Talen Energy (NYSE:TLN) has agreed to sell three Pennsylvania power plants with a total combined generating capacity of 996 MW for $1.51bn in gross cash proceeds, subject to customary purchase price adjustments.
The power generation being divested include the Ironwood combined-cycle, natural gas-fired plant, and the separate sale of the Holtwood and Wallenpaupack hydroelectric projects. The transactions should close in early 2016.
Talen is selling off one natural gas power plant and two hydroelectric projects in compliance with a Federal Energy Regulatory Commission (FERC) requirement placed on Talen when the competitive energy company was spun off from PPL (NYSE:PPL) in 2014. Talen has been looking at various divestiture options.
The 704-MW Ironwood plant is being sold to a subsidiary of TransCanada (TSX, NYSE:TRP) for a total purchase price of $654m, subject to the usual purchase price adjustments. In connection with the transaction, Talen Energy expects to repay approximately $42m of debt, plus a customary pre-payment premium, associated with the facility.
The Holtwood and Lake Wallenpaupack hydroelectric projects, with a combined generating capacity of 292 MW, are being sold to a subsidiary of Brookfield Renewable Energy Partners for $860m, subject to customary purchase price adjustments.
“This acquisition presents a unique opportunity in the current market environment and is a natural extension of our U.S. northeast power business, strengthening our overall portfolio of assets in the region,” said TransCanada President and CEO Russ Girling.
The Ironwood power plant delivers energy into the PJM power market, North America’s largest and most liquid energy region which includes a three-year forward capacity market. Strategically located in proximity to the Marcellus shale gas play, the facility is well positioned to access competitively priced natural gas in a market that is in the midst of transitioning away from coal-fired power generation to gas, TransCanada said in a news release.
All the hydro output is currently sold into PJM and the portfolio benefits from a diverse revenue stream including energy, capacity, renewable energy credits and ancillary services, Brookfield said in a news release. Both Holtwood and Wallenpaupack have long-term FERC operating licenses through 2030 and 2045, respectively.
“These high-quality assets provide a unique opportunity to leverage our operating platform and hydroelectric expertise in a market facing significant coal retirements and increasing reliance on renewables,” said Sachin Shah, CEO of Brookfield Renewable.
The transactions are expected to result in net proceeds of approximately $1.16 bn. In the near term, Talen Energy plans to use proceeds of the transactions to retire pre-payable and maturing debt.
Ironwood, Holtwood and Wallenpaupack would have been expected to contribute Adjusted EBITDA and Adjusted Free Cash Flow on a full-year 2016 basis of approximately $140 million and $80 million, respectively, and Net Income and Cash from Operations on a full-year 2016 basis of approximately $56 million and $101 million, respectively.
Both transactions are expected to close in the first quarter of 2016, following the receipt of necessary regulatory approvals and other customary closing conditions.
For the Ironwood transaction, Credit Suisse served as financial advisor to Talen Energy and Kirkland & Ellis LLP was transaction counsel.
For the hydro transaction, RBC Capital Markets served as financial advisor to Talen Energy and Simpson Thacher & Bartlett LLP was transaction counsel.
“We have made substantial improvements during our ownership of Ironwood, and appreciate the efforts of the dedicated employees who have operated and maintained the plant very well. We are pleased that we will be conveying ownership to TransCanada, a large and diversified energy company with extensive plant operating experience,” said Talen Energy President and CEO Paul Farr.
“Brookfield Renewable Energy Partners is an experienced owner and operator of hydroelectric projects and has extensive operations across North America, including the Safe Harbor hydroelectric project on the Susquehanna River just upstream from Holtwood. We recognize and appreciate the dedicated employees who operate, maintain and support the hydro plants. They have done an outstanding job, and their skill and experience will prove invaluable to Brookfield in continuing the legacy of operating excellence and citizenship at both facilities,” Farr said.