TORONTO, ONTARIO–(Marketwired – Dec. 15, 2016) – Today Capstone Infrastructure Corporation (“Capstone” or the “Corporation”) (TSX:CSE.PR.A) announced that it has completed a transaction with its ultimate parent entity, iCON Infrastructure Partners III, L.P. (“iCON III”), to sell its 50% indirect interest in Bristol Water plc (“Bristol Water”), a regulated water utility in the United Kingdom, for £115.6 million. This transaction provides several benefits to Capstone, including a material reduction in corporate debt, the realization of a successful investment, the reduction of regulatory and foreign currency risk, and the re-focusing of the business as a pure-play Independent Power Producer better positioning Capstone for future sustainable growth in the sector in Canada.
Bristol Water is a business that continues to serve its customers well, however, following the challenging price review for the 2015-2020 period, dividends from Bristol Water are expected to be materially lower than originally anticipated, and as a result Bristol Water’s cash flow profile is no longer consistent with Capstone’s investment objectives. Capstone’s net investment for its 50% interest in Bristol Water was approximately £90 million. The purchase price represents a significant premium to Capstone’s net investment, which is reflective of the significant investment and growth in Regulatory Capital Value (“RCV”) during the tenor of Capstone’s ownership. Capstone realized an attractive total return in Canadian dollars of approximately 8% per annum, which reflects approximately £16 million of dividends received over the course of ownership and capital appreciation realized from this sale.
The purchase price represents an attractive valuation at approximately 1.2x March 2016 rate base of £441 million, which is consistent with other recent transactions in the sector and equivalent, on a pro rata basis, to the price iCON III agreed to pay to Agbar for its 30% interest in Bristol Water in a transaction announced last month.
The transaction was reviewed and approved by a special committee of independent directors of the Corporation (the “Special Committee”). In the course of its deliberations, the Special Committee retained Fasken Martineau DuMoulin LLP as its legal counsel and engaged the UK firm of Ernst & Young LLP (“EY”) as its valuation advisor. EY delivered a fairness opinion to the Special Committee to the effect that the price received by the Corporation in the transaction is fair, from a financial point of view, to the Corporation.
Proceeds from the sale will be used to eliminate $194 million of the outstanding $291 million balance of the promissory note issued by Capstone to Irving Infrastructure Corp. on April 29, 2016. Accordingly, following the transaction, debt of the Corporation will be substantially reduced with the outstanding balance of the promissory note falling to approximately $97 million.
The sale of Bristol Water allows Capstone management to focus its efforts on the operations of Capstone’s core power business as well as growth in the power sector across Canada to deliver long-term value creation. “The sale of Bristol Water not only allows for a significant reduction in Capstone’s debt, but also allows us to reduce costs and continue growth in our core business of developing, owning and operating power assets in Canada,” commented Michael Smerdon, Capstone’s Chief Financial Officer. “We have reduced regulatory and currency uncertainty in our portfolio and continue to pursue opportunities that deliver long-term value for our shareholders.”
The Capstone power portfolio reported adjusted EBITDA (“AEBITDA”) and funds from operations (“AFFO”)1 over the 12 months ending September 30, 2016 of $82.5 million and $32.5 million, respectively (excluding net contributions from OEFC proceeds awarded for retroactive payments to Cardinal and the Ontario hydro facilities). Capstone’s power portfolio is strong and growing with a weighted average remaining contractual life left on its power purchase agreements (“PPAs”) of 14.5 years which has increased in length with the completion of recent wind farm development projects.
ABOUT CAPSTONE INFRASTRUCTURE CORPORATION
Capstone owns Capstone Power Corp. (100% ownership), which owns, operates and develops thermal and renewable power generation facilities in Canada with a total installed capacity of net 505 megawatts, and Capstone also has a shareholding in Värmevärden (33.3% ownership), a district heating business in Sweden. Please visit www.capstoneinfrastructure.com for more information.
NOTICE TO READERS
Certain of the statements contained within this document are forward-looking and reflect management’s expectations regarding the future growth, results of operations, performance and business of the Corporation based on information currently available to the Corporation. Forward-looking statements are provided for the purpose of presenting information about management’s current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. These statements use forward-looking words, such as “anticipate”, “continue”, “could”, “expect”, “may”, “will”, “intend”, “estimate”, “plan”, “believe” or other similar words.
These statements are subject to known and unknown risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied by such statements and, accordingly, should not be read as guarantees of future performance or results. The forward-looking statements within this document are based on information currently available and what the Corporation currently believes are reasonable assumptions.
The forward-looking statements within this document reflect current expectations of the Corporation as at the date of this document and speak only as at the date of this document. Except as may be required by applicable law, the Corporation does not undertake any obligation to publicly update or revise any forward-looking statements.
This document is not an offer or invitation for the subscription or purchase of or a recommendation of securities. It does not take into account the investment objectives, financial situation and particular needs of any investors. Before making an investment in the Corporation, an investor or prospective investor should consider whether such an investment is appropriate to their particular investment needs, objectives and financial circumstances and consult an investment adviser if necessary.
1 AEBITDA and AFFO are non-GAAP financial measure that assist management and stakeholders in analyzing the cash flow available for future growth capital investments, acquisitions and dividends available to the preferred shareholders and Capstone’s common shareholder. For reconciliations of AEBITDA and AFFO to Net Income, see management’s discussion and analysis of the Corporation’s interim financial results as at and for the three and nine months ended September 30, 2016, which is available under the Corporation’s profile on www.sedar.com.
Michael Smerdon
Executive Vice President and Chief Financial Officer
(416) 649-1300
msmerdon@capstoneinfra.com
www.capstoneinfrastructure.com