$977 million acquisition materially
increases contracted adjusted EBITDA and is immediately accretive
to adjusted funds from operations per share
/NOT FOR DISTRIBUTION TO THE UNITED STATES NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED
STATES/
EDMONTON, April 29, 2019 /CNW/ - Capital Power Corporation
(Capital Power or the Company) (TSX: CPX) announced today that it
has entered into an agreement to acquire Goreway Power Station
Holdings Inc., which owns the Goreway Power Station, an 875
megawatt (MW) natural gas combined cycle generation facility.
Goreway Power Station Holdings Inc. is jointly owned by JERA Co.
Inc., and Toyota Tsusho Corporation. The purchase price is
$387 million in total cash
consideration, subject to working capital and other closing
adjustments, and the assumption of $590
million of project level debt (the Acquisition). The
Acquisition is expected to close in the second quarter of 2019 and
is subject to regulatory approvals and other customary closing
conditions.
"The Goreway facility is an excellent strategic fit to our
growth plans given its size, excellent operating history, location,
and remaining contract term to 2029," said Brian Vaasjo, President and CEO of Capital
Power. "It leverages our significant operating capability and, in
combination with our other Ontario
natural gas assets, it will provide operating and market synergies
over time. With its strategic location in the Greater Toronto Area (GTA) load centre and the
flexibility it can provide, the Goreway facility is an important
asset in Ontario's electric
system."
The Goreway facility has a 20-year Accelerated Clean Energy
Supply Contract expiring in June 2029
with the Ontario Independent Electricity System Operator (IESO)
(DBRS: A(high) / Moody's: Aa3).
The Acquisition will be financed with the net proceeds raised
through the $130 million subscription
receipt offering (described below) followed later by funding from
other sources, including existing or new debt sources and other
sources available to the company.
The Acquisition is expected to generate approximately
$124 million of adjusted EBITDA and
$50 million of adjusted funds from
operations (AFFO) in 2020. For the 2020-2023 period, average annual
adjusted EBITDA and AFFO are estimated to be $127 million and $56
million, respectively. Based on expected financing,
the Acquisition is forecasted to be $0.27 accretive to AFFO per share in 2020
representing growth of approximately 6%.
The Company has revised its 2019 financial target ranges to
incorporate the acquisition of the Goreway facility.
- AFFO of $485 million to
$535 million ($460 million to $510
million previously), and
- Adjusted EBITDA of $870 million
to $920 million ($800 million to $850
million previously).
Overview of Goreway Power Station
- Nameplate capacity – 875 MW
- Location – Brampton, Ontario within the GTA which is the
load centre of the province
- Commercial operation date – June 2009
- Offtake – fully contracted with the Ontario IESO
through June 2029
- Equipment – utilizes best-in-class
gas-fired generation equipment including three upgraded GE 7FB.04
combustion turbines, three Deltak heat recovery steam generators
and a single Siemens steam turbine
- Electrical Interconnection – connected to
the Hydro One transmission system
- Gas interconnect and transport – connected
to the TransCanada pipeline system by a lateral, owned and
maintained by Enbridge. This provides the facility with access to
both the Dawn and Parkway gas trading hubs.
- Site description – located on
approximately 21 hectares of land and includes vacant land for
other development opportunities
$130 Million Subscription
Receipt offering
Capital Power expects to finance the
Acquisition using a combination of debt and equity. The Company has
entered into an agreement with a syndicate of underwriters (the
Underwriters) co-led by RBC Capital Markets and TD Securities to
issue 4.3 million subscription receipts (the Subscription
Receipts), on a bought deal basis, at an issue price of
$30.30 per Subscription Receipt (the
Offering Price), for total gross proceeds of approximately
$130,290,000 million (the Public
Offering). The net proceeds from the Public Offering will be used
to partially finance the Acquisition.
The Company has granted the Underwriters an over-allotment
option to purchase, in whole or part, up to an
additional 645,000 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
$149,833,500 million.
Each Subscription Receipt will entitle the holder thereof to
receive, without payment of additional consideration or further
action, upon closing of the Acquisition, one common share of
Capital Power (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. Dividend Equivalent Payments will be paid
first out of any interest on the Escrowed Funds (defined below) and
then out of the Escrowed Funds.
The proceeds from the sale of the Subscription Receipts less
one-half of the Underwriters' fee (the Escrowed Funds) will be held
in escrow by Computershare Trust Company of Canada, as subscription receipt agent (the
Subscription Receipt Agent), and invested in interest-bearing
deposits with banks and other financial institutions with issuer
credit ratings with S&P Global Ratings, Inc. of at least A (as
contemplated by, or specified in, the subscription receipt
agreement) or other approved investments as set forth in the
subscription receipt agreement, provided that Dividend Equivalent
Payments may be made from the Escrowed Funds and the interest
credited or received thereon from time to time, as described
above.
Under the Purchase and Sale Agreement, Capital Power is
acquiring 100 per cent of the ownership interests in Goreway Power
Station Holdings Inc. The Acquisition is expected to close in the
second quarter of 2019, subject to regulatory approvals and
satisfaction of other customary closing conditions.
Once notice has been delivered to the Subscription Receipt Agent
that the parties to the Acquisition are able to complete the
Acquisition in all material respects in accordance with the terms
of the Purchase and Sale Agreement, but for payment of the purchase
price, and Capital Power has available to it all other funds
required to complete the Acquisition, the Escrowed Funds, less any
amounts required to satisfy payment of unpaid Dividend Equivalent
Payments, will be released to or as directed by Capital Power up to
six business days prior to the closing of the Acquisition. In the
event such notice has not been delivered prior to November 7, 2019 or if the Acquisition is
terminated prior to such time, or Capital Power advises the
underwriters or discloses to the public that it does not intend to
proceed with the Acquisition, then the Subscription Receipt Agent
and Capital Power will return to each holder of Subscription
Receipts an amount equal to the aggregate issue price of such
holder's Subscription Receipts, plus any unpaid Dividend Equivalent
Payments owing to such holders of Subscription Receipts (the
Termination Payment). The Termination Payment will be made from the
balance of the Escrowed Funds at the Termination Time, including
from any remaining interest received on the Escrowed Funds. If the
balance of the Escrowed Funds, together with any such received
interest, is insufficient to cover the full amount of the
Termination Payment, Capital Power will pay any difference to the
holders of Subscription Receipts. If no Dividend Equivalent Payment
is payable to the holders of Subscription Receipts prior to the
Termination Time, such holders will receive, in addition to the
aggregate issue price of such holder's Subscription Receipts, such
holder's pro rata share of the interest earned on the Escrowed
Funds and such holder's pro rata share of the interest that would
have been earned on 50% of the underwriting fee were such portion
of the fee included in the Escrowed Funds.
The Public Offering will be offered in all provinces and
territories of Canada by way of a
prospectus supplement to be dated on or about May 1, 2019 to Capital Power's base shelf
prospectus dated May 11, 2018.
Completion of the Public Offering is subject to certain conditions
including receipt of all necessary approvals, including the
approval of the Toronto Stock Exchange. Closing of the Public
Offering is anticipated to occur on or about May 8, 2019.
All references to dollar amounts contained herein are to
Canadian dollars unless otherwise indicated.
U.S. Securities Laws Disclosures
NOT FOR RELEASE,
PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR
INDIRECTLY, IN OR INTO THE UNITED
STATES.
The distribution of this announcement may be restricted by law
in certain jurisdictions and persons into whose possession any
document or other information referred to herein comes should
inform themselves about and observe any such restriction. Any
failure to comply with these restrictions may constitute a
violation of the securities laws of any such jurisdiction.
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 as provided in the
U.S. Securities Act of 1933, as amended (the Securities Act), and
the rules and regulations thereunder. The securities referred to
herein have not been registered pursuant to the Securities Act and
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.
Non-GAAP Financial Measures
The Company
uses AFFO as a financial performance measure of the ability of the
Company and its subsidiaries ability to generate cash from current
operating activities to fund growth capital expenditures, debt
repayments and common share dividends to the Company's
shareholders. The AFFO performance measure represents net cash
flows from operating activities adjusted to include net finance
expense and current income tax expense and exclude changes in
operating working capital and distributions received from the
Company's joint venture interests. Net finance expense and current
income tax expense are included as the timing of cash receipts and
payments of interest and income taxes and the resulting cash basis
amounts are not comparable from period to period. Changes in
operating working capital are excluded from AFFO as the timing of
cash receipts and payments also affects the period-to-period
comparability. Distributions received from the Company's joint
venture interests are excluded as the distributions are calculated
after the effect of joint venture debt payments, which are not
considered operating activities. AFFO is reduced by the tax equity
financing project investors' shares of AFFO associated with assets
under tax equity financing structures to ensure that only the
Company's share is reflected in the overall metric. AFFO also
excludes the impact of fair value changes in certain unsettled
derivative financial instruments that are charged or credited to
the Company's bank margin account held with a specific exchange
counterparty. AFFO is reduced by sustaining capital expenditures
and preferred share dividends and adjusted to include the Company's
share of the AFFO of its joint venture interests and cash from coal
compensation that will be received annually.
Capital Power uses adjusted EBITDA to measure the operating
performance of facilities and categories of facilities from period
to period. Management believes that a measure of facility operating
performance is more meaningful if results not related to facility
operations such as impairments, foreign exchange gains or losses
and gains or losses on disposals are excluded from the adjusted
EBITDA measure. Commencing with the Company's March 31, 2019 quarter-end, adjusted EBITDA
excludes unrealized changes in fair value of commodity derivatives
and emission credits which were previously included in adjusted
EBITDA. This change was made to better align the Company's measure
of adjusted EBITDA with its other non-GAAP measures, as both the
adjusted funds from operations and the normalized earnings per
share measures exclude the impacts of unrealized changes in fair
value of commodity derivatives and emission credits. This change
also results in improved period over period comparability of
adjusted EBITDA.
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. AFFO and adjusted EBITDA should not be
considered alternatives to net cash flows from operating activities
and net income, respectively, calculated in accordance with GAAP.
Rather, these measures are provided to complement the nearest GAAP
measures in the analysis of the Company's results of operations
from management's perspective.
See Non-GAAP measures in the Company's first quarter 2019, and
year-end 2018 Management's Discussion and Analysis for further
discussion of these metrics and reconciliations of adjusted EBITDA
and AFFO to net income and net cash flows from operating
activities, respectively.
Forward-looking Information
Certain information
in this news release is forward-looking information within the
meaning of Canadian securities laws as it relates to anticipated
financial or operating performance, events or strategies. When used
in this context, words such as "anticipate", "believe",
"continue", "estimate", "plan", "intend", "expect", "target" and
"will" or similar words suggest future outcomes. By their nature,
such statements are subject to significant risks, assumptions and
uncertainties, which could cause the Company's actual results and
experience to be materially different than the anticipated results.
Forward-looking information or statements included in this news
release are provided to inform the Company's shareholders and
potential investors about management's assessment of the Company's
future plans and operations. This information may not be
appropriate for other purposes.
Material forward-looking information in this press release
around the acquisition of the Goreway facility includes
expectations regarding: (i) financing plans, (ii) transaction close
timing and (iii) financial impacts including expected accretion in
AFFO, AFFO per share and adjusted EBITDA contributions. Additional
forward-looking information is disclosed pertaining to updated 2019
targets for the Company's AFFO and adjusted EBITDA metrics as a
result of the Acquisition.
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 Goreway facility and consultation with
an independent third party around market analysis. The material
factors and assumptions used to develop these forward-looking
statements relate to: (i) electricity and other energy prices; (ii)
Company performance; (iii) business prospects and opportunities
including expected growth and capital projects; (iv) the status of
and impact of policy, legislation and regulations; (v) effective
tax rates; and (vi) assumptions relating to estimated purchase
price adjustments pursuant to the terms of the Acquisition
agreement.
Whether actual results, performance or achievements will conform
to the Company's expectations and predictions is 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) power plant availability and performance including maintenance
expenditures; (ii) changes in electricity prices in markets in
which the Company operates; (iii) regulatory and political
environments including changes to environmental, financial
reporting and tax legislation; (iv) acquisitions and developments
including timing and costs of regulatory approvals and
construction; (v) ability to fund current and future capital and
working capital needs; (vi) changes in energy commodity market
prices and use of derivatives; (vii) changes in market prices and
availability of fuel; (viii) changes in general economic and
competitive conditions; (ix) the outcome of the line loss rule
proceeding; * limitations inherent in the Company's review of the
Acquisition and the Goreway facility; and (xi) ability to realize
the anticipated benefits of the Acquisition. See Risk
Factors in the Company's prospectus supplement filed in
connection with the Public Offering and Risks and Risk
Management in the Company's 2018 Management's Discussion
and Analysis for further discussion of these and other risks.
This news release contains future-oriented financial information
and financial outlook information (collectively, FOFI) about the
Company's prospective adjusted EBITDA and AFFO and the components
thereof, all of which are subject to the same assumptions, risk
factors, limitations, and qualifications as set forth in the above
paragraphs. FOFI contained in this news release was made as of the
date of this news release and was provided for the purpose of
describing the anticipated effects of the Public Offering and the
Acquisition on the Company's business operations. The Company
disclaims any intention or obligation to update or revise any FOFI
contained in this news release, whether as a result of new
information, future events or otherwise, unless required pursuant
to applicable law. Readers are cautioned that the FOFI contained in
this news release should not be used for purposes other than for
which it is disclosed herein.
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.
About Capital Power
Capital Power (TSX: CPX) is a
growth-oriented North American power producer headquartered in
Edmonton, Alberta. The company
develops, acquires, owns, and operates power generation facilities
using a variety of energy sources. Capital Power owns approximately
5,100 megawatts (MW) of power generation capacity at 25 facilities
across North America.
Approximately 900 MW of owned generation capacity is in advanced
development in Alberta and
Illinois.
SOURCE Capital Power Corporation