Atlantic Power (NYSE: AT) (TSX: ATP) announced April 1 an agreement to sell its wind generation projects to TerraForm Power (NASDAQ: TERP) for cash proceeds of approximately $350 million, subject to certain adjustments.
These operating wind projects, representing 521 MW net ownership, are indirectly owned by Atlantic Power Transmission, a wholly-owned direct subsidiary of Atlantic Power, and will be acquired by TerraForm AP Acquisition Holdings LLC, an indirect subsidiary of TerraForm. Five projects located in Idaho and Oklahoma will be transferred to TerraForm: Goshen North (12.5% economic interest); Idaho Wind (27.6% economic interest); Meadow Creek (100% economic interest); Rockland Wind Farm (50% economic interest, but consolidated on a 100% basis); and Canadian Hills (99% economic interest).
These wind farms, according to the Atlantic Power website, are:
- Canadian Hills is a 298-MW facility located in El Reno, Oklahoma. Atlantic Power acquired a 99% interest in the project in early 2012, and the project entered commercial operations at the end of 2012.
- The Goshen North Wind Farm is a 124.5 MW project located near Idaho Falls, Idaho. It became commercially operational in October 2010. Atlantic Power owns a 12.5% interest in Goshen North. The remaining owners are BP Wind Energy and Diamond Generating Corp.
- Idaho Wind Partners 1 LLC is a 183-MW project comprised of 11 wind farms located near Twin Falls, Idaho which achieved commercial operations in early 2011. Atlantic Power indirectly owns a 27% interest in this company, which is a partnership among GE Energy Financial Services, Reunion Power, and Exergy Development Group.
- The Meadow Creek Wind Project is a 120-MW facility in Bonneville County, Idaho. The project achieved commercial operations in December 2012, and sells its output under a 20-year power purchase agreement to PacifiCorp.
- Rockland Wind Farm LLC is an 80-MW project located in American Falls, Idaho, which achieved commercial operations in December 2011. Atlantic Power indirectly owns a 50% interest in Rockland, in partnership with Diamond Generating. Rockland has a 25-year power purchase agreement with Idaho Power.
This deal means an infusion of cash for Atlantic Power
In addition to the receipt of approximately $350 million in cash proceeds from this sale deal, Atlantic Power will deconsolidate about $249 million of project debt (or approximately $275 million as adjusted for the company’s proportional ownership of Rockland, Goshen North and Idaho Wind) and about $239 million of non-controlling interest related to tax equity interests at Canadian Hills and the minority ownership interests at Rockland and Canadian Hills. On that basis, the total enterprise value of the transaction is expected to be approximately $837 million, net of estimated reserves and other cash at the projects at closing.
“Together with our board, we considered a wide range of options for asset divestitures over the last six months as well as options for refinancing the balance sheet without asset sales,” said James J. Moore, Jr., President and Chief Executive Officer of Atlantic Power. “This transaction represents a compelling valuation for our assets and will enhance our financial strength and flexibility.”
Moore added: “In addition to completing the wind transaction, we are focused on executing the other elements of our business plan, including evaluating the best use of proceeds to optimize our capital structure for the benefit of shareholders, continuing to implement significant reductions in our corporate general and administrative expenses beyond the level already targeted for 2015, and making ongoing investments in our fleet at attractive cash-on-cash returns.”
Net proceeds to Atlantic Power from the transaction are expected to be approximately $338 million after estimated transaction fees and transaction-related taxes. The agreement contains customary representations, warranties, covenants, and indemnification provisions. The sale is subject to various closing conditions and approvals, including the receipt of an approval by the Federal Energy Regulatory Commission and antitrust approvals under the Hart-Scott-Rodino Act. Closing of this deal is expected by the end of the second quarter.
Goldman, Sachs & Co. served as financial advisor to Atlantic Power. Morgan, Lewis & Bockius LLP served as legal counsel.
Atlantic Power’s projects have an aggregate gross electric capacity of approximately 2,945 MW in which its aggregate ownership interest is approximately 2,024 MW. Its current portfolio consists of interests in 28 operational power generation projects across eleven states in the United States and two provinces in Canada.
TerraForm Power also announced this deal on April 1. TerraForm said it has secured fully committed bridge financing of up to $515 million to support the transaction. The company intends to fund the acquisition with a drop down warehouse facility in partnership with third-party equity investors and sponsor SunEdison. This transaction would provide TerraForm with increased visibility to long-term dividend growth from contracted operating assets. Concurrent with the acquisition closing, this 521 MW would be added to the TerraForm Call Right Projects list, increasing the total from 3.4 GW to 4 GW, and increasing the contracted call right projects from 2.5 GW to 3 GW.
“We are grateful for the opportunity to work with Atlantic Power. This landmark transaction illustrates the strength and agility of the combined TerraForm-SunEdison platform as well as the robustness of our proprietary deal pipeline,” said Carlos Domenech, Chief Executive Officer of TerraForm Power. “We expect the warehouse facility to be an innovative financing structure that provides repeatable and scalable funding to secure future growth; we expect the drop down returns to be at parity with the acquisition yields.”
Morgan Stanley acted as the exclusive financial advisor to TerraForm Power.