12       —         —         12       —         —         —         —         —         12  

Foreign exchange and unrealized financial instrument gain (loss)

    —         9       —         —         9       —         (39     —         (39     —         (30

Depreciations

    —         (509     —         —         (509     —         (423     (69     (492     —         (1,001

Other

    —         (21     —         —         (21     —         (153     49       (104     —         (125

Other expenses (income):

                     

Interest expense, net

    —         —         —         —         —         (298     298       —         —         —         —    

Loss on modification and extinguishment of debt, net

    —         —         —         —         —         (27     27       —         —         —         —    

Gain on foreign currency exchange, net

    —         —         —         —         —         13       (13     —         —         —         —    

Gain on sale of renewable energy facilities

    —         —         —         —         —         2       (2     —         —         —         —    

Other income, net

    —         —         —         —         —         2       (2     —         —         —         —    

Income tax expense

                     

Current

    —         (59     —         —         (59     —         7       (12     (5     —         (64

Deferred

    —         (10     —         —         (10     —         (19     25       6       —         (4

Income tax (expense) benefit

    —         —         —         —         —         (12     12       —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    —         (69     —         —         (69     (12     —         13       1       —         (68
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ —       $ 425     $ —       $ —       $ 425     $ (207   $ —       $ 14     $ (193   $ —       $ 232  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

90


Table of Contents

Unaudited Pro Forma Condensed Combined Statement of Operating Results (Continued)

 

 

(MILLIONS)

Year ended December 31, 2019

  BEPC     United States,
Colombian
and Brazilian
operations
    Share
capital
    Transaction
fees
    Special
Distribution
    TERP
(U.S.
GAAP)
    Reclassification
to conform
presentation
    IFRS
Adjustments
    TERP
(IFRS)
    TERP
acquisition
    BEPC
Transactions
Pro Forma
 
    (1a)     (1b)     (3)     (5)                       (2)     (1c)     (4)        

Net income attributable to:

                     

Redeemable non-controlling interests

  $ —       $ —       $ —       $ —       $ —       $ (12   $ 12     $ —       $ —       $ —       $ —    

Non-controlling interests

    —         —         —         —         —         (46     46       —         —         —         —    

Class A common stockholders

    —         —         —         —         —         (149     149       —         —         —         —    

Non-controlling interests

                     

Participating noncontrolling interests—in operating subsidiaries

    —         241       —         —         241       —         (207     14       (193     71       119  

Participating non-controlling interests—in a holding company

    —         —         12       —         12       —         —         —         —           12  

Parent company

    —         184       (12     —         172       —         —         —         —         (71     101  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ —       $ 425     $ —       $ —       $ 425     $ (207   $ —       $ 14     $ (193   $ —       $ 232  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

91


Table of Contents

Unaudited Pro Forma Condensed Combined Statement of Operating Results (Continued)

 

 

(MILLIONS)

Year ended December 31, 2018

   BEPC      United States,
Colombian
and Brazilian
Operations
    TERP
(U.S.
GAAP)
    Reclassification
to conform
presentation
    IFRS
Adjustments
    TERP
(IFRS)
    BEPC
Pro
Forma
 
     (1a)      (1b)                 (2)     (1c)        

Revenues

   $ —        $ 2,164     $ —       $ 767     $ 48     $ 815     $ 2,979  

Operating revenues, net

     —            767       (767     —        

Other income

     —          16       —         25       —         25       41  

Direct operating costs

     —          (816     —         (240     3       (237     (1,053

Operating costs and expenses:

               

Cost of operations

     —          —         (221     221       —         —         —    

Cost of operations—affiliate

     —          —         —         —         —         —         —    

General and administrative expenses

     —          —         (88     88       —         —         —    

General and administrative expenses—affiliate

     —          —         (16     16       —         —         —    

Acquisition costs

     —          —         (8     8       —         —         —    

Acquisition costs—affiliate

     —          —         (7     7       —         —         —    

Impairment of renewable energy facilities

     —          —         (15     15       —         —         —    

Depreciation, accretion and amortization expense

     —          —         (342     342       —         —         —    

Management service costs

     —          (56     —         (15     —         (15     (71

Interest expense—borrowings

     —          (402     —         (257     (11     (268     (670

Share of earnings from equity-accounted investments

     —          17       —         —         —         —         17  

Foreign exchange and unrealized financial instrument gain (loss)

     —          (14     —         (1     —         (1     (15

Depreciations

     —          (531     —         (335     (2     (337     (868

Other

     —          (48     —         (109     63       (46     (94

Other expenses (income):

               

Interest expense, net

     —          —         (249     249       —         —         —    

Loss on modification and extinguishment of debt, net

     —          —         (1     1       —         —         —    

Gain on foreign currency exchange, net

     —          —         11       (11     —         —         —    

Other income, net

     —          —         4       (4     —         —         —    

Income tax expense

               

Current

     —          (26     —         (4     2       (2     (28

Deferred

     —          58       —         16       282       298       356  

Income tax (expense) benefit

     —