Capital Power Corporation (“Capital Power” or the “Company”) (TSX:
CPX) announced today that it has entered into two separate
definitive agreements with CSG Investments, Inc., a subsidiary of
Beal Financial Corporation, to acquire:
- 100% of the equity interests in CXA
La Paloma, LLC (“La Paloma”), which owns the 1,062 MW La Paloma
natural gas-fired generation facility in Kern County, California
(the “La Paloma Acquisition”); and
- under a newly formed 50/50
partnership between Capital Power Investments, LLC and an affiliate
of a fund managed by BlackRock's Diversified Infrastructure
business (“BlackRock”), 100% of the equity interests in New
Harquahala Generation Company, LLC (“Harquahala”), which owns the
1,092 MW Harquahala natural gas-fired generation facility in
Maricopa County, Arizona (the “Harquahala Acquisition” and together
with the La Paloma Acquisition, the “Acquisitions”).
Under the newly established 50/50 partnership,
Capital Power and BlackRock will each be responsible for funding
50% of the cash consideration for the Harquahala Acquisition.
Capital Power will be responsible for the operations and
maintenance and asset management for which it will receive an
annual management fee.
The net purchase price of the Acquisitions
attributable to Capital Power is expected to be US$1.1 billion
(~$1.5 billion), subject to working capital and other
customary closing adjustments. The Acquisitions are each expected
to close in the first quarter of 2024, subject to the receipt of
regulatory approvals and the satisfaction of other customary
closing conditions.
Following the closing of the Acquisitions and
accounting for Capital Power’s previously announced acquisition of
the Frederickson 1 Generating Station, the Company’s flexible and
reliable gas-fired generation fleet is expected to be the 5th
largest in North America4 and have a balanced geographic footprint
across Canada and the U.S. on a net operating capacity basis. The
Acquisitions are consistent with Capital Power’s strategy to
acquire contracted gas-fired generation assets that are
strategically positioned within their markets and create additional
growth opportunities for both the Company’s gas-fired and renewable
generation businesses. Capital Power will leverage its deep
knowledge and experience in plant operations to commercially
optimize these assets and help drive long-term value as part of its
broader fleet.
The Acquisitions reflect an attractive entry
valuation of 4.8x 2024E Adjusted EBITDA5, below the historical
average of transactions Capital Power has announced in the same
asset class. The Acquisitions are expected to generate average
annual Adjusted EBITDA of approximately $265 million5 for the
2024-2028 period and are estimated to be, on average, 8%5 accretive
to AFFO per share over the same period, based on expected permanent
financing.
“Capital Power's acquisition of La Paloma and
the partnership in Harquahala’s gas generation assets marks a
significant milestone in our strategic growth,” said Avik Dey,
President and Chief Executive Officer of Capital Power. “These
plants are well positioned to bolster our current portfolio and
align with our commitment to providing reliable, affordable power
solutions that support a balanced approach to the energy
transition. This acquisition further unlocks an interesting market
opportunity in WECC, where we can play a leading role in supporting
the shift to low-carbon energy solutions through offering reliable
generation while we grow our own renewables fleet. Lastly, this
transaction underscores our dedication to delivering long-term
value to our shareholders and advancing our position as a leader in
the power generation sector.”
“We are pleased with how this strategic
investment fully aligns with our financial objectives. The
acquisition of La Paloma and the partnership in Harquahala offer an
attractive entry point in the WECC market, are immediately
accretive and maintains our investment grade credit ratings and
balance sheet strength.” said Sandra Haskins, SVP Finance and Chief
Financial Officer of Capital Power.
“We are excited to partner with Capital Power
for the acquisition of Harquahala, an efficient natural gas-fired
power plant, which benefits from a contract for 100 percent of the
plant’s capacity through 2031 with an investment grade utility,”
said Mark Florian, Head of BlackRock’s Diversified Infrastructure
Group. “This acquisition is consistent with our strategy of
partnering with high-quality operators to acquire and manage
contracted critical infrastructure that is essential to meet the
growing demand for efficient, affordable and reliable energy.”
“AIMCo is pleased to participate in this private
placement, which provides our clients with a compelling opportunity
to invest in a high-quality company that is pursuing robust growth,
diversification, and decarbonization strategies,” said David Tiley,
Managing Director, Public Equities at AIMCo.
Net proceeds from Capital Power’s concurrent
$400 million subscription receipt offering, as further outlined
below, is expected to fully address the planned discrete equity
funding for the Acquisitions. The remaining funding requirements
are expected to be addressed via senior and hybrid debt financing
at the corporate level, subject to market conditions. Capital
Power’s contemplated funding plan preserves its strong balance
sheet and financial flexibility.
Subscription Receipt
Offering
The Company has entered into an agreement with a
syndicate of underwriters (the “Underwriters”) led by
TD Securities Inc. and
National Bank Financial Inc. to issue 8,231,000
subscription receipts (the “Subscription Receipts”), on a bought
deal basis, at an issue price of $36.45 per Subscription Receipt
(the “Offering Price”), for total gross proceeds of approximately
$300 million (the “Public Offering”). The Company has granted the
Underwriters an over-allotment option to purchase, in whole or
part, up to an additional 1,234,650 Subscription Receipts at the
Offering Price to cover over-allotments, if any, exercisable at any
time and from time to time until the date that is 30 days following
the closing of the Offering. If the over-allotment option is
exercised in full, gross proceeds from the Public Offering will be
approximately $345 million.
Additionally, the Company will issue, at the
Offering Price, 2,745,000 subscription receipts to AIMCo on a
private placement basis (the “Private Placement”), for gross
proceeds of approximately $100 million. The subscription receipts
sold pursuant to the Private Placement and the underlying Common
Shares (defined below) will be subject to a statutory hold period
of 4 months from the closing date of the Private Placement.
TD Securities Inc. is acting as sole agent and sole
bookrunner on the Private Placement.
Each Subscription Receipt will entitle the
holder thereof to receive, without payment of additional
consideration or further action, upon the first to close of the
Acquisitions, one common share of Capital Power (a “Common
Share”).
In addition, while the Subscription Receipts
remain outstanding, holders will be entitled to receive cash
payments (“Dividend Equivalent Payments”) per Subscription Receipt
equal to dividends declared by Capital Power on each Common Share.
Such Dividend Equivalent Payments will have the same record date as
the related Common Share dividend and will be paid to holders of
Subscription Receipts concurrently with the payment date of each
such dividend. The Dividend Equivalent Payments will be made
regardless of whether or not the Acquisitions are completed. If
both of the Acquisitions are not completed prior to April 30, 2024,
or in certain other events, then the subscription price for the
Subscription Receipts will be returned to holders of Subscription
Receipts, together with any (i) unpaid Dividend Equivalent Payments
or (ii) if no Dividend Equivalent Payment is payable prior to such
occurrence, any pro-rata interest on such funds and such holder’s
pro-rata share of the interest that would have been earned on the
initial Underwriters’ fee payment as if such payment had been held
in escrow as part of the escrowed funds and not paid to the
Underwriters.
The gross proceeds of the Public Offering and
the Private Placement, less the portion of the Underwriters' fee
that is payable on closing of the Public Offering and the
applicable commitment fee with respect to the Private Placement,
will be held in escrow and, after payment of applicable fees and
expenses upon the first to close of the Acquisitions, are intended
to be used by Capital Power to fund a portion of the purchase price
for the Acquisitions. In the event that only one of the
Acquisitions is completed, the balance of the proceeds from the
Public Offering and Private Placement may be used by the Company to
repay, redeem or refinance existing indebtedness, including
indebtedness under the Company’s credit facilities, or for general
corporate purposes.
The Public Offering will be offered in all
provinces and territories of Canada by way of a prospectus
supplement dated November 22, 2023 to Capital Power’s base shelf
prospectus dated June 10, 2022. Completion of the Public Offering
and Private Placement are subject to certain conditions including
receipt of all necessary approvals, including the approval of the
Toronto Stock Exchange. The closings of the Public Offering and
Private Placement are anticipated to occur on or about November 28,
2023. The closing of the Private Placement is conditional on the
concurrent closing of the Public Offering and closing of the Public
Offering is conditional on the concurrent closing of the Private
Placement.
The above is a summary of the Public Offering.
For further information, please refer to the term sheet filed on
Capital Power’s SEDAR+ profile (www.sedarplus.ca) and the
prospectus supplement qualifying the offering of Subscription
Receipts, which will be filed on SEDAR+.
This announcement does not constitute an offer
of securities for sale in the United States, nor may any securities
referred to herein be offered or sold in the United States absent
registration or an exemption from registration under the U.S.
Securities Act of 1933, as amended (the U.S. Securities Act), and
the rules and regulations thereunder. The securities referred to
herein have not and will not be registered under the U.S.
Securities Act or any state securities law, and except pursuant to
exemptions from registration requirements of the U.S. Securities
Act or any state securities laws, there is no intention to register
any of the securities in the United States or to conduct a public
offering of securities in the United States. Such securities may be
offered in the United States only to “qualified institutional
buyers” (as defined in and in reliance on Rule 144A under the U.S.
Securities Act).
Update on Timing of 2024 Guidance
Release
Capital Power intends to announce its 2024
guidance in January 2024 and guidance for adjusted EBITDA, AFFO and
capital expenditures will be presented on a pro forma basis to
reflect the Acquisitions, the recent acquisition of Frederickson 1
Generating Station and organic growth investments. Additionally,
Capital Power will host its Investor Day in Edmonton, Alberta on
May 7 and 8, 2024. Further details about the La
Paloma and Harquahala assets will be shared at the Investor Day
event.
Teleconference Call
Analysts, investors and members of the media are
invited to take part in a webcast on
Monday, November 20, 2023 at 2:45 PM Mountain
time (4:45 PM Toronto/Montreal/New York). The webcast can be
accessed at: https://edge.media-server.com/mmc/p/tmu9s82k
Advisors
TD Securities Inc. and
J.P. Morgan are acting as financial advisors and
Winston & Strawn LLP and
Simpson Thacher & Bartlett LLP are acting
as legal advisors to Capital Power and BlackRock with respect
to the Acquisitions. PEI Global Partners LLC is acting as sole
financial advisor and White & Case LLP is acting
as legal advisor to CSG Investments, Inc.
Facilities Overview
|
La Paloma |
Harquahala |
Nameplate Capacity: |
1,062 MW |
1,092 MW |
Location: |
Kern County, California |
Maricopa County, Arizona |
Commercial Operation Date: |
2003 |
2004 |
Commercial Arrangement: |
Resource adequacy contracts through 2029 with multiple investment
grade utilities and load serving entities |
100% contracted tolling agreement through 2031 with an investment
grade utility |
Equipment: |
4 Alston GT24B CTs4 Alstom/CE HRSGs4 Alstom VAX STs |
3 Siemens 501G CTS3 Nooter/Erikson HRSGs3 Siemens STs |
Availability6: |
93.7% |
98.8% |
Natural Gas Source: |
Mojave Pipeline Company LLC |
El Paso Natural Gas Company LLC |
Interconnection: |
PG&E |
SRP; existing unutilized interconnection capacity includes 1,100 MW
at the Hassayampa substation |
Site: |
443 acres total with 412 acres available for development |
640 acres total with 496 acres available for development |
All references to dollar amounts contained
herein are to Canadian dollars unless otherwise indicated. Where
applicable, converted between USD and CAD at the prevailing spot
rate of 1.3722 as at close on November 17, 2023.
Non-GAAP Financial Measures and
RatiosThe Company uses (i) earnings before net finance
expense, income tax expense, depreciation and amortization,
impairments, foreign exchange gains or losses, finance expense and
depreciation expense from its joint venture interests, gains or
losses on disposals and unrealized changes in fair value of
commodity derivatives and emission credits (Adjusted EBITDA) and
(ii) AFFO as financial performance measures.
The Company also uses AFFO per share as a
performance measure. This measure is a non-GAAP ratio determined by
applying AFFO to the weighted average number of common shares used
in the calculation of basic and diluted earnings per share.
These terms are not defined financial measures
according to GAAP and do not have standardized meanings prescribed
by GAAP and, therefore, are unlikely to be comparable to similar
measures used by other enterprises. These measures should not be
considered alternatives to net income, net cash flows from
operating activities or other measures of financial performance
calculated in accordance with GAAP. Rather, these measures are
provided to complement GAAP measures in the analysis of the
Company’s results of operations from management’s perspective.
See Non-GAAP measures and ratios in the
Company’s third quarter management’s discussion and analysis for
the three and nine months ended September 30, 2023, and the
Company’s 2022 Integrated Annual Report, which are available under
the Company’s profile on SEDAR+ at www.sedarplus.ca and on the
Company’s website at www.capitalpower.com, for further discussion
of these metrics and reconciliations of Adjusted EBITDA and AFFO to
net income and net cash flows from operating activities,
respectively.
A reconciliation of net cash flows from
operating activities to AFFO resulting from the Acquisitions is as
follows:
(unaudited, $ millions)7 |
2024E |
|
Increase in net cash flows from operating activities
resulting from the Acquisitions |
$130 |
|
Add items included in calculation of net cash flows from operating
activities: |
|
Interest paid |
57 |
|
Income taxes paid |
37 |
|
Distributions received from joint venture |
(26 |
) |
|
198 |
|
Net finance expense |
(58 |
) |
Current income tax expense |
(37 |
) |
Changes in non-cash operating working capital |
15 |
|
Sustaining capital expenditures |
(22 |
) |
AFFO from joint venture |
35 |
|
Increase in AFFO resulting from the
Acquisitions |
$131 |
|
A reconciliation of Adjusted EBITDA to net
income resulting from the Acquisitions is as follows:
(unaudited, $ millions)7 |
2024E |
|
Increase in adjusted EBITDA resulting from the
Acquisitions 8,9 |
$285 |
|
Depreciation and amortization 9,10 |
(87 |
) |
Net finance expense 9 |
(74 |
) |
Income tax expense 9 |
(34 |
) |
Increase in net income resulting from the
Acquisitions |
$90 |
|
Forward-looking
InformationCertain information in this news release is
forward-looking within the meaning of Canadian securities law as it
relates to anticipated financial and operating performance, events
or strategies. The forward-looking information or statements are
provided to inform the Company’s shareholders and potential
investors about management’s assessment of Capital Power’s future
plans and operations. This information may not be appropriate for
other purposes. The forward-looking information in this press
release is generally identified by words such as will, anticipate,
believe, plan, intend, target, and expect or similar words that
suggest future outcomes.
Material forward-looking information in this
press release includes: (i) expectations regarding the Acquisitions
and the characteristics, value drivers, anticipated benefits
(including expected Adjusted EBITDA contribution, AFFO, AFFO per
share accretion and positioning for potential re-contracting),
operational impacts (including to the Company's net gas-fired
operating capacity and geographic diversification) and credit
impacts thereof, on a standalone and pro forma basis; (ii)
expectations regarding future growth and emerging opportunities in,
and characteristics of, relevant markets; (iii) expectations
regarding the Company’s partnership and commercial arrangements
with BlackRock with respect to Harquahala; (iv) expectation
regarding the Company’s financing plans, transaction closing time,
receipt of required regulatory approvals, and future development
opportunities with respect to the Acquisitions; (v) expectations
regarding the Company’s sources of funding, adequacy and
availability of committed bank facilities and future borrowings;
(vi) plans to add renewables generation to the Company’s fleet;
(vii) expectations regarding the Company’s future cash requirements
including dividends and distributions, (viii) expectations
regarding the Public Offering and the Concurrent Private Placement
and the timing of the closings thereof; (ix) expectations regarding
the use of proceeds of the Public Offering and the Concurrent
Private Placement; (x) expectations regarding the exercise of the
Underwriters' over-allotment option; (xi) receipt of all regulatory
approvals for the Public Offering and the Concurrent Private
Placement; (xii) the characteristics of the subscription receipts;
and (xiii) updated timing of the Company’s 2024 earnings guidance
release.
These statements are based on certain
assumptions and analyses made by the Company in light of its
experience and perception of historical trends, current conditions,
expected future developments, and other factors it believes are
appropriate, including its review of the Acquisitions and
re-contracting opportunities. The material factors and assumptions
used to develop these forward-looking statements relate to: (i)
electricity and other energy prices, (ii) anticipated performance
of La Paloma and Harquahala, (iii) re-contracting opportunities,
(iv) status of and impact of policy, legislation and regulations,
(v) effective tax rates, (vi) anticipated facility performance,
(vii) financing assumptions, including indebtedness and anticipated
interest rates, and (viii) anticipated sustaining capital
expenditures at the facilities.
Whether actual results, performance or
achievements will conform to the Company's expectations and
predictions are subject to a number of known and unknown risks and
uncertainties which could cause actual results and experience to
differ materially from the Company's expectations. Such material
risks and uncertainties are: (i) changes in electricity, natural
gas and carbon prices in markets in which Capital Power operates
and the use of derivatives; (ii) regulatory and political
environments including changes to environmental, climate, financial
reporting, market structure and tax legislation; (iii) disruptions,
or price volatility within our supply chains; (iv) generation
facility availability, wind capacity factor and performance
including maintenance expenditures; (v) ability to fund current and
future capital and working capital needs; (vi) acquisitions
(including the Acquisitions) and developments including timing and
costs of regulatory approvals and construction; (vii) changes in
the availability of fuel; (viii) ability to realize the anticipated
benefits of acquisitions (including the Acquisitions); (ix)
limitations inherent in the Company's review of acquired assets;
(x) changes in general economic and competitive conditions,
including inflation; (xi) changes in the performance and cost of
technologies and the development of new technologies, new energy
efficient products, services and programs; and (xii) the risks and
uncertainties discussed under the heading Risks and Risk Management
in the Company’s 2022 Integrated Annual Report.
Readers are cautioned not to place undue
reliance on any such forward-looking statements, which speak only
as of the specified approval date. The Company does not undertake
or accept any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements to reflect
any change in the Company’s expectations or any change in events,
conditions or circumstances on which any such statement is based,
except as required by law.
Territorial Acknowledgement
In the spirit of reconciliation, Capital Power
respectfully acknowledges that we operate within the ancestral
homelands, traditional and treaty territories of the Indigenous
Peoples of Turtle Island, or North America. Capital Power’s head
office is located within the traditional and contemporary home of
many Indigenous Peoples of the Treaty 6 Territory and Métis Nation
of Alberta Region 4. We acknowledge the diverse Indigenous
communities that are located in these areas and whose presence
continues to enrich the community.
About Capital Power
Capital Power is a growth-oriented power
producer committed to net zero by 2045. Our balanced approach to
the energy transition prioritizes reliable, affordable and
decarbonized power that communities across North America can depend
on.
Capital Power owns approximately 7,500 megawatts
(MW) of power generation capacity at 29 facilities across North
America. Projects in advanced development include approximately 213
MW of renewable generation capacity in Alberta and North Carolina,
512 MW of incremental natural gas combined cycle capacity from the
repowering of Genesee 1 and 2 in Alberta, and approximately 350 MW
of natural gas and battery energy storage systems in Ontario.
For more information, please
contact:
Investor and Media
Relations: Katherine
Perron(780)
392-5335 kperron@capitalpower.com
&investor@capitalpower.com |
__________________________________1 Western Electricity
Coordinating Council.2 See Non-GAAP Financial Measures and Ratios.3
Based on net unregulated capacity utilizing S&P Global Market
Intelligence database of gas-fired generation operators (November
2023) and referenced against publicly disclosed sources where
available. Capital Power’s status as the 5th largest operator of
flexible and reliable gas-fired generation in North America
includes its previously announced acquisition of the Frederickson 1
Generating Station.4 Based on net unregulated capacity utilizing
S&P Global Market Intelligence database of gas-fired generation
operators (November 2023) and referenced against publicly disclosed
sources where available. Capital Power’s status as the 5th largest
operator of flexible and reliable gas-fired generation in North
America includes its previously announced acquisition of the
Frederickson 1 Generating Station.5 See Non-GAAP Financial Measures
and Ratios.6 Measured as availability less forced outage factor
(1-FOF) while under contract, excluding planned outages.7 2024E
items converted from USD to CAD using a 1.3240 FX rate, reflective
of consensus estimates for 2024.8 Adjusted EBITDA shown here is net
of Acquisitions' transaction fees of $9M. Adjusted EBITDA before
Acquisitions' transaction fees is $294M (or US$222M), which
underlies a 4.8x EV / Adj EBITDA (2024) multiple.9 Includes
contribution from Capital Power's interest in joint ventures.10
Depreciation and amortization is subject to change on finalization
of purchase price allocation and closing adjustments.
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