Atlantic Power sells a portfolio of wind power plants
This is a bit of a different kind of blog for this website.It is not a quarterly report nor a forecast of revenues or profits.It covers a transaction that shows the kind of creative financing that utilities are using now to keep debt off their balance sheets.
The Transaction
On July 22,2015 Atlantic Power closed the sale of 5 wind power plants to Sun Edison;the plants had a total power generation of 521MW.This is a creative transaction on both sides.Atlantic Power will eliminate debt from it's balance sheet while making a capital gain.It will have earnings from these assets for most of 2015 and the first half of 2016.The sale was to a subsidiary of Sun Edison (a large American utility) called Terra Form Power.Sun Edison set up a special facility called a warehouse facility to hold the operating assets for 7 years.Terra Form Power will add them or drop down to their portfolio in the second half of 2016.Terra Form has total assets of $525 million.The equity for this warehouse facility is provided by private infrastructure investors and they will provide debt in the form of a 7 year term loan.After the 7 year period ,ownership will revert to Terra Form Power but there will be cash distribution to investors for 3 more years.Then the earnings will go to Terra Form.
The wind power plants are in Idaho and Oklahoma and have long term power purchase agreements for 18 years.The power plants are expected to generate 521MW of power.And they will generate estimated annual adjusted EBITDA of $56 million for 7 years but Terra Form will provide cash distributions of $44 million for the next 10 years to it's investors.There are a number of investors including Goldman Sachs and Macquarrie Capital.The benefit to them is that Terra Form must pay a multiple of it's annual EBITDA to it's investors. So this transaction will prove beneficial to it's investors,to Sun Edison and to Atlantic Power.
Warehouse Facilities
The assets are paid for up front and put in a warehouse and gradually drop down to the purchaser.Ususally the drop down takes place over a 5 to 10 year term.This is an example of the new and creative financing that utilities are exploiting.Also Atlantic Power gets it's EBITDA for the first few years of ownership and maybe up to the second half of 2016.But with the sale there is no addition of debt to it's balance sheet.ATP is trying not to add more debt to it's balance sheet.
This is creative financing for Sun Edison but it has the financial muscle to pull it off.Atlantic Power is smaller and it's credit rating is not quite as good but it could try setting up a warehouse facility in the future.But it is also true that ATP would have to take on the original debt or at least back it until it arranged a term loan..Ideally it would start with a smaller asset and have only a 3 to 4 year term loan.Nevertheless there are opportunities out there and Atlantic Power has shown itself to be a creative operator.
The Transaction
On July 22,2015 Atlantic Power closed the sale of 5 wind power plants to Sun Edison;the plants had a total power generation of 521MW.This is a creative transaction on both sides.Atlantic Power will eliminate debt from it's balance sheet while making a capital gain.It will have earnings from these assets for most of 2015 and the first half of 2016.The sale was to a subsidiary of Sun Edison (a large American utility) called Terra Form Power.Sun Edison set up a special facility called a warehouse facility to hold the operating assets for 7 years.Terra Form Power will add them or drop down to their portfolio in the second half of 2016.Terra Form has total assets of $525 million.The equity for this warehouse facility is provided by private infrastructure investors and they will provide debt in the form of a 7 year term loan.After the 7 year period ,ownership will revert to Terra Form Power but there will be cash distribution to investors for 3 more years.Then the earnings will go to Terra Form.
The wind power plants are in Idaho and Oklahoma and have long term power purchase agreements for 18 years.The power plants are expected to generate 521MW of power.And they will generate estimated annual adjusted EBITDA of $56 million for 7 years but Terra Form will provide cash distributions of $44 million for the next 10 years to it's investors.There are a number of investors including Goldman Sachs and Macquarrie Capital.The benefit to them is that Terra Form must pay a multiple of it's annual EBITDA to it's investors. So this transaction will prove beneficial to it's investors,to Sun Edison and to Atlantic Power.
Warehouse Facilities
The assets are paid for up front and put in a warehouse and gradually drop down to the purchaser.Ususally the drop down takes place over a 5 to 10 year term.This is an example of the new and creative financing that utilities are exploiting.Also Atlantic Power gets it's EBITDA for the first few years of ownership and maybe up to the second half of 2016.But with the sale there is no addition of debt to it's balance sheet.ATP is trying not to add more debt to it's balance sheet.
This is creative financing for Sun Edison but it has the financial muscle to pull it off.Atlantic Power is smaller and it's credit rating is not quite as good but it could try setting up a warehouse facility in the future.But it is also true that ATP would have to take on the original debt or at least back it until it arranged a term loan..Ideally it would start with a smaller asset and have only a 3 to 4 year term loan.Nevertheless there are opportunities out there and Atlantic Power has shown itself to be a creative operator.
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