Clearway Energy, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise. Comparisons are with the corresponding 2019 periods.
Business context
Clearway owns and invests in contracted energy infrastructure across North America, including more than 6,200 MW of wind, solar and natural-gas generation, plus thermal infrastructure. Its offtake agreements had a weighted-average remaining duration of approximately 13 years, measured by CAFD. The company is sponsored by GIP through CEG; at quarter-end, Clearway owned 57.58% of Clearway Energy LLC’s economic interests and CEG owned 42.42%.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Operating revenue | $332 | $296 | $919 | $797 |
| Operating income | $123 | $90 | $305 | $218 |
| Net income (loss) | $42 | $35 | $11 | $(48) |
| Net income (loss) attributable to Clearway | $32 | $39 | $50 | $(5) |
| Basic and diluted EPS | $0.27 | $0.36 | $0.43 | $(0.04) |
| Operating cash flow | Not presented separately | Not presented separately | $441 | $374 |
- Operating margin, calculated as operating income divided by revenue, was approximately 37% in Q3 2020 versus 30% in Q3 2019, and 33% for the first nine months of 2020 versus 27% in 2019.
- Nine-month investing cash outflow was $20, compared with $300 in 2019; financing cash outflow was $301 versus $260. Cash, cash equivalents and restricted cash totaled $537 at September 30, 2020.
- Reported balance-sheet debt was $6,718, comprising $361 current and $6,357 long-term. The debt note lists $6,792 of total debt before current maturities, issuance costs and premiums. The company had no revolver borrowings, $59 of letters of credit outstanding, and $436 of revolver availability.
- Total liquidity was $973, including restricted cash of $178; therefore, not all reported liquidity was freely available. Stockholders’ equity was $2,237.
- Class A and Class C dividends were $0.3125 per share for Q3, up from $0.20 in Q3 2019. On October 27, the company declared $0.318 per share for payment in December.
- The filing does not provide a clear value for Q3 or year-to-date Adjusted EBITDA or CAFD in the supplied text.
Material changes versus prior periods
- Q3 revenue rose $36 and operating income rose $33 year over year. Management attributed improved gross margin principally to the Carlsbad acquisition, partly offset by lower wind production, mainly at Alta, and reduced thermal demand.
- For the first nine months, revenue increased $122 and operating income increased $87. Growth reflected Carlsbad, new or repowered renewable projects, and consolidation of the Chestnut and CS4 funds. Thermal gross margin was lower, including from the Dover sale and COVID-related customer-demand reductions.
- Clearway reported $49 of gain on the sale of its RPV Holdco investment in May. Equity earnings from unconsolidated affiliates declined $19 in Q3 and $30 year to date, including lower HLBV earnings and losses related to Mesquite Star. Q3 also included $6 of debt-extinguishment losses; nine-month losses were $9.
- PG&E emerged from bankruptcy July 1 and assumed Clearway’s contracts without modification. Applicable pre-petition receivables were collected, lender waivers were obtained, and previously restricted distributions were released by October 31.
- Clearway issued an additional $250 of 4.75% notes due 2028 and used proceeds in part to repay its 2020 convertible notes and revolver borrowings. It also completed project-level refinancings, including $296 of Utah Solar notes and a $193 NIMH Solar term loan. The company reported compliance with required debt covenants.
- ATM offerings generated $59 gross proceeds during the nine months through sales of Class C shares. The company completed the 2016 ATM program and had approximately $129 remaining under its 2020 program.
Outlook, management commentary and risks
- Management said current liquidity, operating cash flows and revolver availability should be adequate for commitments, debt service, capital spending, growth and dividends. It expects comparable cash dividends to continue based on current circumstances; dividends remain subject to available capital, market conditions and contractual and legal constraints.
- Management estimated 2020 maintenance capital expenditures of $32; $16 had been incurred in the first nine months. The estimate is subject to review and adjustment. No specific earnings or CAFD guidance is provided in the supplied filing text.
- As of the report date, Clearway said all facilities remained operational and COVID-19 had not caused material financial or operational impacts. Some thermal locations experienced lower volumes. The company cautioned that the pandemic’s eventual effects on operations, cash flows, dividends and debt service remained uncertain.
- Key exposures include weather and renewable-resource variability, outages, commodity and interest-rate movements, counterparty performance, substantial indebtedness, access to financing, project-level restrictions, regulation and environmental requirements. Derivative liabilities totaled $186 at September 30; management estimated that terminating all interest-rate swaps would require a $177 payment.
- Material litigation includes NPPD’s PPA dispute concerning Laredo Ridge and Elkhorn Ridge: a federal court permanently enjoined termination of the Laredo Ridge PPA, but NPPD appealed and the related state case remained pending. Georgetown’s Buckthorn Solar suit seeks PPA rescission or termination and damages; the company disputes the claims.
- After quarter-end, Clearway acquired DGPV Holdco interests and an SREC contract for $44 and entered into a $467 financing arrangement due 2040. It also agreed to acquire the Langford wind project for approximately $64, subject to closing adjustments. A proposed CEG partnership involving a 1,204 MW portfolio remained subject to negotiation and independent-director review.
Most important facts for investors to verify
- How much of reported $973 liquidity was available for corporate use, given $178 of restricted cash and project-level restrictions?
- Whether operating cash flow and future CAFD support the increased dividend, planned acquisitions and debt service; the supplied text does not state CAFD or Adjusted EBITDA figures.
- How renewable-resource variability, particularly lower wind production, and reduced thermal demand affect forecast cash generation.
- The final cost, funding and expected returns of announced acquisitions, partnership opportunities and post-quarter refinancing transactions.
- The outcome of the NPPD appeal and Georgetown litigation, and any resulting PPA, cash-flow or reserve impacts.
- How the company’s substantial debt, variable-rate exposure, refinancing activity and access to capital affect liquidity and future distributions.