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NextEra Energy announces agreement to acquire renewables projects and enters into a $750 million convertible equity portfolio financing
Written By: Jen Neville
September 5, 2018
NextEra Energy Partners, LP recently announced that it has entered into an agreement with a subsidiary of NextEra Energy Resources, LLC to acquire a geographically diverse portfolio of 11 wind and solar projects, collectively consisting of approximately 1,388 megawatts. In conjunction with the acquisition, NextEra Energy Partners also has entered into a $750 million convertible equity portfolio financing with a fund managed by BlackRock Global Energy & Power Infrastructure.
"The acquisition of these high-quality, contracted renewable energy assets demonstrates the continued execution of our plan to expand NextEra Energy Partners' portfolio for the benefit of our unitholders," stated Jim Robo, chairman and chief executive officer.
This transaction replaces the Canadian portfolio that we divested earlier this year with higher-yielding assets in the U.S. that benefit from the lower effective corporate tax rate and longer tax shield. In addition, the transaction supports growing limited partner unit distributions in a manner consistent with our previously stated expectations of 12 to 15 percent per year through at least 2023. The portfolio financing is expected to be a very attractive, low-cost equity-like product for NextEra Energy Partners.
"With the right to convert at least 70 percent of the portfolio financing into NextEra Energy Partners' common units, the financing provides additional third-party confirmation of our growth outlook and high-quality, long-term contracted portfolio backed by strong counterparty credits. Without the need to sell common equity until 2020 at the earliest, other than modest at-the-market issuances, today's transaction further enhances our financing flexibility. We continue to believe that NextEra Energy Partners is as well-positioned as it's ever been, offering a best-in-class investor value proposition with growth prospects that remain as strong as ever
The approximately 1,388-MW portfolio of wind and solar assets has a cash available for distribution weighted remaining contract life of approximately 18 years. The assets included are:
-Bluff Point Wind Energy Center, a 120-MW wind generation plant in Jay and Randolph counties, Indiana;
-Breckinridge Wind Energy Center, a 98-MW wind generation plant in Garfield County, Oklahoma;
-Carousel Wind Energy Center, a 150-MW wind generation plant in Kit Carson County, Colorado;
-Cottonwood Wind Energy Center, a 90-MW wind generation plant in Webster County, Nebraska;
-Golden Hills North Wind Energy Center, a 46-MW wind generation plant in Alameda County, California;
-Javelina II Wind Energy Center, a 200-MW wind generation plant located in Webb County, Texas;
-Kingman I and II Wind Energy Centers, two wind generation plants with a combined generating capacity of 206 MW located in Kingman County, Kansas;
-Ninnescah Wind Energy Center, a 208-MW wind generation plant located in Pratt, Kingman and Sedgwick counties, Kansas;
-Rush Springs Wind Energy Center, a 250-MW wind generation plant located in Grady and Stephens counties, Oklahoma; and
-Mountain View Solar Energy Center, a 20-MW photovoltaic solar energy generating facility located in Clark County, Nevada.
NextEra Energy Partners expects to acquire the portfolio for total consideration of approximately $1.275 billion, subject to working capital and other adjustments, plus the assumption of approximately $930 million in tax equity financing and $38 million of non-recourse project debt as of year-end 2018. The acquisition is expected to contribute adjusted EBITDA of approximately $290 to $310 million and cash available for distribution of approximately $122 to $132 million, each on a five-year average annual run-rate basis, beginning Dec. 31, 2018.
NextEra Energy Partners expects to complete the acquisition in the fourth quarter of 2018, subject to customary closing conditions and the receipt of certain regulatory approvals.
NextEra Energy Partners intends to initially finance the acquisition through a combination of the $573 million USD proceeds from the sale earlier this year of its Canadian assets and capacity under an existing credit facility. Funds drawn under the credit facility are expected to be immediately repaid with a new $750 million convertible equity portfolio financing with a fund managed by BlackRock Global Energy & Power Infrastructure.
Under the terms of the financing, the Fund will pay $750 million in exchange for an equity interest in the entity that will own the approximately 1,388-MW portfolio being acquired by NextEra Energy Partners. The Fund is expected to earn an effective coupon of approximately 2.5 percent over the initial three-year period, which represents the Fund's initial 15 percent allocation of distributable cash flow from the portfolio. During the fourth year of the agreement, NextEra Energy Partners expects to exercise its right to buy out the Fund's equity interest for a fixed payment equal to $750 million, plus a fixed pre-tax return of 7.75 percent (inclusive of all prior distributions). NextEra Energy Partners has the right to pay at least 70 percent of the buyout amount in NextEra Energy Partners common units, issued at no discount to the then-current market price, with the balance paid in cash. Following the initial three-year period, if NextEra Energy Partners has not exercised its buyout right, the Fund's allocation of distributable cash flow from the portfolio would increase to 80 percent.
NextEra Energy Partners, LP
NextEra Energy Partners, LP is a growth-oriented limited partnership formed by NextEra Energy, Inc. NextEra Energy Partners acquires, manages and owns contracted clean energy projects with stable, long-term cash flows. Headquartered in Juno Beach, Florida, NextEra Energy Partners owns interests in wind and solar projects in the U.S., as well as natural gas infrastructure assets in Texas The renewable energy projects are contracted, use industry-leading technology and are located in regions that are favorable for generating energy from the wind and sun. The seven natural gas pipelines in the portfolio are all strategically located, serving power producers and municipalities in South Texas, processing plants and producers in the Eagle Ford Shale, and commercial and industrial customers in the Houston area. The NET Mexico Pipeline, the largest pipeline in the portfolio, provides a critical source of natural gas transportation for low-cost, U.S.-sourced shale gas to Mexico.