Clearway Energy Inc (CWEN) 2016 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the NRG Yield Incorporated third-quarter 2016 earnings conference call. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Kevin Cole, head of Investor Relations. Mr. Cole, you may begin.

Thank you Andrea. Good morning and welcome to NRG Yield's third-quarter 2016 earnings call. This morning's call is being broadcasted live over the phone and via webcast which can be found on our website at www.NRGYield.com under Presentations and Webcasts.

As this is an earnings call for NRG Yield, any statements made on this call that may pertain to NRG Energy will be provided from the NRG Yield perspective.

Please note that today's discussion may contain forward-looking statements which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. We urge everybody to review the Safe Harbor in today's presentation that will list the risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events except as required by law.

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 press release and presentation.

And now, with that, I'll turn the call over to Chris Sotos, NRG Yield's President and Chief Executive Officer.

Thank you Kevin. Good morning everyone. Joining me and also providing remarks this morning are Kirk Andrews, NRG Yield's current Chief Financial Officer, and Chad Plotkin, NRG Yield's incoming Chief Financial Officer.

First of all, I would like to express how pleased I am that Chad is joining me as the second employee of NYLD. Over the past few months, we have indicated that we may be making changes to enhance governance through building out a dedicated management team, and this is another step in that process. Chad and I have worked together for many years in a variety of roles and he has been working on NRG Yield related financial measures since January of this year, so I'm confident that the transition between him and Kirk will be smooth.

Given Kirk's invaluable work and leadership for NRG Yield since its inception, while he will be leaving as Chief Financial Officer of NYLD, I am pleased he will remain on the Board to help NYLD continue to grow.

Now, turning to Slide 4 with the business update, NRG Yield had a strong third quarter that demonstrates the benefits of a well diversified platform. Today, we are announcing third-quarter 2016 results of $246 million of adjusted EBITDA and $140 million of cash available for distribution, or CAFD, as well as updating full-year 2016 adjusted EBITDA and CAFD guidance, both which now take into account the full-year impact of the CVSR transaction.

Later in the presentation, Kirk will provide detail on NYLD's results as well as the update to 2016 guidance, and a Chad will review our 2017 guidance and outlook with respect to CAFD.

Additionally, I am pleased to say we are increasing our quarterly dividend to $0.25 a share, delivering on our targeted year-over-year dividend per share growth of 15% on an annualized basis.

Over the past few months, we have also continued to find attractive funding opportunities while minimizing the need for NYLD equity through the issuance of a $350 million 10-year corporate bond in August, as well as today's announcement of the issuance of $125 million 15-year nonrecourse project finance financing at our Thermal platform, both at very attractive rates. While factoring in the additional proceeds discussed last quarter from the CVSR financing, these closings now provide us $215 million in immediately deployable cash for investment. As Chad will discuss later, we expected the benefit of deploying this cash has not been factored into our 2017 financial guidance because we have not deployed it as of yet.

Next, and something I will describe in more detail later in the presentation, we have signed a definitive agreement with NRG to expand our thermal Pittsburgh platform via a recently awarded long-term steam and chilled water supply agreement to provide services to the University of Pittsburgh Medical Center. We also continue to invest in our distributed generation partnership with NRG with $156 million invested to date, representing approximately 95 megawatts.

Finally, we continue to expect growth from NRG through the acquisition of the SunEdison pipeline, which will be Yield eligible when constructed.

Now, turning to Page 5, I'd like to highlight a few key financial transactions which enabled NYLD to raise capital on a very cost efficient basis and, importantly, minimize the need to issue equity to fund growth. First and as discussed on the second-quarter call, consistent with our practice of optimizing nonrecourse budget financing first, we have raised $125 million in the nonrecourse project finance market by levering the Thermal platform as a whole.

Thermal has two tranches of legacy debt that roll off in 2017 which helped create the opportunity for us to add additional debt at the platform. This new financing is at an interest rate of 3.55%, matures in 15 years. And its repayment structure is not linked to any individual asset but rather designed to match the Thermal platform cash flows as a whole. The dead begins amortizing in nine years with a small amount to be refinanced in 2031 to be placed to less than one times of today's adjusted EBITDA at Thermal.

In addition, as disclosed in August, NYLD issued a $350 million 5% unsecured bond, about $280 million of which was used to repay our revolving credit facility, leaving $70 million available for growth investments. With these financings, our credit facility is now completely undrawn except for $64 million of letters of credit, and we continue to have flexibility with respect to the timing of when we access the ATM with nothing issued to date.

Turning to Page 6, I'm excited to announce we have entered into an agreement in which NRG will develop and construct a new thermal project in Pittsburgh after NYLD's Thermal segment was awarded a 20-year energy services agreement contract with UPMC Mercy, an investment-grade offtaker, for services at the University of Pittsburgh Medical center. This project does not represent NYLD stepping into the development business. To the contrary, NYLD entered into a fully wrapped turnkey development and EPC contract with NRG that represents a fixed price commensurate with the contract revenues which ensures NYLD's return profile is independent from the final project costs as NRG develops and constructs the project. This facility will require no capital from NYLD until nearest COD, thereby reducing any negative carry CAFD implications while it is being constructed. We expect this project to benefit from a $70 million financing with the same lender that underwrote the previously mentioned $125 million financing. We expect to lock in interest rates when the required regulatory approvals for the project are granted, which we expect in late 2016 or late 2017.

Turning to Page 7, in 2018, when this project hits COD, we expect it will produce approximately $7 million of annual CAFD with an overall purchase price of $79 million, thereby leading to a 9% unlevered deal, unlevered cash deal. However, after taking into account the application of the nonrecourse debt described on Page 6, we expect the CAFD addition for NYLD shareholders to be approximately $3.5 million on average for the first five years based upon today's interest rate environment.

It is important to note that the approximately $70 million of nonrecourse debt we expect to raise in coordination with this transaction is able to be placed only because of the robust nature of NYLD's Thermal platform as a whole. It's not based solely on the specific characteristics of the new UPMC facility. With a corresponding expected deployment of $9 million of NYLD capital, this represents a significantly higher levered CAFD yield and produces approximately 1.5% CAFD per share accretion for a very limited amount of NYLD shareholder capital.

Turning to Page 8, I'd like to highlight NYLD's capital available for growth in the near-term. In terms of overall investable cash, we currently have approximately $215 million of readily deployable funds on our balance sheet with through the excess proceeds from the bond we issued earlier this year, the $20 million of excess proceeds from the CVSR financing disclosed last quarter, as well as the recently announced $125 million Thermal financing. When combined with the $65 million in excess cash we expect to generate in 2017, this gives NYLD approximately $280 million in cash through 2017 to deploy in growth opportunities without needing to access the equity markets, including the ATM, which to date has not been utilized. NYLD sees significant opportunities to deploy this capital over the next six to nine months through our strategic relationship with NRG. This relationship gives us the line of sight on several investment opportunities that are part of the current ROFO pipeline to deploy this cash on an accretive basis. In addition, NRG's potential dropdown of the SunEdison assets can create further avenues for growth in 2017 and beyond.

It's important to note that the financing costs associated with the source of capital listed on the top left side of the page have been incorporated into our 2017 financial guidance, but the associated expected growth from the opportunities listed on the right has not been included in our guidance at this time, as Chad will discuss shortly.

I would now like to turn the call over to Kirk to discuss quarterly results and update current year guidance. Kirk?

Thank you Chris. Good morning everyone.

Before I begin with the financial summary, as this will be my last earnings call as NRG Yield's Chief Financial Officer, I want to say it's been a privilege serving as CFO since NRG Yield's IPO in 2013. Having worked closely with both Chris and Chad over a number of years, it gives me great confidence has both a shareholder and a board member of NRG Yield that this company is poised to continue to succeed and grow under an outstanding and dedicated senior management team.

That said and before I pass it to Chad to review 2017 guidance, I'll review quarterly results and 2016 updated guidance on Slide 10. Our third-quarter and year-to-date results as well as updated 2016 guidance all now reflect the impact of the acquisition of the remaining 51% stake in CVSR, which closed in September, and now include network upgrades which I will discuss shortly.

As with other job downs from NRG, NRG Yield's financial results are adjusted to reflect 100% of CVSR for all periods presented as required for a transfer of assets under common control under GAAP.

As summarized on the left side of the slide, for the third quarter, NRG Yield reported adjusted EBITDA of $246 million and cash available for distribution, or CAFD, of $140 million.

During the quarter, NRG Yield's renewable segment performed strongly as wind conditions were significantly above our expectations with the portfolio weighted production up 14% while Thermal segment outperformance further benefited financial results. These positive drivers were partially offset by the impact of two unrelated outages at the Walnut Creek gas facility.

In July, Walnut Creek Unit 2 experienced a 12-day outage due to a circuit breaker failure and, in August, Unit 4 had a 16-day outage due to damage at a low-pressure compressor. Both of these issues have been addressed and the units returned to service prior to quarter end. Notwithstanding the impact of these outages, as a testament to the strength of our diversified portfolio, the thermal and renewable outperformance for the quarter places us ahead of our expectations for 2016 and partially contributes to the increase in 2016 guidance, which I'll review momentarily.

Importantly, we're also pleased to announce another increase in our quarterly dividend to $0.25 per share, or $1 per share annualized, in the fourth quarter of 2016.

Moving to the right side of this slide, we are revising our full-year 2016 financial guidance to $885 million of adjusted EBITDA and $290 million of cash available for distribution, in both cases representing an increase of approximately 9%.

In addition to the impact of the CVSR transaction I mentioned earlier, and as shown on the lower right of this slide, the remaining components of this increase in our 2016 guidance are as follows. First is the impact of the year-to-date investments in our DG partnerships with NRG, which we are now incorporated -- incorporating rather, given the cumulative EBITDA and CAFD impact of partnership investment during 2017 is now material. Over the last 12 months, NRG Yield has invested approximately $90 million in capital toward these partnerships, bringing the total capital invested since inception to $156 million.

The next component is the strong outperformance year-to-date across the platform which exceeded our expectations by $20 million of adjusted EBITDA and $12 million of CAFD. These impacts only reflect actual performance year-to-date and our updated guidance assumes normal operations in median renewable energy production over the balance of this year.

Next is the impact of cash interest from our revolving credit facility. Given the temporary nature of this capital, which is ultimately intended to be replaced with permanent debt or equity, it has been our practice, as indicated in the footnotes of our prior earnings materials, to exclude revolver interest from guidance. However, as our revolving credit facility was fully repaid this past quarter using the proceeds of our senior notes issuance representing permanent debt capital, we are now including the impact of interest paid under the revolver in our revised guidance.

Due to timing of interest payments under our new senior unsecured notes, however, there will be no cash interest from the new permanent debt paid in 2016. However, the full impact of annual cash interest from these notes will be included in our 2017 CAFD guidance, which Chad will review shortly.

The final impact, which is now reflected in actual and prior-period results, represents a minor change in the definition of cash available for distribution which better aligns NRG Yield with the broader industry practice. Specifically, we are now including the CAFD impact of network upgrades at our various utility scale projects other than CVSR, which is already included in the first item on the table.

As many of you may know, during utility scale project power development, there are often instances under which interconnection -- under interconnection agreements whereby project developers make reimbursable improvements to a utilities transmission infrastructure. These reimbursements typically are refunded over several years by the utility offtaker after the project reaches completion. For NRG Yield, when a project is acquired, the cash flows from these reimbursements are considered in the overall project economics and provide cash flows available to shareholders. However, as cash flows from network upgrades were not material to NRG Yield as a whole, we originally elected not to include them in reported CAFD for consolidated projects.

In the case of unconsolidated projects, because our definition of CAFD includes all cash distributions from equity method investments, we captured network upgrades reimbursements in these distributions from unconsolidated projects. With the acquisition and now full consolidation of CVSR, we will now include these cash flows in CAFD on a go-forward basis. Overall, full-year results reflect approximately $16 million of CAFD from these network upgrades, of which $6 million relates to consolidated projects that were not previously included in guidance.

For your reference, we've provided a summary table in the appendix to provide the year-by-year impact of these network upgrades reimbursements as well as other lesser-known cash flow drivers.

And with that, I'm very pleased to turn over the remainder of the financial presentation as well as the title of CFO over to Chad. Congratulations, Chad.

Thank you, Kirk.

Turning to Slide 11, today, we are initiating 2017 financial guidance of $865 million for adjusted EBITDA and $255 million for cash available for distribution which is based on our median expectations for renewable energy production and, as Chris mentioned, does not factor in the deployment of the excess cash, which I will discuss momentarily. Additionally, we are reaffirming our commitment to grow the dividend 15% year-over-year with a target of $1.15 per share annualized by the fourth quarter of 2017.

Moving to the right side of the slide, we provide a high-level bridge from our revised 2016 guidance Kirk just addressed to 2017 guidance, which now incorporates the full-year impact from the recently executed transactions. For adjusted EBITDA, since we guide based on our median expectations, we just for the $20 million in strong performance across the portfolio experienced year-to-date, bringing guidance to $865 million.

Moving to cash available for distribution, we also reduced our expectation for 2017 by $12 million resulting from the same year-to-date business outperformance in 2016.

Next, after taking into account the $7 million in interest costs incurred in 2016 from the revolving credit facility that Kirk just referenced, we now deduct an additional $11 million to account for the full-year annual cash interest impact of roughly $18 million from the August issuance of the $350 million corporate level senior unsecured notes.

Now let me address CVSR. Per the prior slide, the pro forma impact of the CVSR acquisition in 2016 on cash available for distribution is $10 million. However, as discussed in the last quarterly call, the net annual impact of the CVSR acquisition commencing in 2017 is $5 million of expected incremental CAFD, which takes into account the full-year debt service associated with the nonrecourse financing used in the acquisition. As such, we adjust out the $10 million in 2016, which is largely before any of the new debt service.

Last, we include $5 million of debt service costs associated with the new $125 million nonrecourse financing at our Thermal platform as well as other net changes across the overall business, bringing cash available for distribution guidance to $255 million.

Finally, and as I just reviewed, while our 2017 guidance reflects the full impact of debt service associated with the new financings, we have not yet included the impact of any cash available for distribution arising from the deployment of the immediately available cash that resulted from these financings, which Chris mentioned is approximately $215 million. This cash, when combined with the $65 million in excess cash we anticipate generating through 2017 from the existing portfolio, leads to $280 million of investable cash during 2017.

As shown in the lower right of the slide, in order to illustrate the potential impact of investing this cash, we assume a 10% CAFD yield on investment, which implies $28 million in incremental CAFD, or nearly $285 million in pro forma annual CAFD, on a fully deployed basis. Importantly, because this capital comes from no further equity issuance, the result of deploying this cash is immediate CAFD per share accretion.

Lastly, I just want to say how excited I am to have the opportunity to continue working with Chris and I look forward to maintaining a dialogue with all of our investors as we continue developing and growing the NRG Yield platform.

And with that, I'll turn it back to Chris for closing remarks.

Thank you Chad.

To close, I'd like to bring you back to our scorecard of 2016 priorities. First, we continue to deliver on our financial commitments with strong results and a 50% dividend per share growth year-over-year.

Second, on the strategic side, we continue to strengthen the relationship with NRG through the drop-down of CVSR, ongoing investments in the business renewables partnership, and projects like UPMC, which make the most of NRG and NRG Yield's relative strengths.

Third, we demonstrate our financial flexibility through the issuance of a $350 million corporate bond and additional Thermal financings at a low cost of capital, resulting in $215 million of immediately available capital to deploy without the issuance of equity.

Fourth, we have continued to enhance our dedicated management structure with the addition of Chad as CFO.

Lastly, we also continue to engage potential strategic partners that will complement our relationship with NRG and contribute to NYLD's growth options in the future. I am pleased that we have had constructive dialogues that have moved beyond preliminary discussions to term sheets, so I would target having a binding agreement by the end of the first quarter of 2017.

Operator, we are ready to open the lines for questions.

(Operator Instructions). Michael Lapides, Goldman Sachs.

Just a real quick question. Your parent company obviously announced the various SunEdison transactions. I'm just curious about kind of how you guys might be thinking about the drop-down schedule and kind of the additions of that into the ROFO portfolio pipeline.

Thanks Michael. I think, from our perspective, those obviously are a key growth component going forward. I think, per Mauricio's comments, we would expect them to be made part of the ROFO pipeline. Obviously, there are some assets that are nearer-term available for drop in terms of either late 2016 or 2017, and I think the rest of them would basically be as they are developed.

So, I think, to answer your question, we've anticipated have them being made part of the ROFO pipeline and then also that basically those would be dropped some in 2017 and beyond as well as they are developed.

I had one other question on the dividend and dividend growth. Do you see potential upside to the dividend growth range that you've given out? And if so, what would be the drivers?

Frankly, the answer is no. I would probably prefer to have a lower payout ratio than increase the dividend by a little bit, especially this -- kind of due to this outperformance on wind. So, the simple answer to your question is I wouldn't anticipate increasing dividend growth guidance. I would use the excess cash that we had outperformance to basically reinvest in the business in the form of a lower payout ratio.

Got it. Thanks Chris. Much appreciated.

Abe Azar, Deutsche Bank.

Good morning and congratulations, Chad. My question is when you think longer-term about your dividend growth strategy beyond 2018, how do you think about the growth there and how important are additional strategic avenues, additional strategic partners, to that?

Sure, and thanks Abe. I think, from my perspective, it's I want to see where the year-end results roll in. We'll probably give more guidance on that as part of the February call more formally.

But I think, to answer your question, at least in a general sense, is that I think additional partners are pretty important to that. I think it's good for any yield, frankly, to have a broad base of partnerships from which can draw, so it has more avenues for growth. So I wouldn't say it's just to us. I would say anybody benefits from that.

In terms of the need for our -- to have those type of relationships, it's obviously a lot less, given NRG's acquisition of the SunEdison assets than before. Obviously, that's a pretty significant pipeline from their and our perspective. So I think that the need for a partner is less than obviously prior to that but, however, important in any case.

Thank you.

Matt Tucker, KeyBanc Capital.

This is Grier Buchanan on for Matt. I just wanted to ask about the SunEdison assets. Sorry if I missed this, but do you expect to formally offer those over the next 12 months to NYLD, or do you expect those to be all (multiple speakers)

Sure. Once again, probably a better question for NRG, but I would think they would offer those sometime in 2017, but probably a better question for NRG.

Okay. And then as we think about the 2017 guidance, a lot of moving parts, but I just wanted to get a little color from your end on what we should compare that to on a year-over-year basis. We started this year at $265 million. $12 million of CAFD outperformance brings that up a bit to close to $280 million. And optically, it looks like you are guiding to lower cash flow year-over-year next year. So just was hoping you could frame that up a little bit for us. Thanks.

Sure. I'll give kind of a general sense and then Chad can kind of fill in any specifics. The easiest way, the common control, frankly, is accounting and kind of storage that makes, to your point, the math a little bit more complex than it needs to be. The real linear way that I think about it is looking at the $255 million of CAFD guidance we have for 2017 currently. As I stated, there's about $215 million of unemployed capital. That capital came from CVSR, the bond, and the thermal financing that we talked about. The weighted average interest rate of those three facilities is probably 4%, 4.25%, somewhere around there, plus some debt service of amortization. That probably represents $9 million to $10 million of negative drain in terms of a lag of those assets being deployed. So, that $255 million, you can kind of find $9 million to $10 million of drag pretty readily just looking at that. Obviously, given what we discussed, we anticipate deploying that capital in excess of the interest costs. That did use that math, but that's the real simple way I would think about it, to remove some of the accounting vagaries and outperformance of this year.

Chad, anything to add?

Yes, I think the only thing I would add is just in reference to the strong business outperformance. I think we would love to say we were that smart to be able to say wind is going to blow as exceptionally strong as it did this year, but I think, from a matter of practice, as I mentioned in my comments, we're going to guide on our median expectations, knowing that there's going to be deviations with respect to how renewable energy gets produced. And so, from that perspective, we are happy to have the outperformance this year and it helps bring in additional funds that we can invest into the business.

I appreciate the color guys. And Chad, by the way, congratulations on your promotion.

I notice, on the financings, that there are a few bullet payments, or at least one of them entails a bullet payment. So this is a little bit of a longer-term question. I just want to get a sense for how you think about repayment. Would it be -- would you anticipate that you'd escrow money or just refinance to repay the bullet amount? Thanks.

Sure. My view is that basically it will refinance. Once again, that's why I mentioned as part of my prepared comments that it represents less than a one times debt to EBITDA in that year. So I think, from our perspective, we would intend to refinance them. I think there is pretty low finance risk there.

I think the Thermal platform is different than an individual asset that has a defined PPA. That represents a variety of assets, some in Pittsburgh, some in Arizona, etc. So it's a little bit more of a company that has refinancing risk along that realm versus a project with a defined PPA.

Got it. Okay. Thanks gentlemen. I'll jump back in the queue.

Antoine Armand, UBS.

Good morning and congrats on the strong quarter. I just want to -- I was curious to hear if you guys were seeing any repowering opportunities with Identity?

With who? I beg your pardon?

If you guys were seeing any repowering opportunities.

Got it. Not really significant within our portfolio. Most of our wind assets have pretty long dated PPA, so I wouldn't want to necessarily take the machines off-line, which would obviously it be a little bit dilutive to CAFD in the near-term to kind of engage in that repowering. So I think we have a pretty long duration weighted average PPA profile for those assets. So in general, we don't see a lot of opportunity there. We'd rather just keep them up and running and generate that CAFD in the current period.

Got it. Okay. Thank you very much.

Colin Rusch, Oppenheimer.

I just have a couple of quick housekeeping questions. Can you just remind us what the minimum cash is required on the balance sheet for the existing debt portfolio, and then what you think the minimum is required to maintain your credit rating where it's at right now?

Sure. The minimum cash balance we typically use is about $10 million, $20 million to kind of -- and once again, with our completely undrawn revolver, obviously we have that behind it, so that's an important distinction as well, but about $10 million or $20 million.

In terms of what cash balance is needed to maintain our credit ratings, in credit ratings, you don't really focus on a cash balance in working through that. I think they probably do take some comfort that our revolver is undrawn versus drawn. But other than that, the rating agencies at least have tended not to focus on a cash balance as part of their analysis.

Perfect. And then just one other one. On the underwriting criteria for the wind portfolio, are you kind of averaging out around P50 or P70? And how should we expect to think about upside on a go-forward basis for those assets?

Sure. Once again, I'll give a general review and then Chad can fill in details (inaudible). Really in this year, we outperformed what we refer to as the P50 case. So, from our perspective, given really in the third quarter -- if you recall, in the first quarter we outperformed. The second quarter, we underperformed. The third quarter, we outperformed substantially.

And so basically what's occurred in 2016 is that you have -- I think we refer to it more as not mathematically precise here -- but greater than a P50 case. So what we're doing in our guidance for 2017 is, frankly, recalibrating it to the P50 case because, obviously, we don't anticipate that to happen each and every year.

(multiple speakers)

Okay, perfect. Thanks a lot guys.

Praful Mehta, Citigroup.

Congratulations Chad. So the first question, on the growth side, clearly you need access to equity at some point in the market. You are bridging through that at this point. How would you look at the access to the equity markets? At what point do you see that market open up?

And secondly, from a strategic investor perspective, do you see private capital as a way to partner to fund the growth if you don't get access to the public equity market?

Thanks Praful. I'll probably answer your second question first in a way -- is I think, as long as there is good investments, the availability of private capital will be there. So I definitely see that as an alternative if the equity markets kind of don't come back as a means for us to grow.

To your first question in terms of how we look at equity, I think, as I have described on other calls, really while the equity price is obviously an important determinant, what's also important is what we are investing. And I think what you've seen is NYLD be able to find pockets of investment that obviously are well in excess of the CAFD yield of our NYLD stock. And so I think, from our perspective, there are acquisitions out there or drops from NRG debt can work given our stock price. Accretion would not be as high as if our stock price was higher. But I think, in terms of opportunities or how we look at equity, we think that our CAFD yield, which is probably around 9% to 9.4% depending on how you choose to calculate it, is higher than we'd like it to be, obviously, but still constructive in terms of looking at drop-downs. Chad, anything to add?

I think you covered it, Chris. I think, obviously, with where -- given some of the vol we've seen in the stock, it does create a little bit -- right now it's a little bit more challenging.

But the one thing I'd say is, also coming back to the ATM over time, that is an area where we clearly don't need to use it now but the flexibility of the product gives us a little bit more opportunity to think about it when we have opportunities when the stock looks more favorable and we can match that with a use of proceeds where we can drive accretion.

Got you. Thank you. And then secondly, holding company's leverage, is there a certain level of holding company debt versus project debt that you guys are thinking about going forward as a sustainable level?

As indicated on previous calls, Praful, we've kind of looked much more at targeted ratings. Obviously, you know as well as I that having a certain debt to EBITDA ratio in a 5% interest rate environment is different than in a 8% or 10% interest rate environment. So, from our perspective, we really try to work with the rating agencies to look at not only a debt to EBITDA calc but also what's our weighted average CAFD profile, what's our NOL profile, a wide variety of factors. And basically they have us rated at BB, BA2, which is kind of our target in the BB rating and both stable.

Got you. Thank you guys.

Matt Wyatt, Avondale Partners.

Could you just talk about the role of thermal assets in the portfolio over time and kind of how you think about the benefits that those bring versus the renewable assets?

Sure. I think, right now, they are relatively a small part of our overall CAFD profile, but I think they represent a little bit of a differentiating factor versus if we only had the ability to reinvest in renewables. So, thermal assets are really based much more upon the cities in which they operate. It's really if the city kind of exists and works well, there is significant friction cost for a new entrant to enter into creating chilled water and steam basically for those buildings in that city.

So for us, what the UPMC transaction indicates is our ability to kind of leverage our existing infrastructure in Pittsburgh to kind of basically grow into a pretty significant, additional part of the portfolio. How that intersects with the renewables, I don't think one necessarily harms the other. I think, in fact, they are quite complementary. Typically, a Thermal asset will produce some taxable income where renewable assets obviously basically have a lot of tax deductions as part of their math. So, from our perspective, they are complementary on the tax side in a way.

Excellent. Thanks for the question, guys, and great quarter.

I'm not showing any further questions in queue at this time. I would now like to turn the call back over to Chris Sotos for any closing remarks.

Thank you Andrea. Once again, thanks, everybody, for attending the third quarter 2016 NYLD call and look forward to talking to you in February. Appreciate your time.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.