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8point3 tweaks acquisition plan in light of market rout, tax-credit extension

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Essential Energy Insights - February 2021

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8point3 tweaks acquisition plan in light of market rout, tax-credit extension

said it has the firepower to meet growth targets over the next several yearseven as it pushes out some planned acquisitions in response to a market routand tax-credit extension that gave developers more time to build renewableenergy projects.

Theyieldco recently tweaked an agreement with its sponsors to give it more time tobuy solar projects, a move that is aimed at reducing the company's reliance on equitymarkets and better matching acquisitions with its long-term growth plans,8point3 Chairman and CEO Charles Boynton said on an earnings call April 6.

Thecompany said it has enough liquidity to fund acquisitions through the firsthalf of 2016. After accounting for recent deals, Avondale Partners LLC senioranalyst Michael Morosi put 8point3's pro-forma liquidity at $350 million,enough to buy up to 250 MW of assets, he said.

Inlight of continuing turmoil in the yieldco sector, 8point3 executives stressedthat the company's existing portfolio will generate enough cash to meetdividend targets through 2017, and that its sponsors, and , have pipelines thatare large enough to continue feeding the company in the years to come.

8point3,which plans to increase dividend payments by 12% to 15% annually through 2018,declared a first-quarter distribution of almost 22.5 cents per share, up about3.5% from the prior quarter. The company expects to increase distributions by asimilar amount in the second quarter to about 23 cents per share.

"Withthe [investment tax credit] extension lessening some of the urgency to completeprojects before end-2016, we believe [8point3] will benefit from andstronger long-term cash flows as its sponsors negotiate better financing termsand continue to reduce installation costs," Oppenheimer & Co. Inc. analystColin Rusch wrote in an April 6 note.

However,others expressed concerns about the company, which is often talked about as oneof the strongest players in the battered yieldco market.

"Whileit shares some characteristics of best in breed yieldcos (well capitalizedsponsors, quality assets), the portfolio remains sub-scale, and we believemanagement should consider a wide range of tools to drive shareholder value,"Morosi wrote in an April 7 note. Morosi said 8point3 could boost yields on itscash available for distribution from around 70% to as high as 90% to increasepayouts and "create confidence in management's ability to allocate capitalefficiently," and increase the visibility of projects the company couldacquire through its right of first offer with its sponsors.

RobertW. Baird & Co. analyst Ben Kallo, on the earnings call, noted a "negativecall" that 8point3 may not have sufficient backlog to support its growth.8point3's project portfolio stands at 432 MW; its right-of-first-offer pipelinetotals 1,143 MW, according to Morosi.

Boyntonsaid the negative call came as "a surprise because if you look at thecombined pipeline of both companies [First Solar and SunPower], we are in areally, really strong position."

8point3,which went public inJune 2015, reported first-quarter cash available for distribution of $18.3million, about 18% above guidance the company issued in January, and a net lossof $7.1 million, down 23% from a loss of $9.2 million in the quarter endedMarch 29, 2015.

Thecompany expects up to $7.5 million in cash available for distribution duringthe second quarter and a net loss between $500,000 and $2 million.

SunPoweris majority-owned by the French oil and gas company Total SA.