Tag Archives: power

PSP Yields 8.00% And Outperforms The S&P, But What Are The Risks?

Summary This Global Listed Private Equity Portfolio is under the radar with little institutional ownership. With an easy to analyze portfolio of 64 holdings we are slightly surprised by the lack of “buzz”. We analyze this attractive performing ETF, notice a similarity with MLPs that outperform when rates rise, and provide our recommendation. The PowerShares Global Listed Private Equity Portfolio ETF (NYSEARCA: PSP ), is a well established fund, (inception 10/24/2006) with an attractive track record. It had a serious correction during the financial crises but has weathered the storm and come back significantly, similar to the holdings of the underlying components. The ETF is based upon an index called the Red Rocks Global Listed Private Equity Index. Red Rocks Capital is an asset management firm based in Golden, Colorado. Red Rocks specializes in listed private equity securities. They are owned by ALPS, a mutual fund and asset servicing and gathering firm based in Denver, Co. They are in turn a wholly owned subsidiary of DST Systems (NYSE: DST ), a software development firm based in Kansas City, Missouri. The ETF presently has 64 holdings while the index with a ticker symbol of {GLPEXUTR} has anywhere from 62-70 or an unknown number of holdings. We will explain why shortly. According to the sponsor PowerShares: The PowerShares Global Listed Private Equity Portfolio is based on the Red Rocks Global Listed Private Equity Index. The Fund will normally invest at least 90% of its total assets in securities, which may include American depository receipts and global depository receipts, that comprise the Index. The Index includes securities, ADRs and GDRs of 40 to 75 private equity companies, including business development companies BDCS, master limited partnerships MLPS and other vehicles whose principal business is to invest in, lend capital to or provide services to privately held companies (collectively, listed private equity companies). The Fund and the Index are rebalanced and reconstituted quarterly. The market cap and style allocations are interesting but not terribly relevant. For information purposes here are the allocations, courtesy of the fund sponsor, Invesco: PSP Market Cap & Style Allocations Classifications Weight Small-Cap = 27.49% Growth 2.44% Blend 3.28% Value 21.77% Mid-Cap = 56.70% Growth 27.60% Blend 16.78% Value 12.32% Large-Cap = 15.81% Growth 8.13% Blend 7.03% Value 0.65% There are no great surprises here as we expected that most of the constituents to this ETF would be solidly in a mid-cap structure. The general nature of most BDCs, MLPs and private equity firms for both tax and overall structure are neither extremely large, nor small. As a comparison, Morningstar breaks the allocation down slightly more: Micro-cap: 13.41%, Small-Cap: 14.08%, Medium-Cap: 56.70%, Large: 8.78%, and Giant: 7.03%. Obviously, they use a slightly different nomenclature and breakdown, but both Morningstar and the fund sponsor do concur exactly on the category of Medium or Mid-Cap. In terms of the style overall it is categorically a blend style with XTF.com breaking it down as follows: Blend, 81.10%, Growth, 9.50%, Value 6.50% and Pure Growth at 2.70% As this is a global fund, it is important to analyze the country and currency allocations of the holdings. PSP Country and Currency Allocations Country Weight Currency Weight United States 40.06% United States Dollar 40.06% United Kingdom 15.21% Euro 16.00% France 7.13% British Pound 15.21% Canada 6.02% Canadian Dollar 6.02% Switzerland 5.66% Swiss Franc 5.66% China 5.63% China Renminbi 5.63% South Africa 4.28% South Africa Rand 4.28% Belgium 3.95% NA NA Germany 3.28% NA NA Sweden 3.15% Swedish Krona 3.15% Japan 2.46% Japan Yen 2.46% Denmark 1.03% Danish Krone 1.03% Malta 1.64% NA NA Hong Kong 0.50% Hong Kong Dollar 0.50% As a global ETF this would be considered well balanced geographically with approximately 46.00% in North America and approximately 41% in the Europe. Geographically, the holdings shifted slightly from the last quarter, with a small percentage of assets moving to South Africa out of Malta. In terms of currency exposure, we don’t see the as a major influence on this ETF with the slight exception of weakness in China and continued weakness in the euro. In any event, the ETF is priced in dollars and the exposure, though unhedged, is fairly balanced. The U.S. dollar as the underlying currency at 40% and the other currencies make up an interesting mix overall. Any further concern is not directed at the currencies in this ETF, though it would be prudent of course to follow the euro based holdings and the small exposure to China. Our sector allocation of this ETF is related to the overall nature of private equity firms in general. For informational purposes here is the sector allocation: PSP Sector Allocations Sector Weight Financials 74.64% Derivatives 8.80% Industrials 8.27% Information Technology 4.89% Health Care 1.18% Investment Companies 1.11% Consumer Staples 1.03% Energy 0.08% The majority of the BDCs, MLPs, and private equity firms would be classified within the Financial Sector. Although a little difficult and subject to error, an analysis of the underlying industries is informative when we analyze a private equity firm and it components. In terms of PSP, it does shed light on the business nature of the holdings. PSP Industry Allocations Industry Exposure Weight Consumer Finance 59.70% Financial Services 22.70% Internet & Mobile Applications 4.70% Heavy Machinery 3.90% Steel 3.30% Other 2.20% Packaged Food Products 1.20% Health Care Providers & Services 0.90% Energy Equipment & Services 0.70% Investment Companies 0.60% This industry breakdown is courtesy of xtf.com and is subject to revision. As noted, many of the private equity, BDCs and MLPs within this ETF are focused on providing financing for other businesses and industries yet the underlying holdings can focus on specific industries as well. Investors who have never invested in these companies or analyzed these holdings may require a “learning curve” to understand how the firms are structured and the benefit of their overall tax structure. There is also history on their side, if and when, rates do increase. We will explain that shortly. Before doing so we will as usual analyze the top 15 components. For information purposes here are the top 15 components, their symbol, sector, ratings, (if any) and their weightings: PSP top 15 components Name/Symbol Sector Ratings (Moody’s/S&P) Weight Partners Group Holding AG ( OTCPK:PGPHF ) Financials NR/NR 5.661% 3i Group PLC ( OTCPK:TGOPY ) Financials NR/BBB 5.422% Onex Corp ( OTCPK:ONEXF ) Financials NR/NR 5.363% Fosun International Ltd ( OTCPK:FOSUY ) Industrials Ba3/BB 5.130% Citi KKR & Co, TRS 10/31/13/NA Derivatives NA/NA 4.505% Citi Blackstone TRS 10/31/13 Asset LG/NA Derivatives NA/NA 4.293% Eurazeo SA ( OTC:EUZOF ) Financials NR/NR 3.693% Brait SE/{BAT.J} Financials NR/NR 3.606% Leucadia National Corp (NYSE: LUK ) Financials Ba1/BBB- 3.287% Melrose Industries PLC ( OTC:MLSPY ) Industrials NR/NR 3.140% IAC/InterActive Corp (NASDAQ: IACI ) Information Technology Ba2/BB 2.981% Ares Capital Corp (NASDAQ: ARCC ) Financials Ba1/BBB 2.967% Ackermans & van Haaren NV ( OTCPK:AVHNY ) Financials NR/NR 2.924% Wendel SA ( OTCPK:WNDLF ) Financials NR/BBB- 2.914% Jafco Co Ltd ( OTC:JAFCY ) Financials NR/NR 2.461% Our top 15 holdings represent 58.347% of the ETF, while the balance of 49 holdings represent 41.653%. This is quite a top heavy ETF with 8.798%, (or 15.078% of the top 15) of the ETF in combined total return swaps that originated with Citi (NYSE: C ) and KKR (NYSE: KKR ) and Citi and Blackstone (NYSE: BX ). Basically, these swaps allow the ETF fund managers to utilize capital more effectively. A little tutorial on TRS is necessary. These swaps allow the ETF and its fund shareholders to receive a total return and gain exposure and benefit in the sector without actually having ownership. Income is also generated from the swap as well as appreciation of the asset over the life of the swap. A set rate is paid for the swap and if the asset does fall over the swap’s lifespan, the total return receiver or counterparty will be required to pay the asset owner the amount by which the asset has fallen in price. These Citi/KKR and Citi/Blackstone TRS are considered unrated derivative contracts. In terms of the company names, most of the names are only slightly “household names,” but fairly well known in professional investment circles. Many of the companies would be considered “holding companies,” due to their structures by ratings agencies in spite of the fact they would be classified as PE funds and BDCs. One of the top ten is Brait SE, whose name is derived from an uncut diamond. It is a Luxembourg and Johannesburg Exchange listed large South Africa based PE fund with no U.S. symbol whatsoever. Many of the companies in the index are listed on the “Pink sheets.” The primary reason is there are limited financial disclosures and reporting requirements. Yet the public vehicle is useful for both compensation plans and for retail participation in the sector, as long as proper risk disclosures occur. In our past analysis of ETFs we always provided the weighting of the index constituents. The purpose is to discern any discrepancies or variances in the current market between the index and the fund. This is also known of course by the term “tracking error.” Usually we can at least provide somewhat up to date information. BarCap, S&P, MS, and even small providers were more than happy to share their index composition with readers of Seeking Alpha. In this case, we were unsuccessful. One of the VP’s in Portfolio Strategy stated: I cannot provide any more information. There are some regulatory changes that are affecting how we report index information, so this has delayed the update of our fact sheet. There is an updated (9/30) fact sheet that is undergoing compliance review, but this may not be available for another 1-2 weeks. We are obviously slightly disheartened here. The only thing we can reference that pertains to what he is referring to was a new regulatory issue that pertains to shares in ETFs noted in a Reuters article and other investment publications. According to the article: ETFs are typically funds whose holdings are meant to mimic the performance of an index. To do that, the SEC has said the securities used to create shares in most funds must be the same ones as in the fund’s portfolio unless there was a change in the index the fund tracks. In any event, this seems more pertinent to Invesco than the index provider. We welcome SEC attorneys or fund practitioners to share further information. We felt his feedback was quite uncommon and obviously not transparent for an index provider. Overall, this is a little circumspect and disheartening. We like to inform the readers of any divergence or tracking errors from the index. In this case all we had to work with is data that “stale dated” from June information that basically shows the top ten holdings with no weightings whatsoever. Fortunately, the ETF fund information was up to date and an analysis for the top 15 holdings was possible. As noted, ratings on these issues are not prevalent and actually not pertinent. Only 14.59% from the top 15 or 25% have investment grade ratings. The reason is due to the structure of the firms in this ETF. Many of them do not have strong balance sheets. Some have substantial debt, including high yield paper. This does not endear or permit, in most cases an investment grade credit rating. In addition, many of these public firms see no need to apply for a rating as they basically borrow and lend and invest in the private markets using alternative sources of capital. In general, they have no use for credit ratings in their overall business model. By the way, the 16th holding is the well known Apollo global Management with 2.241%, and the Carlyle Group comes in at 22nd with 1.608% of the ETF. Overall, the benefit of the ETF holder is to participate in an alternative market that may be the place for stable cash flow and growth, if and when rates rise. We will explain this aspect shortly as we review the performance and key data of the ETF. PSP’s Performance, Fees and Recommendation Category PSP {ETF} GLPEXUTR {Index} Net Expense Ratio 2.09% NA Turnover Ratio 30.00% NA YTD Return 5.49% (10/31/15) 5.71% (10/31/15) 1-Year Total Return 6.42% (10/31/15) 7.97% (10/31/15) Distribution Yield/SEC Yield 8.04%/3.27%(11/18/15) 3.86%/NA (06/30/15) Beta,(3 year) Shares/Holdings (shares vs Morningstar Global Allocation TR USD) 1.66/1.1 NA/NA P/E Ratio FY1/current 13.93/12.65 (09/30/15) NA/NA Price/Book Ratio FY1/current 1.78/1.71 (09/30/15) NA/NA The fees here are basically standard in PE and BDCs ETFs. 1.45% of the 2.09% of the fees are the pro rated portion of the cumulative expenses that are charged by the underlying holdings. It is the usual large fees that are expected in this alternative sector. This is in spite of the fact that Fidelity uses a rather small number of 0.53% for the net expense ratio for the asset class median. The turnover ratio of 30% is also higher than the asset class median of 18.00%. We attribute this to changes in the ETF and the underlying index throughout the year. The YTD return is almost 2xs the S&P 500 return (2.65%) and exceeds the 12 month return as well (5.20%). The beta for the underlying is close to the benchmark and is attributed to the lack of volatility of the publicly traded shares and general long term nature of PE holdings. The biggest issue with this ETF is the distribution yield. The returns generated here are considered neither short term nor long term capital gains, but dividend income. If the PE funds in PSP, even though public listings, are structured as MLP’s (Master Limited Partnerships) this creates a tax issue. The funds themselves as a MLP have a tax incentive to distribute most nearly all their profits to their shareholders. This creates major tax issues for investors in MLPs. Fortunately, the majority of the firms in the ETF are structured under a holding company or owners of a MLP. This allows these profits to flow as dividend income and not as capital gains. We mentioned in the beginning why we are encouraged by market moves in these firms during a rate rise. Though the underlying companies are not, for the most part structured as MLPs they do tend to trade at times like them and investors due at times “bucket” them, BDC’s, and listed PE funds all together. This fund as we mentioned, only dates as to 2006, so we can not ascertain how it will do overall during a rate increase. We looked into the history of MLP’s and noticed an interesting article. Fortune Magazine’s, November 01, 2015, stated: They also find encouragement in recent history: The last time the Fed increased rates, between June 2004 and June 2006, the S&P MLP index rose 17%, beating the S&P 500’s 12% gain. Yes, we know this article is primarily on pipeline MLPs but does address MLPs in general. The main takeaway on this article is that the companies did not contract during an interest rate increase. It actually is logical. The underlying holdings are based upon companies that are either being restructured, turned around, purchased for resale, or merged with other entities. During periods of interest rate increases general aggregate demand increases. In general, the Fed Reserve and other central banks try to stay ahead of demand and inflation. Granted, this is a global PE ETF with 40.00% in the U.S., but in general the U.S. economy will globally lead the way forward. In the event of no interest rates due to a myriad of reasons, we expect this ETF to continue to perform and return an above market return to investors. Overall, we are extremely bullish on the sector and this ETF and recommend a buy as an alternative investment. We are encouraged by the growth of the underlying holdings within the fund constituents. It is one of the few vehicles in the market where both institutions and individuals can invest in a PE or BDC fund, albeit in an indirect way. The ETF closed at $10.88 per share on November 19. Its year high was $12.41, set on June 03 and its year low of $9.01 was on August 24. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

El Paso Electric: Fairly Valued, No Significant Upside

Summary We initiate coverage on El Paso Electric with a Neutral rating and TP of $40. The TP is based upon company’s future financial performance and historical valuation against industry peers. Current political situation in El Paso may cause challenges in reaching a settlement with the PUCT. Thus, the company would have to face uncertainty related to litigation. PVR anticipates the regulators of Texas and New Mexico to finally allow the significant increase in rate base. However, the current stock price is not including uncertainty related to regulatory. EE would have to apply for relief in rates in challenging jurisdictions as a result of new generation investment. Plain Vanilla Research ((NYSE: PVR )) initiates coverage on El Paso Electric Co. (NYSE: EE ) with a Neutral rating and a target price ((TP)) of $40. Since September, the stock price of El Paso Electric has outperformed the Utilities Sector by 7.28 percentage points (ppts). This is shown in the chart below: (click to enlarge) However, we think that the performance is not sustainable in the future as the company is facing challenges on multiple fronts. This restricts the stock from offering significant upside potential. In addition to that, a dividend yield of only 3% is not very attractive to tempt dividend investors. We will be discussing the challenges below: 1. Political Circumstances In El Paso In the past, proceedings related to change in rate base in El Paso have been engulfed with politics a lot. The company can be anticipated to face an interesting stance from the City Council officials as they will try to create challenges for the company to reach a settlement agreement. Furthermore, the supporters of solar-powered energy have also entered the arena as the publicly-listed corporation is trying to create alterations in rate design, which would cause installers of rooftop solar panels to make a partial requirements fee payment. Instead of reaching a settlement with the City Council authorities, we think the company should play the long game and wait for a decision from the Public Utilities Commission of Texas (PUCT). Although, the road is long and would result in higher uncertainty but it will result in a more favorable decision for the organization. 2. Approval From Texas And New Mexico Regulatory Authorities We anticipate that the regulatory authorities of Texas and New Mexico will allow the significant increase in rate base at the end. However, the current stock price reflects that investors expect the regulatory authorities to allow the increase in rate in any case. We think that slight hindrance in regulatory approval will result in the stock price on a downward trajectory. Texas is responsible for contributing roughly three-fourth to El Paso Electric’s bottom line. Meanwhile, the remaining contribution is from the state of New Mexico. 3. Demand For Rate Relief Requests In Challenging Jurisdictions El Paso has the finished the construction of two peaking units located at the Montana Power Station (MPS). In addition to that, the company will be finished with the construction of the third unit by spring of next year and by year-end, the company intends to complete the construction of the fourth unit. The four units are natural-gas powered and will have a capacity of 352 megawatts ((NYSE: MW )). These units are built to cater the increasing requirement of electricity in El Paso’s service territory. Montana plant and support infrastructure is anticipated to have a cost of $375 million. The company has been lucky to experience an annual growth rate of 1% to 1.5% for the past several years in the service territory. Normally, the industry has been seeing flat or decline in power consumption. Derivation Of Price Objective PVR has based its target price (TP) of $31 at earnings per share ((NYSEARCA: EPS )) of $2.67 along with a forward P/E multiple of 15.39x. The following forecasted income statement reflects as how we have arrived at our 2018 EPS. Currently, El Paso Electric’s stock is exchanging hand at PVR’s forward price-to-earnings (P/E) multiple of 15.44x. In the past three-years, the stock has traded at an average forward P/E multiple of 14.94x. This reflects that the stock is trading at a premium of 6.5% against its three-year average forward P/E multiple of 14.94x. (click to enlarge) Meanwhile, against its peers’ combined forward P/E multiple of 12.23x, El Paso Electric’s stock is presently trading at a premium of 26.2%. In the past three years, the stock has traded at an average premium of 22% against its peers’ combined forward P/E. (click to enlarge) We have arrived at our target forward P/E multiple for El Paso Electric by calculating the three-year average forward P/E multiple of 12.24x for the combined industry peers. After that, we have applied the three-year historical premium of 22% to the historical average peers’ combined forward P/E multiple to reach El Paso Electric’s target forward P/E multiple of 14.93x. We have formulated the peers forward P/E multiple by combining our forward P/E ratios of Consolidated Edison (NYSE: ED ), PG&E Corporation (NYSE: PCG ), PNM Resources Inc (NYSE: PNM ), American Electric Power Company Inc (NYSE: AEP ) and Xcel Energy Inc (NYSE: XEL ) along with El Paso Electric. We have given their respective P/E weight according to their market capitalization.

Terraform Power: Buying When There Is Blood On The Streets?

Summary Terraforma Power shares collapsed over the past few months. Liquidity concerns and the funding of future commitments are worrying investors. I will dig into the liquidity issue to assess whether the company is a good investment opportunity at current prices. Terraform Power: buying when there is blood on the streets? The original quote is attributed to Baron Rothschild, who apparently made a lot of money by buying assets amid the panic that followed the Waterloo battle against Napoleon. Can we apply the same concept to Terraform Power (NASDAQ: TERP )? Only one thing is certain. There is a lot of blood on the streets. The stock is down almost 80% from 40$ in July to 8.4$ at the time of writing. A bit of a background may help those not familiar with the story. The company owns and operates clean power generation assets (solar and wind in particular). In a nutshell they buy the assets, they structure the financing, they negotiate power purchasing agreements (if they do not come already with the assets) and they distribute the income once operating costs and financing costs are repaid. A very simple business model. Two things make it complicated: Liquidity: in the good old days of a stock trading between 30$ and 40$ they signed agreements for acquiring a significant amount of assets knowing that they had a lot of options to finance deals (project financing, corporate bonds, loans and equity issues). The stock decline worried investors to the point that the liquidity issue is becoming a self-fulfilling prophecy: the stock goes down, cost of equity and debt goes up, they have fewer options available for financing and therefore the stock goes down even more. Issues at Group level. TERP is partially owned by its sponsor, Sunedison (NYSE: SUNE ), a developer of solar plants whose stock price has crashed even more due to high leverage, significant commitments to buy new projects and incredibly difficult to read financial statements, with a mix of recourse and non-recourse debt and questions on the future solvency of the business. In this report I will try to assess the current situation of TERP and the future commitments in order to establish whether the market overreacted to the liquidity issues and is mispricing the stock. A good starting point is the presentation of Q3 results. On slide 17 the company shows the most recent capital structure adjusted for the latest deals announced: (click to enlarge) Source: Q3 2015 Earnings presentation The company shows cash of 796 mln and a combination of recourse debt (two bonds for 1.25bn) and non-recourse debt (project financing for 1.3bn). The net financial position including all debt is therefore 1.76bn. This debt is against a 2016 ebitda run rate for the current portfolio of approximately 400 mln with a net debt / ebitda of 4.4x and against a portfolio of renewable energy facilities valued at approximately 4bn in the balance sheet. If we were talking about real estate we would say that the loan to value is 44%, a reasonably low level. Remember that we are talking about assets with highly predictable cash flows and long term power purchasing agreements in place (average life of 16 years). The status quo shows one thing: the company is currently under levered given the type of assets they held. One important supporting factor is the recent (November 6th) renegotiation of the debt on certain assets in the UK, the results of which are in the pro-forma figures showed above. The company managed to refinance those UK assets at a 4% all-in interest cost with non-recourse debt. That figure shows how – at an asset level – TERP’s portfolio is seen as extremely high quality. Now let’s look at the commitments. Here things start to become challenging. TERP committed to buy 1,453MW of solar and wind assets from Invenergy and Vivint as part of a deal structured by its parent Sunedison. The total cost of those assets is approximately 3bn. From the 10Q we can also see that the company has commitments to buy additional energy facilities from Sunedison for a total of 1,080MW (1.4 bn). Let’s analyse how the company is thinking about those commitments. On slide 18 of the Q3 presentation the company offers a picture of the current status of the financing plan for the Invenergy and Vivint acquisitions, showing 1.7 bn completed and 1.3bn in progress. (click to enlarge) Of the “in progress” part of the financing we have three components: Vivint Term Loan or TERP bond (250 mln) Project finance debt (726 mln) 3rd party infrastructure capital (300 mln) During the Q3 conference call the management stated that they are making good progress on the financing. My personal take is that a TERP bond is not realistic (the yield would likely need to be above 10% given the sentiment around the stock) while all other options appear credible. In particular the largest chunk is project finance debt and the company showed earlier this month that they can successfully raise that kind of capital at very good terms. Infrastructure capital should also not be a serious problem in a market full of yield hungry investors. I will let you make your judgement on this but I believe we are not talking about an impossible task for the company. Remember, all assets are cash generating with 15 years plus of revenues under contract with primary standing counterparties. Moving on to the commitments to buy the Sunedison facilities the company states in the 10Q that on October 26th SUNE entered into a purchase and sales agreement with a JP Morgan fund that agreed to buy three of the assets that are part of those commitments. Upon closing, expected on the fourth quarter of 2015, TERP will have a reduction in its commitment to buy SUNE assets from 1.4 bn to 580 mln. The company intends to deal with these commitments through a combination of project finance debt, company cash, assumption of current debt and the involvement of third party infrastructure investors. While TERP is currently working on securing the financing, SUNE is also looking for third parties that may be interested in taking the projects directly. In case of a sale by SUNE the commitments for TERP would decline further. A final point that I would make on the liquidity issue is that the company currently has in place an unused revolver credit facility equal to 725 mln that is going to increase to 1 bn and can offer further flexibility in structuring the financing for the deals mentioned above. My final take on the liquidity issue: it is very scary when sudden lack of confidence hits a company. TERP’s 2023 bonds moved from 95 at the beginning of the month to current values of around 70. Capital markets are clearly closed for TERP at the moment. That contrasts a lot with what the company managed to achieve by financing at the asset level , like they did in the UK. I particularly like the fact that at the moment there is only 1.3 bn of project finance debt in place against 4 bn of assets and that suggests me that deals similar to the UK refinancing could soon take place in other parts of the portfolio. I am confident the company will work in this direction and will eventually be able to finance all the deals even though spreads will certainly be higher than a few months ago. Finally let’s look at the stock. What are you buying at 8.4$? I will make a very simple analysis here. Let’s assume no equity is issued and all commitments are paid for with new debt. Let’s also assume that the incremental debt raised and its amortization completely eats all of the cash flow produced by the assets. That’s very harsh credit conditions. Even in that case we would have a company that can sustainably keep the current dividend rate at 35c (in reality the plan is to increase it to 0.425 in 2016) based on the cash available for distribution from the current assets while building some additional equity in all those projects thanks to the amortization of the debt. That is a 16.8% yield + the build-up of some equity in the current projects. Not bad. Worst case / best case. The worst case scenario would be a bankruptcy of parent SUNE, with certainty of some messy agreements that would need to be worked through, and complete lack of financing. In this case I believe the equity would still be worth something (let’s say 3 / 4 dollars a share) based on a liquidation of all the assets owned + commitments at a 25% discount to book while repaying all debt at face value. A clear sky scenario would see the company providing for all the liquidity needs through external sources at reasonable terms. In that case the stock would rebound and, even though I believe the 30$ – 40$ range will not be reached for a long time, we would likely see TERP trade back to around 25$ (three times the current level). Conclusions: although risks are extremely high and volatility will continue to characterize the stock, I believe TERP offers a great asymmetric return profile. The downside is large in a worst case scenario and therefore position sizing should take that into account but, at least this time around, I am a buyer despite all the blood on the streets.