EIF Management LLC, Brooklyn Navy Yard Cogeneration Partners LP (BNYCP) and Ares Holdings LP filed a Nov. 5 application at the New York State Public Service Commission for approval for Ares to acquire 100% of the ownership interests in EIF, giving it control of several power plants in New York.
“Petitioners respectfully request that the Commission grant expedited review of this Petition and grant the relief requested herein no later than at the Commission’s December 4, 2014 stated meeting, so that the transactions contemplated herein may close by the end of the year,” the application said. “During the course of negotiations, Ares and EIF always contemplated a transaction that would close during 2014 and worked towards signing an agreement as soon as possible to meet this timing. In recognition of the importance of closing by year-end, the Petitioners are filing this Petition within four business days following execution of the agreement.
“There are a number of important public policy, business and personnel benefits for closing before year-end. First, in conjunction with the closing of the Proposed Transaction, Ares and EIF plan to launch a new investment fund. This fund, like its predecessor funds managed by EIF (including its most recent $1.7 billion fund) will invest in large part in development and construction stage greenfield power plants and other energy infrastructure assets in the United States. These assets will help to meet growing energy demand and replace less environmentally friendly coal fired power plant closures scheduled for 2015 and beyond. In the past, EIF Funds have helped to bring to fruition numerous clean and efficient energy assets such as the Panoche power plant in California, the Newark Energy Center under construction in New Jersey and the Hudson and Neptune Transmission Lines which alleviate congestion in NY Zone J and Zone K. Raising such a fund is a time and labor intensive effort that can be affected by financial market conditions as well as other factors. The sooner the parties are able to commence fundraising, the more likely such fund is to be successful and to be raised in time to meet the power generation and transmission needs noted above.
“Second, EIF will become part of a publicly traded firm as a result of the Proposed Transaction, and it is in the best interests of the public shareholders, as owners of Ares, that the Proposed Transaction be consummated by December 31, 2014.”
Involved assets include a couple of big plants, and small landfill gas generators
EIF manages the EIF Funds’ indirect ownership interests in the following entities that own generation facilities within New York: BNYCP, Selkirk Cogen Partners LP, Innovative Energy Services LLC (IES), and Seneca Energy II LLC.
BNYCP is the owner of an approximately 315 MW (maximum nominal) QF cogeneration facility located in Kings County, New York, in the New York ISO balancing authority area (BAA). It is interconnected within NYISO’s Zone J (New York City Submarket) to Con Edison Co. of New York (ConEd) to which it sells about 98% of its generation output under a long-term contract. Approximately 1.5% of the output is sold to Brooklyn Navy Yard Development Corp. (BNYDC), a not-for-profit entity that manages the New York City-owned former Brooklyn Navy Yard as an industrial park, for resale to BNYDC’s industrial park tenants pursuant to a long-existing energy sales agreement. Up to 0.5% may be sold to Tyche Power Marketing LLC for resale to BNYDC for BNYDC’s own use. The BNYCP facility provides the majority of its steam output to ConEd for distribution by ConEd to its steam service customers, and also provides a portion of its thermal energy under a contract with New York City in exchange for the right to take wastewater effluent produced at the Red Hook Water Pollution Control Plant.
Selkirk is the owner of an approximately 393.99 MW facility located in Selkirk, New York. The Selkirk facility is interconnected to the transmission facilities owned by Niagara Mohawk Power (NiMo) and operated by the NYISO. Selkirk currently sells the facility’s net output into the NYISO wholesale market at market-based rates.
IES owns all of the outstanding equity interests in the following entities, each of which owns a QF electric generating facility:
- Innovative/Colonie LLC, an approximately 4.8 MW landfill gas electric generating facility in Cohoes, NY;
- Innovative/DANC LLC, an approximately 4.8 MW landfill gas electric facility in Rodman, NY;
- Innovative/Fulton LLC, an approximately 3.2 MW landfill gas electric facility in Johnstown, NY.
IES also owns 100 percent of the outstanding equity interests in:
- Modern Innovative Energy LLC, which owns an approximately 6.4 MW landfill gas facility located in Youngstown, New York.
- Model City Energy LLC, which owns an approximately 5.6 MW landfill gas facility also located in Youngstown, New York.
Seneca owns two electric generating facilities:
- Seneca Falls Project (an approximately 17.6 MW landfill gas facility in Seneca Falls, NY); and
- Ontario County Project (an approximately 11.2 MW landfill gas facility in Stanley, NY).
The buyer Ares is ultimately controlled by Ares Management LP, which is a publicly traded, alternative asset management firm with approximately $79bn of assets under management as of June 30, 2014. The common units of Ares Management are publicly traded on the New York Stock Exchange under the ticker symbol “ARES.” Ares Management operates four distinct but complementary investment groups that invest in tradable credit, direct lending, real estate and private equity assets.
As a result of the proposed transaction, Ares Management LLC will directly own 100% of the outstanding equity interests of EIF and thus Ares will have indirect control over the EIF New York affiliates.
EIF managers to come over to Ares under this deal
Said Ares Management in an Oct. 31 announcement about this deal: “Ares Management, L.P. (NYSE: ARES) announced today that one of its subsidiaries has signed a definitive agreement to acquire Energy Investors Funds (‘EIF’), a leading asset manager in the energy infrastructure industry with approximately $4 billion of assets under management (‘AUM’) across EIF’s four commingled funds and related co-investment vehicles. The acquisition is being financed primarily with cash, including a portion of the proceeds raised from the previously announced offering of senior notes by an indirect subsidiary of Ares, and with equity interests in Ares. The transaction is expected to close by the end of 2014, subject to regulatory approval and other customary closing conditions.”
“The energy sector is an area of increasing importance across our business given the large, growing and contractual nature of the asset class and the differentiated risk-adjusted returns that can be generated by experienced managers,” said Michael Arougheti, President of Ares Management. “EIF represents exactly what we look for in pursuing accretive, strategically valuable acquisitions. The team brings an established track record of excellence in an investment strategy that merits greater exposure for our collective fund investors, a strong cultural fit and a deep expertise that we believe will benefit Ares’ existing strategies.”
“We are thrilled to have EIF, a team that members of the Ares Direct Lending Group have known and respected for years, join the Ares Private Equity Group,” added Bennett Rosenthal, Senior Partner of Ares Management and Co-Head of the Ares Private Equity Group. “Since our inception, our private equity investment activities have meaningfully benefited from the scale and collaboration of the broader Ares platform, and we expect that the EIF team at Ares will also capitalize on our sourcing, market intelligence and relationship network advantages to enhance what is already superb investment performance.”
EIF’s investment team of energy private equity professionals will join the Ares Private Equity Group and maintain full day-to-day responsibility over EIF’s current and future private equity funds and related investments.
“Joining Ares is an exciting new chapter for our team, which has been generating strong returns for our fund investors and creating a thriving work environment for our employees for more than 25 years,” said Herbert Magid, a Managing Partner of EIF and a member of its Board, Executive and Investment Committees. “With the opportunity to work closely with our new colleagues across Ares, we believe we will be a more significant player at a time when there is a growing need for capital and sophisticated sponsorship in our markets.”
EIF was founded in 1987 as one of the first private equity fund managers focused on the independent power industry. EIF’s investment strategy is to create diversified portfolios of energy infrastructure related assets across the power generation, transmission, and midstream sectors that are expected to provide superior risk-adjusted equity returns with current cash flow and capital appreciation. From its offices in Boston, New York, and San Francisco, EIF manages over $4bn of AUM in four comingled private equity funds as well as related co-investment vehicles as of Sept. 30, 2014.