Kevin Cole – Head-Investor Relations Chris Sotos – President and Chief Executive Officer Chad Plotkin – Chief Financial Officer.

Angieszka Storozynski – Macquarie Jonathan Arnold – Deutsche Bank.

Good day, ladies and gentlemen, and welcome to the NRG Yield Inc.’s Second Quarter 2018 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Kevin Cole, Head of Investor Relations. Please go ahead..

Thank you, Kat. Good morning, and welcome to NRG Yield's Second Quarter 2018 Earnings Call. This morning's call is being broadcast live over the phone and via webcast, which can be located on our website at www.nrgyield.com under Presentations & Webcasts.

As this is the earnings call for NRG Yield, any statement made on this call that may pertain to NRG Energy will be provided from NRG Yield's 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 everyone to review the safe harbor into today's presentation as well as 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 presentation and this press release. With that, I'll now turn the call over to Chris Sotos, NRG Yield's President and Chief Executive Officer..

Thank you, Kevin. Also presenting today and available for questions is Chad Plotkin, NRG Yield's Chief Financial Officer. Let's begin by turning to Page 3. Chad will provide more details on his section, but I'm pleased to announce that NYLD had a strong second quarter with robust renewable resources and solid execution of our business objectives.

NYLD earned $303 million in EBITDA and $97 million of CAFD in the second quarter. Due to these results we are on track with our expectations of 2018 guidance of $950 million of adjusted EBITDA and $280 million of CAFD.

NYLD does intend to provide a comprehensive business and financial update upon the closing of the GIP transaction we take into account our current business performance and any changes resulting from the closing of the transaction.

As part of our ongoing commitment in providing shareholders with a predictable and growing dividend, NYLD's board has authorized a quarterly dividend increase to $0.32 a share in the third quarter, maintaining our 15% year-over-year DPS growth trajectory for 2018.

During the quarter, we also took advantage of market conditions by raising $61 million accretive equity financing for NYLD’s committed growth investments via our ATM program.

With $38 million of capacity remaining under the current program, we will continue to utilize the ATM subject to market conditions as a financing vehicle to support permanent capital formation on the platform.

In addition, and which I will provide more detail on the next slide, consistent with our capital philosophy of first optimizing nonrecourse financing, NYLD was able to refinance the thermal debt complex in two areas. First, NYLD extended maturities and amortization schedules to create a $7 million annual improvement to CAFD on a five-year average.

Second, we raised $40 million in additional capital by adding our Omaha thermal asset to the nonrecourse collateral package. In summary, this financing enabled a low-cost nonrecourse capital raise and extension of our amortization profile and improvement of CAFD for the benefit of NYLD shareholders.

As we focus on the closing of the transaction with GIP, NYLD continues to execute on previously announced CAFD per share accretive acquisitions and investments, this specifically includes the 154-megawatt Buckthorn Solar asset that benefits from 25-year PPA, which achieved commercial operations on July 1, 2018.

And the University of the Pittsburgh Medical Center or UPMC that benefits from a 20-year energy services agreement, which achieved commercial operations on June 18. These two transactions are expected to collectively deliver approximately $8 million of incremental CAFD annually over the next five years.

Our alignment with NRG Renew, which is also part of the GIP transaction, remained strong and active as we invested another $10 million in our distributed solar partnerships this quarter and received an offer from NRG's renewable business on 80 megawatts of utility skill solar projects in Hawaii.

Finally, I'm pleased to say that GIP transaction remains on track and our current views of the transaction is targeted for closing in the third quarter. All of our regulatory approvals have been received. And we've obtained the majority of our required consents.

Importantly, in the course of procuring these consents we have not encountered any material impact that would affect the cash flow generation of NYLD going forward to date. Turning to Page 4, to provide more color on the thermal segment nonrecourse financing. This multifaceted refinancing involved a couple of steps.

First, we raised $80 million to fund the UPMC acquisition represented by the E and F series in the chart to the right, thereby only requiring a net of $8 million NYLD corporate capital to acquire the facility.

Next, we contributed the Omaha thermal system to the collateral package to raise $40 million of additional funds that can be used for other corporate growth opportunities as indicated by Series H.

As part of the refinancing, we also extended the amortization schedule due to the strong product quality of thermal, thereby improving CAFD by approximately $7 million per year on a five-year average basis. Finally, excess of additional $40 million shelf facility from the lender for thermal investment subject to market conditions at the time.

With that, I'll turn it over to Chad..

Thank you, Chris. Turning to Slide 6, and beginning on the left side of the page. Second quarter financial performance was favorable relative to expectations resulting in adjusted EBITDA of $303 million and cash available for distribution or CAFD of $97 million.

During the quarter, strong wind conditions at the renewable segment provided an offset to the weak results experienced in the first quarter bringing the wind portfolio back to near P50 median production levels for the first half of the year.

Additional positive drivers in the quarter included higher CAFD of approximately $7 million at the thermal segment, due to the nonrecourse refinancing executed in June. And incremental insurance proceeds received from last year's outage at the Walnut Creek generation facility.

With these results, NRG Yield now has realized $492 million in adjusted EBITDA and $93 million in CAFD during the first half of 2018, putting us on target to achieve full year expectations.

During the quarter, NRG Yield also successfully advanced its capital formation objectives by raising $101 million through both the thermal nonrecourse refinancing and ongoing utilization of the aftermarket or ATM equity program.

In the second quarter, NRG Yield issued $61 million in new equity capital at a volume weighted average price of $17.63 per share for a cost of equity financing that provides significant accretion with currently committed growth investments.

Last, NRG Yield is pleased to announce its next quarterly dividend increase to $0.32 per share payable on September 18, to shareholders of record on September 4.

As presented on the right side of Slide 6, NRG Yield is maintaining guidance of $950 million in adjusted EBITDA and $280 million in CAFD, which continue to be based on P50 median renewable energy production for the full year.

Typically, our practice is to provide an update to full year expectations accounting for any financial benefits resulting from projects having achieved COD or following the deployment of growth capital.

As noted on the slide, guidance continues to exclude the full year impact of the thermal refinancing and already executed growth investments such as UPMC, Buckthorn Solar and the investments made in the distributed generation partnerships.

Because the GIP transaction is now targeted to close in the third quarter, we have elected to defer an update until after closing, so we can provide a more fulsome picture of our expected outlook after capturing all variables, including those resulting directly from the GIP transaction.

Now let's turn to Slide 7 with an update on capital allocation and corporate liquidity. As disclosed on the first quarter earnings call and consistent with what you can see on the left side of the slide, excluding any new investments that would arise during the year such as the Hawaii solar drop down offer, which is now under review.

NRG Yield has a total of $464 million of identified accretive growth capital commitments in 2018. With the UPMC projects having reached substantial completion and with continued investment in the distributed generation partnerships, NRG Yield has now deployed a total of $77 million year-to-date leaving $387 million upon which we intend to execute.

Also on the slide, we show the $345 million in convertible notes due 2019. We wanted to call this out for several reasons. First, independent of any impact or acceleration in maturity that may result in the closing of the GIP transaction, these notes mature in February 2019, and are now current on the balance sheet.

Second, we wanted to ensure all material investments or corporate level financings on the horizon are identified as this informs overall capital planning for the balance of the year. And with that, we can now look at the right side of the slide with the focus on capital sources.

With the previously discussed $101 million in new permanent capital raised in the second quarter, the company has approximately $50 million in excess cash to invest across the platform.

This is net of the funds used to retire cash borrowings under the corporate revolver, which currently has nearly $430 million of availability to temporarily fund capital requirements in the business.

When the availability under the revolver is added to both the remaining capacity under the existing ATM registration and the commitment GIP has provided to finance Carlsbad, if capital markets are not constructive.

NRG Yield has roughly $880 million of currently available capital sources or an amount that is nearly $150 million in excess of both the remaining identified committed growth investments, and the 2019 convertible notes.

This, of course, excluded any new capital formation that NRG Yield would undertake to permanently finance new growth or refinance corporate level debt. Importantly, we will continue to pursue these activities, while adhering to our balance sheet principles and ensuring ongoing accretion to support long-term growth for our shareholders.

And with that, I'll turn the call back over to Chris for his closing remarks..

Thank you, Chad. Turning to Slide 9. In closing, we continue to execute under our 2018 score card. We are maintaining our 2018 financial guidance as well as our targeted dividend increase by at least 15% per share on an annualized basis for 2018.

NYLD is focused on closing the transaction with GIP, and now use the third quarter of 2018 as the targeted closing time frame. Consistent with our objectives indicated in February, when the transaction was announced, NYLD continues to focus on minimizing run rate CAFD dilution in our counterparty negotiations.

As indicated previously, when the closing occurs, we intend with our partners at GIP to provide an updated guidance in 2018, additional visibility regarding the development of pipeline owned by GIP and update with respect to our long-term growth plan targets.

Between signing and closing, NYLD has continued to execute by closing the acquisitions of Buckthorn Solar, Tulare and the University of Pittsburgh Medical Center. In total, we have deployed $61 million of capital for these acquisitions with $9 million of annual CAFD generation for a five-year average basis.

We have an additional $38 million of planned capital deployment in our distributed generation partnership since 2018, with $16 million invested through the end of the second quarter. Importantly, we also plan to close on our $365 million acquisition of Carlsbad in the fourth quarter after the closing of the GIP transaction.

Finally, we continue our flexible capital approach to the previously announced refinancing of our $495 million revolver, a low-cost refinancing of the thermal platform debt, and through the issuance of $77 million of equity year-to-date through our ATM program. Operator, please open the line for questions..

Thank you. [Operator Instructions] Our first question comes from the line of Angieszka Storozynski with Macquarie..

Thank you. Okay. So my main question is about the capital allocation and the available financing.

So given where you stand currently, would you actually even expect to use the back stop facility for the acquisition of Carlsbad?.

To answer your question directly, no. If the capital markets are conducive, we don't expect that..

What do you mean, like, if you can issue additional equity between now and then.

I thought that if you look at the cash available currently and the revolver, you wouldn't actually need any additional corporation from financial markets to be able to finance this deal?.

To be able to close, that's correct. I think, Angie, on what Chad kind of expound on it, we're always consistently want to finance long-term assets with long-term sources of the capital. As you all know our revolver is relatively short term. So to your question, could we close with the revolver? The answer would be, yes.

But over on a longer-term basis, we don't want to fund an acquisition with a 20-year PPA with a short-term revolver.

Chad?.

Yes, I think, that was the point, Angie. And I think we talked about this consistently. It's about what sources we have today versus that which we want to place on a permanent basis. And I think the intent of what the slides' trying to represent is we have adequate resources today that handle our needs, inclusive of the near-term maturities.

But for obvious reasons, we always want to think about how to permanently place that in the future, which is what is intended by sort of new capital formation and that's something that we evaluate on an ongoing and regular basis across the platform..

Okay. Secondly, so overnight, we saw some news about potential sale or the sale of the GE assets.

Can you comment at all?.

Frankly, they're not our assets. So other than what you see in the press, we don't have further color on that. They're not our assets..

Okay.

So this is none of the assets that are either on the ROFO list? Or are that the ones that you already own?.

Correct..

Okay. And then going back to Carlsbad.

Is this a plan delayed? Because I see now the fourth quarter, I thought that this would be more like an end of summer type of transaction or when NRG would be actually offering this asset?.

Sure, in general, no. Once again, the NRG can probably give you a better update regarding the construction schedule. But in terms of the timing that we always anticipated, we anticipate the fourth quarter and that's remained consistent..

Okay. And lastly, on the approval, I mean, we obviously heard what NRG had to say.

Is there anything of color that you can add? For instance, I mean, what are the contents that we're missing? Are these related to PPAs? Are these related to project level debts? And how far away are we from actually getting the final one-ish?.

Sure. I'm not really going to give specifics around the demographics on the consent because, obviously, we're still in negotiations with those parties. But I think, Angie, from at least my perspective there is a reason that we're saying targeting third quarter, and I think Mauricio has commented as well.

So we both think that we're pretty close to the end here. But I think once again, until it's done, it's not done. So we're trying to target the third quarter..

Okay. Thank you..

Thank you..

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

Good morning. This is actually Claire, subbing in for Julian here..

Good morning..

Hey Claire..

Congratulations on the dividend update. So just wanted to actually change the subject over the California. Obviously, there is a lot going on in the state.

The first is with a lot of concern on reliability and the long-term eligibility of gas assets; just wanted your thoughts on the RA contract perform process? And any comps for the CPU you see in CAISO was made on that?.

Sure.

Chad, why don't you?.

Yes, Claire, I think as far as like most recent comments, I haven't heard anything incremental other than there continues to be the ongoing discussion about extending the existing procurement for RA. I think as we talked about it, the reform being contemplated.

I think there was some conjecture that it could happen as early as 2019, but it might be 2020. But I think where our focus would be is to the extent any reform would be implemented is, where do that sit in the 20s, as these contracts get closer to maturity.

But I think from what we've seen and what's been passed and what's been proposed, any type of procurement that would extend contracted RA from say one to three years and three to five years would obviously be favorable relative to the maintenance of the existing cash profile of those assets..

Got it, that makes sense. And just probably with power prices, there has been very strong performance in the past few weeks.

Do you perceive that this will continue? How do you think about longer-term pricing?.

Sure. To be fair trying to deal, in general, the vast majority of our assets are contracted. We frankly – I don't pay a lot of attention to near-term power prices. I think the discussion you just had with Chad, we'll focus a little bit more on kind of longer-term.

So I'd say a lot of that near-term pricing, frankly, because we have next to no merchant megawatts currently, we don't focus on a lot..

That makes sense. Okay. And then my second question is broadly, the California regulated utility environment is seeing a little bit of controversy related to the wildfires.

How do you see continued – just environment related to renewables contract there?.

Well, I mean, I think it may be different. I mean I think from a California perspective, I don't think we've seen any abatement with regards to the focus on renewables and the market. I think, on the wildfire thing, I think that's a little bit of a different animal.

I think, as you know, there is an ongoing process at legislature with a number of proposals that have been put in place after the Governor put in place this conference committee. So I think you guys kind of know as much as we know right now on that, that's an ongoing process. I think we – so we'll sort of leave it at that..

That’s fair. Okay, well thank you..

Thank you. And our next question comes from the line of Jonathan Arnold with the Deutsche Bank..

Hey good morning guys..

Good morning..

Just on the consents. When you say you have the majority.

Is that the majority by just number of processes you have to work through? Or is it by EBITDA or some other metric?.

It's by absolute number..

Okay.

And then the ones that you don't have, I mean, obviously, without – you obviously don't want to talk about which ones they are, but are the ones where there are kind of more complex issues? Or is it all – it's just time needed to kind of process the large number of this?.

Sure. I mean, if the question is difficulty level of the remaining consents that differs than a lot of the other ones that we've obtained, the answer is no. A lot of that is as we've talked about the entire time, Jonathan, that's sometimes it's a little bit sequential, these consents.

Where in order to get the consent from a lender, for example, we need to make certain that the PPA and all O&M and those type of contracts haven't moved. So you can provide a comprehensive tactics to the lender to make their decision around the consent.

So I feel the difficulty level is equivalent amongst all the consents we've gotten and a lot of it is just sequencing..

Okay, great.

And then, could you remind us on the NRG ROFO assets after the transaction close, what the status of those is? And your relationship with it? I just could use a reminder on that – on ongoing relationship?.

Yes, sure. So I think some of this is on Page 11 of the slide deck, where we just sort of have an update. So where some of the moving pieces would be, so I think as it relates to NRG after we close – it was – it sort of goes away and say for what – I'd say for Aqua Caliente. There's the exit.

So Aqua Caliente would effectively stay as an existing ROFO asset between NRG and the reason when that's been at migrate over was simply by the tax recapture, that's obviously maybe ITC tax recapture.

But as far as the other moving variables, there's two additional assets that are going to be added to the ROFO, and then Ivanpah would be removed from the ROFO..

Okay, great. Thanks for point that slide out as well..

Yes..

And then just on the sort of question of capital formation, do you guys have an assessment you can give us a sort of, what you think the appetite might be for block equity at this point and what sort of time frame you might be willing to explore it?.

Yes. I think, what I'd say is – the sort of how we would finance any of these transactions is generally pretty consistent with regards to the level of corporate debt we have used and equity. I think as you tell, we've looked at the ATM program. We've had some success on the ATM program. And I think we would look at that on a programmatic basis.

As far as like when we want to do something else, Jonathan, I think that's – I think the simple way we look at it is, we will always assess what the market conditions there and the appropriate way to do things under the long-term.

And depending on the facilities we have in place, we'll obviously take advantage of temporary sources that we have so that we're able to manage things over the long run as well..

[Operator Instructions] And our next question is a follow-up from the line of Angieszka Storozynski with Macquarie..

Thank you. So back to California. So I understand that there are changes in the RA market, which well hopefully will actually take second and will be constructive. Now how do you see as recent today, what happens comes 2023 to that portion of your cash flow.

So I mean, I understand that the debt is amortizing, but even after the debt amortization, there is – those assets do contribute positive cash to your total cash fee.

So do you hope that basically a portion of that CAFD can get replenished through those RA contracts? Do you hope that by 2023, you will have largely grown your total CAFD to basically make those cash flows under the gas leads in California less of a focus? Just talk us through this risk..

Sure, I think, frankly, both of the postulates which you raised make a lot of sense. So I think from our perspective, we do look to some of the constructive developments that have occurred in the RA market as a guide to saying, listen, we'll reach 2023 actually, 2023, we'll be able to kind of extend those contracts under the RA.

But I think, especially, because you mentioned those assets are basically unlevered kind of at that point in time, so the degree of which EBITDA can drop and we can kind of keep the CAFD level we have is pretty significant. And then secondly, I think also to the point how we hope to be a larger company at that point in time.

So, therefore, kind of this risk is diluted within the overall book as well, if things don't turn out positively..

Okay. But just saying that there was [indiscernible] here. We have California has this accelerating CCA issue. It seems like utilities are less and less willing to sign or resign any contracts maybe because they seem to be serving less and less load, at least from the commodity perspectives.

I mean, CCA seem to be signing contracts on these renewable projects.

So I'm just basically struggling to understand who would be signing those RA contracts going forward?.

Yes, I mean, Angie, I just, as I understood with some other reforms that were put out there, they've also talked about, sort of almost creating like a centralized pool, where RA would be – it's almost like more of a centralized market. To maybe handle some of the points you've raised.

I mean, I think at the end of the day, the reliability on the grid doesn't change whether or not load is being served by the IRE or the CCA. So to your point is more about how things could actually monetize.

So I think we've – at least from everything we've seen, it's not as though some of the points you raised is a surprise and it's not something that hasn't been raised in front of the CPUC and it's something that's going to be assessed over the next few years..

Okay.

And somewhat unrelated, do you guys have any of your assets that would be either qualifying for repowering? Or I mean potential expansion of site – on the same operating site?.

And we look at that from time to time. So I think there are other assets that might be eligible most certainly. I think we continually assess that on an ongoing basis. But I think frankly, once the transaction closes with GIP, I think, kind of both our team and the GIP team will be looking to be a part of it and those types of opportunities..

Okay. And can you give us a sense from the points – from the moment when you close to when you actually give us an update.

How long of a period is that? Are we talking a week? Are we talking more like a quarter update?.

Sure. Not a third quarter update without getting too precise on a day count file within two weeks of closing plus, minus..

Awesome, thank you. That’s all I need. Thanks..

Great..

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to Chris Sotos, CEO, for any closing remarks..

We have nothing further, but thank you all for your time, and look forward to our discussion board on closing. So thank you..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect..