PVTIME – NextEra Energy Partners, LP (NYSE: NEP) today announced that it has entered into an agreement with a subsidiary of NextEra Energy Resources, LLC to acquire a 50% interest in an approximately 2,520-megawatt (MW) renewables portfolio. In conjunction with the acquisition, NextEra Energy Partners has also entered into an approximately $824 million convertible equity portfolio financing with Apollo Global Management (Apollo).
“The transactions announced today support NextEra Energy Partners’ continued ability to execute on its long-term growth plan and access attractive low-cost sources of capital,” said Jim Robo, chairman and chief executive officer. “The acquisition of the high-quality, long-term contracted renewable energy assets extends the partnership’s geographic footprint into three new states and expands its ownership of battery storage assets, which would total nearly 90 megawatts at close. Additionally, the convertible equity portfolio financing we are announcing today is the lowest cost in the partnership’s history, with a more than 250 basis points lower implied return to the investor in the buyout price than the first iterations of the structure in 2018 and early 2019. This significant access to low-cost capital and access to NextEra Energy Resources’ industry-leading renewables portfolio enables NextEra Energy Partners to be uniquely positioned to take advantage of the clean energy transformation and meet its long-term growth objectives.”
Portfolio acquisition details
The contracted renewables portfolio of wind, solar and solar-plus-storage assets has a strong and diverse mix of investment-grade counterparties and cash available for distribution (CAFD)- weighted remaining contract life of approximately 19 years. The portfolio to be acquired by NextEra Energy Partners consists of 50% of the indirect membership interests in:
- White Mesa Wind, an approximately 501-MW wind generation facility in Texas.
- Irish Creek Wind, an approximately 301-MW wind generation facility in Kansas.
- Hubbard Wind, an approximately 300-MW wind generation facility in Texas.
- Cool Springs Solar, an approximately 213-MW solar generation and 40-MW solar storage facility in Georgia.
- Little Blue Wind, an approximately 251-MW wind generation facility in Nebraska.
- Dodge Flat Solar, an approximately 200-MW solar generation and 50-MW solar storage facility in Nevada.
- Elora Solar, an approximately 150-MW solar generation facility in Tennessee.
- Quitman II Solar, an approximately 150-MW solar generation facility in Georgia.
- Fish Springs Ranch Solar, an approximately 100-MW solar generation and 25-MW solar storage facility in Nevada.
- Minco Wind Energy III, an approximately 107-MW wind generation facility in Oklahoma.
- Ensign Wind Energy, an approximately 99-MW wind generation facility in Kansas.
- Borderlands Wind, an approximately 99-MW wind generation facility in New Mexico.
- Quinebaug Solar, an approximately 49-MW solar generation facility in Connecticut.
NextEra Energy Partners expects to acquire the interests in the assets for a total consideration of approximately $849 million, subject to working capital and other adjustments, plus NextEra Energy Partners’ share of the portfolio’s total tax equity financings, which is estimated to be approximately $866 million at the time of closing. The acquisition is expected to contribute adjusted EBITDA of approximately $184 million to $194 million and CAFD of approximately $58 million to $67 million, each on a five-year average annual run-rate basis, as of Dec. 31, 2022.
NextEra Energy Partners expects to close the acquisition later this year or in early 2022, subject to customary closing conditions and receipt of certain regulatory approvals.
Immediately following the acquisition, NextEra Energy Partners will contribute its interests in the newly acquired assets to a new portfolio. In conjunction with the acquisition and creation of the new portfolio, NextEra Energy Partners has entered into an approximately $824 million convertible equity portfolio financing agreement with Apollo.
The financing will provide NextEra Energy Partners with the flexibility to periodically buy out the investor’s equity interest in the portfolio between the five- and 10-year anniversaries of the agreement at a fixed pre-tax annual return of approximately 5.6% (inclusive of all prior distributions). NextEra Energy Partners will have the right to pay 100% of the buyout price in NextEra Energy Partners’ common units, issued at no discount to the then-current market price.
When fully drawn, the convertible equity portfolio financing agreement will allocate at least 35% of the portfolio’s cash flows to NextEra Energy Partners over the initial 10-year period, subject to certain minimum buyout thresholds being met beginning at the end of year six. This cash flow allocation implies an approximately 4.8% effective annual coupon on the investor’s outstanding investment over the initial period prior to NextEra Energy Partners’ anticipated initiation of periodic buyouts of the investor’s equity interest.
NextEra Energy Partners continues to expect to be in the upper end of its previously disclosed year-end 2021 run-rate adjusted EBITDA and CAFD expectations ranges of $1.44 billion to $1.62 billion and $600 million to $680 million, respectively. The current year-end 2021 adjusted EBITDA and CAFD expectations ranges exclude contributions from the approximately 1,260 MW of acquisitions that the partnership is announcing today due to uncertainty in regulatory approval timelines. These contributions are included in the partnership’s previously disclosed year-end 2022 adjusted EBITDA and CAFD expectations ranges.
NextEra Energy Partners’Dec. 31, 2022, run-rate expectations as announced on Oct. 20, 2021, remain unchanged. Adjusted EBITDA is expected to be in a range of $1.775 billion to $1.975 billion and CAFD is expected to be in a range of $675 million to $765 million, reflecting calendar year 2023 expectations for the forecasted portfolio at year-end 2022.
These expectations are subject to the usual caveats and include the impact of incentive distribution rights (IDR) fees, as these fees are treated as an operating expense.
From a base of its fourth-quarter 2020 distribution per common unit at an annualized rate of $2.46 per common unit, NextEra Energy Partners continues to expect 12% to 15% per year growth in limited partner distributions as being a reasonable range of expectations through at least 2024, subject to the usual caveats. NextEra Energy Partners expects the annualized rate of the fourth-quarter 2021 distribution, which is payable in February 2022, to be in a range of $2.76 to $2.83 per common unit.
This news release refers to adjusted EBITDA and CAFD expectations. NextEra Energy Partners’ adjusted EBITDA expectations represent projected (a) revenue less (b) fuel expense, less (c) project operating expenses, less (d) corporate G&A, plus (e) other income less (f) other deductions including IDR fees. Projected revenue as used in the calculations of projected EBITDA represents the sum of projected (a) operating revenues plus (b) a pre-tax allocation of production tax credits, plus (c) a pre-tax allocation of investment tax credits plus (d) earnings impact from convertible investment tax credits and plus (e) the reimbursement for lost revenue received pursuant to a contract with NextEra Energy Resources.
CAFD is defined as cash available for distribution and represents adjusted EBITDA less (1) a pre-tax allocation of production tax credits, less (2) a pre-tax allocation of investment tax credits, less (3) earnings impact from convertible investment tax credits, less (4) debt service, less (5) maintenance capital, less (6) income tax payments less, (7) other non-cash items included in adjusted EBITDA if any. CAFD excludes changes in working capital and distributions to preferred equity investors.
Adjusted EBITDA, CAFD, limited partner distribution and other expectations assume, among other things, normal weather and operating conditions; public policy support for wind and solar development and construction; market demand and transmission expansion support for wind and solar development; market demand for pipeline capacity; and access to capital at reasonable cost and terms. Please see the accompanying cautionary statements for a list of the risk factors that may affect future results. Adjusted EBITDA and CAFD do not represent substitutes for net income, as prepared in accordance with GAAP. The adjusted EBITDA and CAFD run-rate expectations have not been reconciled to GAAP net income because NextEra Energy Partners’ GAAP net income includes unrealized mark-to-market gains and losses related to derivative transactions, which cannot be determined at this time.