Pattern Energy Sets the Record Straight Regarding Water Island's False Assertions and Mischaracterizations

Water Island falsely posits that the Transaction does not create the most value for Pattern Energy stockholders

√   The Transaction represents a significant premium to multiple valuation benchmarks and is priced at the high end of value metrics:

•   14.8% premium to Pattern Energy's unaffected price on August 9, 2019, the last trading day prior to market rumors.

•  15.1% premium to 30-day VWAP prior to unaffected date.

√  In contrast, Pattern Energy has historically traded at a discount to peers.

√  The Transaction provides full and fair value for the development pipeline and other aspects of management's plan.

√  Absent the Transaction, Pattern Energy stockholders would bear the downside risk associated with the Company's standalone plan.

Water Island asserts that analysts believe the Transaction fails to provide stockholders with full and fair value

√  Water Island grossly mischaracterizes the Morgan Stanley report, which has a base case price target of $26.75 (the Transaction price) and shows a case of "no acquisition, no growth" price target of $14.00. 

•  The Morgan Stanley valuation reflects the equity market's total return expectation. In particular, fundamental investors require a combination of yield + growth of 9% on average¹.

•  To get above the $26.75 Transaction price, Pattern Energy would have to grow at a rate well in excess of the current management plan, requiring raising additional equity and possibly other actions, including potentially cutting the dividend.

•  Morgan Stanley takes the same position as the Company: with no-to-little growth the stock price will go down.

Water Island believes that five years of fundamental headwinds causing Pattern Energy to trade at a discount should be ignored in favor of one month of trading by peers

√  Peer company movement does not simply extrapolate to the Pattern Energy share price.

√  Most current peer market prices reflect unique event-driven situations at those companies that are not relevant to Pattern Energy.

√  Notably, Pattern Energy's peers adopted alternative strategies. For example, TerraForm, 8point3 and Clearway entered into transactions at a discount to their trading share prices.

√  Contrary to Water Island's misstatements, TransAlta Renewables' and Atlantica Yield's share prices are disturbed as well, given that TransAlta Renewables has benefited from merger speculation since March 2019, and Atlantica Yield announced a strategic review in February 2019.

√  Despite the sector seeing some of its highest trading levels in recent history, the market remains volatile and the long-term sustainability of current price levels is uncertain – a dynamic that has clearly played out over the last several days.

√  This volatility stands in stark contrast to the certainty of the all-cash Transaction.

Water Island says that there's no risk to the fundamental issues facing the Company's standalone prospects

√  In downplaying the risks associated with the Company's standalone plan, Water Island is referring to dated commentary, singling out quotes that are a year old to support its claims.

√  The fact is, limited access to low-cost capital needed to grow dividends has created headwinds for the standalone Company and risk for management's plan stemming from the need to raise material amounts of equity.

√  The Company's historical trading discount to peers has and would continue to put Pattern Energy at a relative disadvantage in pursuit of acquisitions required to grow beyond management's plan.

√  The Company has been able to avoid issuing common equity in the recent past by issuing debt and preferred equity instead, but there are limitations to its ability to continue to do so.

√  The Company cannot solely rely on the debt markets, and "[o]ver the last several years, the equity market has consistently valued PEGI shares at levels that made equity issuances either completely unpalatable or barely palatable." (Wells Fargo, February 2020)²

√  Given the Company's limited access to capital needed to pursue the acquisitions and development necessary to sustain its dividend growth, Pattern Energy's standalone plan involves significant risk.

Water Island attacks the Special Committee as not independent and alleges that management was conflicted and influenced the process

√  The Transaction is the result of a Special Committee-led process, and delivers significant, immediate and certain value to all Pattern Energy stockholders.

√  As part of the process, the Special Committee of the Board, which comprises solely independent directors, engaged with the 10 most logical strategic and financial buyers, facilitated diligence with four parties, and evaluated multiple expressions of interest from multiple parties.

√  Once Pattern Energy came to an agreement with CPP Investments, the Company received a fairness opinion prior to signing, and post-signing, conducted additional outreach to 16 parties during the "go-shop" period, which did not result in any offer.

√  This process reinforced that the Transaction is the best option for Pattern Energy and its stockholders. That is why the Special Committee unanimously recommended it to the Board.

Water Island speculates that the Board dismissed a transaction that could have created more value for stockholders

√  Company A never provided a definitive proposal that the Special Committee could act on.

√  The Special Committee went as far as offering to pay Company A's go-forward transaction-related expenses to entice it to advance discussions as part of the process.

√  Despite the Special Committee's extensive efforts, including repeated attempts to engage, Company A chose not to finalize its proposal nor engage during the "go-shop" period, despite outreach by the Special Committee's advisors.

Water Island posits that there is potentially undisclosed information and conflicts surrounding management and Pattern Development, including the valuation attributed to Pattern Development

√  Pattern Energy's and its senior management team's interests in Pattern Development have been fully disclosed.

√  The Special Committee sought and believes it obtained the highest price reasonably available for Pattern Energy.

√  The value attributed to the Company's interest in Pattern Development by the Special Committee's financial advisor is consistent with the value received by Riverstone for its interest in Pattern Development.

√  A transaction involving Pattern Development was not a condition to a transaction with Pattern Energy, including the Transaction or a potential transaction with Company A.

√  Bottom-line, the Transaction is the best option for Pattern Energy stockholders. It represents a significant premium to multiple valuation benchmarks and is priced at the high end of value metrics.

Water Island claims that management had conflicts of interest, given the compensation they receive through the Transaction

√  Certain senior officers of Pattern Energy have economic interests in Pattern Development. That fact has long been disclosed.

•  The Pattern Energy Board was fully aware of these interests and created the Special Committee at the very outset of the process.

•  The ownership and compensation arrangements of these officers in Pattern Development following the closing are disclosed in Pattern Energy's proxy materials filed in connection with the Transaction.

√  Contrary to Water Islands' claim, neither the Pattern Energy nor Pattern Development management teams had any power to block a transaction by Pattern Energy.

√  As it relates to the Transaction, the Special Committee, with its financial and legal advisors – not management – led the negotiation with CPP Investments for the terms of the merger agreement.

√  The Special Committee prohibited management discussions with CPP Investments and Riverstone about post-closing compensation until after terms of the merger agreement had been agreed upon.

Water Island alleges that management used consent rights as a poison pill to steer the process toward CPP Investments

√  Pattern Development did not block any bids for Pattern Energy pursuant to any consent right.

√  The transaction that was being discussed with Company A did not require the consent of Pattern Development, Riverstone or Pattern Energy management.

√  Management had no consent rights over any transaction involving Pattern Energy or Pattern Development.

Water Island accuses Pattern Energy of removing language regarding the consent rights from its 10-K

√  The Pattern Development 2.0 Limited Partnership Agreement is publicly disclosed.

√  The agreement was filed with the SEC in June 2017 when it was entered into and it has been an exhibit to each of the Company's Annual Reports on Form 10-K filed since that time.

√  As a result, the terms of the arrangements with Pattern Development 2.0 are publicly available to everyone.

Water Island falsely contends that PSP is an insider and should not be permitted to vote

√  Water Island is trying to disenfranchise other stockholders who are fully entitled to vote.

√  There are no legal or other restrictions preventing PSP from voting on the Transaction.

√  PSP's contracts with the Company are purely commercial and arm's length and were entered into more than two years ago.

Water Island falsely asserts that Caledon is an insider and should not be permitted to vote

√  Caledon is an independent third party. Like any other stockholder of record, it is entitled to vote on the Transaction.

√  The preferred financing transaction with Caledon was pursued by Pattern Energy, consistent with its standalone business plan (irrespective of any potential strategic transaction) and was negotiated with Caledon at arms'-length.

Water Island attempts to undermine the fairness opinion valuation by alleging it excluded some companies in the peer set and did not include all projections

√  The peer set included relevant companies that the Special Committee's independent financial advisor deemed appropriate in its professional judgment.

√  Specific companies mentioned by Water Island in its letter were excluded from the list of selected relevant companies for the following reasons:

•  Algonquin Power & Utilities: Algonquin primarily operates regulated utilities which are unlike Pattern Energy's wind and solar facilities. Based on 2018 financials, approximately 88% of operating income and approximately 64% of total assets are attributable to the regulated utilities business.

•  Boralex: As of the third quarter of fiscal 2019, approximately 48% of Boralex's assets are in France, where Pattern Energy has no operations.

•  Hannon Armstrong Sustainable Infrastructure Capital: Hannon Armstrong's business is different from Pattern Energy. Hannon Armstrong focuses on behind the meter solutions (e.g. energy efficiency, distributed solar and storage comprises 78% of its pipeline as of December 31, 2019) rather than on utility-scale wind or solar. It invests in minority investments in different parts of the capital structure rather than pure equity investments. As of December 31, 2019, Hannon Armstrong has 180 different investments averaging $11 million each.

√  All key projections attributable to Pattern Energy stockholders were included in the valuation.

•  The Special Committee's financial advisor believes the full value is captured in its valuation, as described in the proxy, via traditional corporate finance analyses as described in the proxy.  

•  The Special Committee's financial advisor did not create any projections. These were all from Pattern Energy.

•  All key projections through 2023 are disclosed in the proxy.

•  All key projections were produced by Pattern Energy and all were accounted for in the valuation conducted by the Special Committee's financial advisor.

√   The details and critical assumptions of the Special Committee's financial advisor's valuation methodology are explained in the proxy.