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Edited Transcript of NYLD.A earnings conference call or presentation 27-Feb-20 1:00pm GMT

Q4 2019 Clearway Energy Inc Earnings Call

Princeton Mar 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Clearway Energy Inc earnings conference call or presentation Thursday, February 27, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Chad S. Plotkin

Clearway Energy, Inc. - Senior VP & CFO

* Christopher S. Sotos

Clearway Energy, Inc. - President, CEO & Director

* Craig Cornelius

Clearway Energy Group LLC - CEO & President

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Conference Call Participants

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* Colin William Rusch

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* David Neil Fishman

Goldman Sachs Group Inc., Research Division - Equity Research Associate

* Julien Patrick Dumoulin-Smith

BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research

* Stephen Calder Byrd

Morgan Stanley, Research Division - MD and Head of North American Research for the Power & Utilities and Clean Energy

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Clearway Energy, Inc. Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Chris Sotos, President and CEO. Thank you, and please go ahead, sir.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [2]

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Thank you. Good morning. Let me first thank everyone for taking the time to join today's call. Joining me this morning is Chad Plotkin, our Chief Financial Officer; as well as Craig Cornelius, President and CEO of Clearway Energy Group. Craig will be available for the Q&A portion of our presentation.

Before we begin, I'd like to quickly note that today's discussion will contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. Please review the safe harbor in today's presentation as well as the risk factors in our SEC filings. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation.

Turning to Page 4. I'm happy to report that despite weak renewable energy conditions in the fourth quarter, Clearway was able to achieve its revised 2019 CAFD guidance with $254 million of CAFD generated. Clearway continues to see the PG&E situation evolving positively with the contracts performing in their normal course and anticipate a resolution in the summer of 2020. As you all know, the PG&E situation has made it more difficult to grow the company, and we look forward to the resolution of the bankruptcy and our renewed ability to move forward. Despite these challenges, Clearway is able to deploy or commit $386 million in corporate capital in 2019 to growth projects as well as raise $700 million of corporate capital to support these investments in our balance sheet.

Due to the continued improvement in the PG&E situation as well the increased CAFD from non-PG&E sources, we took the opportunity to increase the first quarter 2020 dividend by 5% versus the previous quarter to $0.21 per share from $0.20 per share. Clearway views this dividend increase as appropriate relative to the transaction executed in the fourth quarter of 2019, and we anticipate that the dividend will be adjusted to a more normalized level once PG&E emerges from bankruptcy.

To support future dividend growth, following conclusion of the PG&E bankruptcy, Clearway executed on strong growth in 2019 across the platform. As a result of these efforts, based on a 2020 pro forma, Clearway's CAFD per share outlook grew to $1.61.

In the Conventional segment, we closed on the acquisition of Carlsbad in the fourth quarter. We are also pleased to announce that the company has filed with FERC on the black start project at Marsh Landing, which was originally awarded under a procurement in 2017. We continue to advance discussions around the project, which if successful, will provide Marsh Landing additional operational attributes to deliver key reliability needs in the State of California.

The Renewables business also showed strong growth, with Hawaii Solar Phase I achieving commercial operation in 2019, and both Elbow Creek and Wildorado reaching commercial completion under the Repowering 1.0 Partnership within the last 3 months.

The Thermal segment also completed a very successful year, with $30 million invested across projects with long-term contracts and very attractive returns. In addition, Clearway is increasing its 2020 guidance to $310 million from $295 million, primarily due to the Carlsbad acquisition and related capital formation. We are also reiterating our 2020 pro forma CAFD outlook of $320 million. This pro forma outlook excludes any new growth from investments, including the drop-down currently under evaluation, which I will highlight next.

Supporting the company's growth outlook beyond 2020, Clearway Group has offered the company a new portfolio opportunity. This includes the 144 million -- 144-megawatt Rattlesnake Wind farm; our residual interest in Repowering 1.0, which is now partially owned by the company; and a new Repowering Partnership at the 55-megawatt Pinnacle Wind farm in West Virginia. This drop-down portfolio transaction is subject to negotiation and the approval of the company's independent directors. As is consistent with our previous practice, we will update you on the overall economics, subject to reaching definitive agreement, which we expect to complete within the first half of this year.

Turning to Page 5. I want to discuss our continued growth in CAFD per share. As can be seen on the chart, the company's trajectory to support future dividend growth remains strong upon the PG&E situation reaching a conclusion. After taking into account the fourth quarter 2019 financings, the acquisition of Carlsbad and other items in the platform, we're now forecasting pro forma CAFD outlook of $1.61 per share, up from $1.53 per share, or an increase of over 5% prior to any drop-downs or growth in 2020.

In the chart on the right, we want to emphasize that the new drop-down offer under negotiation with Clearway Group would, in addition to providing CAFD growth represent a further diversification outside of California with all assets anticipated to be in operation by the end of 2020. Additionally, with the excess cash currently trapped in PG&E projects serving as equity to fund a portion of the new transactions, we see a pathway to CAFD per share in excess of the $1.61 of pro forma CAFD outlook by the end of 2020.

Now turning it over to Chad. Chad?

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Chad S. Plotkin, Clearway Energy, Inc. - Senior VP & CFO [3]

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Thank you, Chris. Turning to Slide 7. Today, Clearway Energy is reporting fourth quarter adjusted EBITDA of $194 million and $22 million of cash available for distribution or CAFD. These results bring full year reported adjusted EBITDA to $963 million and CAFD to $254 million. As noted on the slide, due to the December closing of the Carlsbad acquisition and the refinancing of the 2024 notes through the issuance of the new 2028 notes, reported CAFD excludes these transactions as the impact during the month is not reflected of the expected long-term CAFD contribution from these deals.

For Carlsbad, this relates to the timing of project-level debt service during the year. For the corporate refinancing, it relates to the accelerated, accrued and paid interest, relative to the redemption of a portion of the 2024 notes in December.

While full year reported financial results were in line with the company's updated $250 million CAFD guidance, the weakness in renewable energy production that was observed in the first half of the year reemerged in the fourth quarter, offsetting the strong results in the third quarter. Though the company did realize the benefit of higher distributions from unconsolidated subsidiaries, the performance in the fourth quarter just cemented an otherwise very difficult year across the Renewable segment.

Despite this challenging business environment, the company still made great strides in progressing its long-term goals during the year. As Chris mentioned, even with the limitations resulting from the PG&E bankruptcy, Clearway was able to commit to, or directly invest in, $386 million of new accretive growth investments. To support this growth, and to execute on our liability management objectives, in December, the company raised $700 million in capital through a $100 million equity offering and through the issuance of $600 million of new corporate debt due in 2028. This debt was used to fund growth and to refinance the $500 million in outstanding 2024 notes, providing both a 4-year maturity extension and interest cost savings as the equivalent coupon moved from 5.375% to 4.75%.

While the company remains committed to its long-term targeted credit rating metrics, given that the company has not received distributions from the projects or investments impacted by the PG&E bankruptcy over the past year, we did feel it was prudent to take action to mitigate any potential temporary constraints that may emerge under the corporate credit agreement in advancing our growth plans. As such, we reached agreement with the lenders in the revolving credit facility, allowing the company to increase the permitted borrower leverage ratio up to 6.0x from 5.5x in the last 2 quarters of 2020. This modification provides the company more cushion and temporary flexibility to continue making growth investments during 2020, while waiting for the PG&E process to reach final resolution, whereby trapped cash from the associated projects can be released to the company.

As noted on the slide, the projects impacted by the PG&E bankruptcy did generate $76 million in CAFD during 2019. Importantly, and with distributions having now been restricted for over 12 months, we currently estimate that as of the end of 2019, approximately $120 million of excess cash is available to be distributed across Clearway's PG&E related projects or unconsolidated investments. The timing of when this cash becomes available is subject to the PG&E bankruptcy process, in terms of the various project financings. Based on our view of the current bankruptcy time line, our expectation is that this cash will be made available to the company in the second half of 2020, providing for additional growth capital.

Additionally, once the projects are free to distribute, the company's credit metrics will normalize, allowing for more flexibility in capital allocation as the pro forma corporate credit ratio, inclusive of the PGE-related projects is more in line with our long-term objectives. Specifically, when using the company's pro forma CAFD outlook relative to current corporate borrowings, the company's leverage ratio was approximately 4.0x or a figure consistent with our rating targets.

Turning to Slide 8 to discuss update to this year's CAFD guidance. During the third quarter 2019 earnings call in November, we initiated 2020 CAFD guidance of $295 million and provided a pro forma outlook CAFD of $320 million. The delta between these 2 figures related to the timing of when the company could execute on Carlsbad, the completion of Repowering 1.0, associated capital formation to fund the transactions and expected budgetary drivers year-over-year in the base portfolio.

With the new 2028 corporate bonds issued, Carlsbad now closed and the Repowering Partnership fully funded temporarily under the corporate revolver, we are pleased to announce an increase to Clearway's full year 2020 CAFD guidance to $310 million from $295 million. This guidance continues to include $99 million in CAFD attributed to the PG&E projects and is based on the company's P50 median renewable energy production expectations. Please refer to the appendix section of the presentation for the underlying sensitivities to this estimate.

Since the budgetary drivers in the base portfolio have not changed, we also continue to forecast an increase of around $10 million in expected CAFD, which will inure to the business after 2020, leading to a continuance of the pro forma $320 million CAFD outlook. This amount does not factor in any additional growth on which Clearway may execute, such as subsequent drop-downs, providing for additional opportunity to increase the company's outlook through the course of 2020 and a pathway to further dividend growth upon conclusion of the PG&E bankruptcy process.

With that, I'll turn the call back to Chris.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [4]

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Turning to Page 10. As we close out 2019 and begin a new decade, I want to highlight Clearway's achievement of our updated CAFD guidance amid difficult renewable conditions during the year and navigating the PG&E situation. While the PG&E situation has constrained Clearway, we've been able to manage through this period while maintaining our credit ratings, continue to invest in growth investments and most importantly, increasing CAFD per share.

Just as importantly, for Clearway's first full year of independence as a public company, we have finalized all transition and integration requirements resulting from the GIP transaction and see ourselves on a clear footing to move forward. As discussed, during 2019, we executed on a wide range of opportunities for growth across the platform, with Conventional, Renewable and Thermal, all contributing to CAFD per share growth going forward.

And looking to 2020, Clearway seeks to deliver on its 2020 financial commitments in terms of CAFD guidance as well as continued execution of growth consistent with our long-term balance sheet objectives. As a key component of growth for 2020 and beyond, we are working with our sponsor to sign binding agreements with their recently offered drop-down of the 2020 COD projects and to continue our thermal development efforts.

Finally, I want to thank our investors for the patience they have demonstrated during the past year. Clearway looks forward to a more normalized dividend level upon resolution of the PG&E bankruptcy at significantly better visibility around the positive outcome than it did at this time last year. Our recently announced dividend increase is a first step towards that normalization.

Thank you. Operator, please open the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Julien Dumoulin-Smith with Bank of America. (Operator Instructions)

And our next question comes from the line of Colin Rusch with Oppenheimer.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [2]

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So in the pipeline of projects that you're looking at, there's a fair amount of storage. And I'm curious if those are stand-alone storage projects, or if those are tied with other systems. And how we should think about that?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [3]

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Craig, if you won't mind, please answer that question.

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Craig Cornelius, Clearway Energy Group LLC - CEO & President [4]

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Sure. Yes, all of the storage projects that you see referenced in the pipeline are solar-coupled storage projects. So we've sought to focus our attention there where we think we've got particular strengths to apply both through qualification of the assets for eligible tax incentives and for deployment and design and operation consistent with what our strengths have been. Those projects have been focused on the western markets, where we see a demonstrable value proposition today that load-serving entities are prepared to commit to pay for over a long term.

So you could think of that storage pipeline as being concentrated in California and Arizona and Hawaii. And as something that we'd look to grow as the deflation of the forward cost profile for storage, both in terms of new build and operation, allows for that to be a resource that is cost viable for load-serving entities to pay for as we go forward over time.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [5]

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Okay, that's incredibly helpful. And then just in terms of the market dynamics around available projects. Certainly, we've seen a certain amount of distress with select developers. Could you guys talk about how competitive the environment is for going after some of those projects? And what you can think about in terms of on lower returns on those projects as you go through the acquisition of those things.

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Craig Cornelius, Clearway Energy Group LLC - CEO & President [6]

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Sure. Chris, would you like me to take that?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [7]

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Yes, please.

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Craig Cornelius, Clearway Energy Group LLC - CEO & President [8]

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Okay. Yes, one of the things that you might have noted in the pipeline disclosures for this quarter was a somewhat meaningful expansion in a few different areas. One is just the growth overall of our advanced and intermediate stage pipeline, which increased more than 20% quarter-over-quarter. And also some changes in geographic mix, where we've secured control over an increasing pipeline of projects outside of California out in the WECC; and lastly, the substantial increase in 2021 COD-eligible wind assets. And if you put that picture together, what you see is that we found smaller developers now looking to bring 80% PTC-eligible wind assets into final stages of development and construction, needing the support of enterprises, like our own, that can post collateral for projects that can finish commercialization of them and finding that in a market where turbine suppliers and customers can make choices based on certainty that a project will be completed, that enterprises like our own have some competitive strengths.

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Operator [9]

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And our next question comes from the line of Stephen Byrd with Morgan Stanley.

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Stephen Calder Byrd, Morgan Stanley, Research Division - MD and Head of North American Research for the Power & Utilities and Clean Energy [10]

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I wanted to first just walk through the production index information for the fourth quarter. And just also sort of touch base on your expectations for 2020. Anything that you saw in the fourth quarter that would require any sort of visions, or sort of what would -- it was a relatively unusual quarter in terms of the index. Of course, this does vary quite a bit, but any commentary around that?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [11]

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Yes. Chad, why don't you go ahead?

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Chad S. Plotkin, Clearway Energy, Inc. - Senior VP & CFO [12]

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Yes, Steve. I think, yes, you'll see the way we look at this, yes, I mean, I think the fourth quarter was surprisingly low, especially out in the west. I think as you recall, on the third quarter call, I think, the same question was asked. And as a reminder, we take all of our historical information on an annual basis and sort of rerun that through our various statistical models and prosecute that through various production curves and the technology we have. And when we looked at that over the historical data sets we had, we -- whatever modification was needed was already factored into our numbers.

I think as I look at the numbers, I'd offer you 2 things: One, as we look at the portfolio over an extended period of time, talking 36 months and even 48 months, what we're seeing in the portfolio is production well within a tight standard deviation around our existing PV -- excuse me, P50s.

The other point, for what it's worth, year-to-date, at least through February of yesterday, we're almost right on top of our expected production levels for the overall portfolio. So I don't think there's anything more acute in the fourth quarter other than 2019 was just a very challenging year.

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Stephen Calder Byrd, Morgan Stanley, Research Division - MD and Head of North American Research for the Power & Utilities and Clean Energy [13]

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That's helpful, Chad. And then just stepping way back, a fairly common investor question these days relates to the value of renewable assets in the private market versus the public yieldco market. And I guess that potentially presents both an opportunity in terms of possibly optimizing the portfolio if there is -- happens to be a private buyer who would pay more value than is reflected in Clearway stock. Though it could also potentially raise a question of, sort of, competitive pressure, or sort of, ability to be the highest bidder for assets.

Just at a high level, as you kind of look broadly at the degree of appetite. There's certainly increased investor interest in renewables overall. How do you just, philosophically, think about that topic?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [14]

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Yes. I think, Stephen, my view is there -- you have to have a very different view looking at an asset versus kind of how a company works. So I think the assets that you're talking about tend to have the longest-dated PPAs, right, kind of where you see, I'm sure, like from a sum-of-the-parts analysis, if someone's going to do that, where the most value is, is the longer-dated PPAs. But also, we need to then keep in mind that if we sold off all those assets, you really walking in the PPA duration for the company as a whole, which exposes all of us to more risk. And once again, you could debate whether it would require deleveraging as well.

The second point is, as you are well familiar, a lot of our assets are renewables, which through 5 year makers have pretty low basis in them as well. So also, you would tend to create a pretty big taxable gain. If you did that on kind of -- let's just say you wanted to sell CVSR as an asset that has a long-dated PPA and a low tax basis, you would basically walk the PPA in overall and then also, you would walk in the NOL.

The third point I would bring up is, given the strong stock performance -- and really, I'm very gratified to say for all the teams' work in our early first full year as an independent company, we probably are trading at the best CAFD yield since I've been in this chair since May of 2016. And so I think the deltas that kind of you look at, if you're looking at more of a market based, what our high bidder is paying, that delta is a heck of a lot different at this point than it has really at any point since 2016.

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Stephen Calder Byrd, Morgan Stanley, Research Division - MD and Head of North American Research for the Power & Utilities and Clean Energy [15]

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All good points. And maybe just one last quick one. Just on the exact timing of the release of cash flows for projects where PG&E is a counterparty, if we do see PG&E exit by the deadline that's been set, could you just talk in a little more detail about mechanically when cash would be released? Or are there any sort of flex points there or sort of uncertainty points, assuming again that PG&E did fully emerge from Chapter 11 by the deadline?

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Chad S. Plotkin, Clearway Energy, Inc. - Senior VP & CFO [16]

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All right, Yes, Stephen, it's Chad. I think the way I would describe it is, it really is -- the simple way to look at it is I'll book end it. Book end one is you just follow the terms of the existing project financings. And you would submit your normal withdrawal certificates, not to get in the weeds, and you would have that release in time. And I think given the fact that many of these projects would release usually in the third quarter, you could see cash starting to come out as early as July.

The other book end, and I'm -- is obviously, you might imagine that we are going to -- as we have been continuously work with our lenders with the hope that maybe there's something we can do earlier than that, but I certainly am not going to commit to any capability of that other than -- we know that if everything happens and they emerge by the end of June, starting to see cash move in July as a probable scenario.

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Operator [17]

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And our next question comes from the line of David Fishman with Goldman Sachs.

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David Neil Fishman, Goldman Sachs Group Inc., Research Division - Equity Research Associate [18]

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Just kind of piggybacking off of that question a little bit. So if you were to receive some of the cash released in July, and that's kind of the right timing of when you would think you might be normalizing your dividend around that. Does it -- should we pretty much think of it as, as you have access to more cash, not that you would use the kind of accrued cash for a special dividend or anything, but just as if raising up your percentage of CAFD, the payout ratio should rise in accordance with -- in accordance with that?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [19]

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Yes, this generalization totally make -- I agree with your statement. I think a lot of it, to Chad's point and the previous question, it really depends on how it's rolled out over that period. But yes, as soon as that cash gets to be released, we will definitely take steps toward more normalization of the dividend to be at run rate levels you saw previously.

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David Neil Fishman, Goldman Sachs Group Inc., Research Division - Equity Research Associate [20]

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Okay. And then changing topics a little bit. I was just wondering, so last quarter, I think you guys mentioned that you were given the opportunity to acquire some or all of Mesquite Star, and you all turned that down. And then this quarter, obviously, we're seeing some more new assets being added to the ROFO and being offered to you guys, Rattlesnake and whatnot. Could you just kind of high-level talk about maybe some of the different differences of what would make some of these assets attractive to Clearway versus maybe Mesquite Star, which you didn't accept previously?

And then also from Clearway Energy Group's perspective, if you guys don't -- if Clearway Energy does not acquire those assets to be a drop-down, what happens to them? Or does GIP effectively look to sell them in a third market? Or do they hold the assets? Or just kind of, structurally, what are they looking for?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [21]

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Sure. Okay. A couple of questions there. Let me know if I, hopefully, cover all of them. First, I want to make sure there's a clarification. I want to make sure we understand it's not that Mesquite Star wasn't attractive. It was that Carlsbad was more attractive. So I think just to kind of go back to that time of the year, we'd just come off a period of fire season. Again, that kind of was a negative in October, and our stock was recovering. So I think we had the tough decision to say, well, do we want to do Mesquite Star or Carlsbad given where Carlsbad was in terms of a longer dated-PPA, diversification away from renewables to provide less volatility around P50 and a high CAFD yield.

Well, we kind of made the decision to issue equity and purchase Carlsbad, but it wasn't because, just for clarity, that we thought Mesquite Star was a bad asset or anything like that or a suboptimal asset. Merely, we had to make a choice, and we made the choice for the more CAFD-accretive asset.

To your second question, what's the difference now is I think a lot of the -- as we also talked about, when some of these assets were added into the ROFO pipeline, is a lot of these have fundings kind of after that June period of 2020, is we're really targeting to work with Clearway Group to say what assets are available within their pipeline that hit CODs for our funding of those projects. They are much more in the back half of 2020, which comports with the question you asked earlier about when cash would be released.

So I think I, hopefully, answered your question.

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David Neil Fishman, Goldman Sachs Group Inc., Research Division - Equity Research Associate [22]

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Okay. So yes, I mean, high level, it's effectively just the timing of the cash release. And for Mesquite Star, it was Carlsbad was the more attractive of the 2. I guess, the last thing I'd just say regarding that is, could Mesquite Star be offered at a later date, theoretically? Or is it just, hey, it was offered in the beginning of the year. There was a decision to be made and now CEG or GIP look to hold that asset themselves or sell to a third party.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [23]

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I mean I'm not going to speculate what GIP would want to do. I think, well, things are always up for negotiation, but yes, we're focused on the drop-downs that we described on this call.

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Operator [24]

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And our last question comes from the line of Julien Dumoulin-Smith with Bank of America.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [25]

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So I want to revisit just quickly, just sort of the high-level observations on, just given where the sector is and what that means for your corporate strategy, right? So as you observed, right, the yields have never been this tight.

What does that mean for your cells? But I also want to rehash this a little bit. What does that mean for your peers and the ability to be awarded assets, both from your sponsor and elsewhere, right, as you're seeing it? And especially, if I can interject another riddle, how does that drive your decision as you gain access once again to the PGE-related assets in terms of raising the dividend versus the attractiveness of pursuing other external assets?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [26]

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Got it. So obviously, as always, Julien, a couple of questions there. Let me know if, hopefully, I cover what you're looking for. As I think from our perspective, as you look at the industry as a whole and our ability -- I think one of your themes of your question was ability to bid on other assets.

I want to be consistent with what I've said since 2016 is as, especially, in terms of third-party M&A opportunities, I think at a 10% CAFD yield, that's really, really tough to do it in the 9s. But given where we trade, kind of 8.5% is where the universe of opportunities open up. And so I think in terms of M&A ability, once kind of we're on the other side of June for size, we're in, once again, in many ways, the best position since May of 2016.

In terms of looking at assets with CEG and drop-downs, I think, once again, the very good trading yield that we're at, I think, is very conducive to being able to drop assets from CEG. One of the earlier questions was around third-party acquisitions in that market. I think as I answered that question, in many ways, the delta between what a "top or more -- most aggressive bidder" might pay and what we can trade at to be accretive is in many ways the tightest it's ever been. So I think, I view that dynamic, overall, as a positive.

To your second question about cash released from PG&E and how that might affect acquisitions. I really don't think that has a significant impact on acquisitions. As we've said consistently since this PG&E situation began, is we would obviously take that cash and not pay out a special dividend. We would use it to basically, at least, partially fund a lot of the assets we just talked about as part of the drop-down we're negotiating.

But I think, once again, we target to normalize that dividend to kind of levels where we were before, once again, after -- once again, assuming they emerge in June kind of over the second half of the year. That answer your question?

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [27]

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Got it. But maybe -- Yes. Let me just hit this slightly differently, right? You talked about that spread being the tightest it's ever been, right? So therefore, does that mean on the margin, that you're biased to do more ROFO and acquisitions rather than necessarily putting the money back into normalizing the dividend level against where it was prior to the situation?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [28]

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That answer is a no. If your question is, would we think to moving the payout ratio to 40%, or something like that, to fund acquisitions. That answer is a no. I think, frankly, like that's counterintuitive because our equity is trading as well it is, right? In one sense because the equity is trading well, our need to maintain cash is probably the least needed it's been since May of 2016. When your equity is trading at a 10% CAFD yield, cash is the best way to acquire. In many ways, you could argue the converse is true to that.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [29]

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Got it. Excellent. And then a related strategic question, if I can. When you think about the backdrop again of where we stand in the industry and having both developers and develop -- and the ability to buy developed assets, and you alluded to this earlier in some of the commentary about some of the advantages that you have in helping developers. How do you think about potentially backwards integrating at this point, too, especially given what are likely tighter returns on buying developed assets altogether? Irrespective of where you trade, the rest of the market has likely gotten tighter there. What about the opportunity to reverse to get more involved upstream, as you kind of alluded to earlier already, given the working capital benefits, counterparty benefits, et cetera? And I know you already have community solar effort relationship already as well. So maybe elaborate on that as part of this answer, too.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [30]

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Yes. I think a lot of those are kind of at the group level. If your question, Julien, is do we, at this time think it makes sense to backwards integrate, reverse integrate kind of CEG into CWEN? That answer is a no. From our perspective, I've always been consistent that the reason that you see yieldcos as a hold trade in a certain way, and I think one reason we're trading where we are is investors like the separation of risk.

We obviously are the long-term holders of long-dated contracts with a long-dated NOL. And once again, I think, they look for the stability of those cash flows. Reverse integrating, whatever, I can't remember the phrase you used, of kind of CEG into CWEN to then combine a development risk profile with what is a income-producing vehicle, for my two cents, doesn't make sense.

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Operator [31]

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And this concludes today's question-and-answer session. I would now like to turn the call back to President and CEO, Chris Sotos for further remarks.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [32]

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Thank you, everyone, for attending and look forward to talking to you next quarter. Appreciate it. Thanks.

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Operator [33]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.