PrefBlog

Innergex Renewable Energy Inc. has announced:

that it will be issuing 3,400,000 Cumulative Rate Reset Preferred Shares, Series A (the “Series A Preferred Shares”) for aggregate gross proceeds of $85 million on a bought deal basis to a syndicate of underwriters led by BMO Capital Markets and TD Securities Inc.

The Series A Preferred Shares will pay cumulative dividends of $1.25 per share per annum, yielding 5.00% per annum, payable quarterly, for the initial five year period ending January 15, 2016. The dividend rate will be reset on January 15, 2016 and every five years thereafter at a rate equal to the 5-year Government of Canada bond yield plus 2.79%. The Series A Preferred Shares will be redeemable by Innergex on or after January 15, 2016, in accordance with their terms.

Holders of the Series A Preferred Shares will have the right, at their option, to convert their shares into Cumulative Floating Rate Preferred Shares, Series B, (the “Series B Preferred Shares”) subject to certain conditions, on January 15, 2016 and on January 15 every five years thereafter. Holders of the Series B Preferred Shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 2.79%.

As stated by Michel Letellier, President and Chief Executive Officer of Innergex: “With this transaction, Innergex’s capital structure is more diversified and will appeal to a broader investor base”. Net proceeds resulting from the sale of the Series A Preferred Shares will be used by Innergex to enhance its financial flexibility, to reduce indebtedness and for general corporate purposes.

The Series A Preferred Shares will be offered for sale to the public in each of the provinces of Canada pursuant to a short form prospectus of Innergex to be filed with Canadian securities regulatory authorities in all Canadian provinces. The offering is scheduled to close on or about September 14, 2010, subject to certain conditions, including obtaining all necessary regulatory approvals.

Furthermore, Innergex will be filing a revised Annual Information Form which takes into account the previously completed combination of the Corporation with Innergex Power Income Fund.

Innergex Renewable Energy Inc. is a leading developer, owner and operator of run-of-river hydroelectric facilities and wind energy projects in North America. Innergex’s management team has been involved in the renewable power industry since 1990. Innergex owns a portfolio of projects which consists of: i) interests in 17 operating facilities with an aggregate net installed capacity of 326 MW; ii) interests in 7 projects under development with an aggregate net installed capacity of 203 MW for which power purchase agreements have been secured; and iii) prospective projects of more than 2,000 MW (net).

The issue is rated P-3 by S&P and Pfd-3(low) by DBRS. The first dividend, if declared, shall be payable on January 17, 2011, the first business day after January 15, 2011 for $0.42123 per Series A Preferred Share, based on closing September 14, 2010.

More junk!

Update: DBRS comments:

While the Company’s existing assets would be expected to produce reasonable financial results and credit metrics under a steady-state scenario, the capital program will require significant financing beyond internally generated cash flow, expected to consist largely of debt. Furthermore, DBRS expects that Innergex will maintain a high common dividend payout ratio (in excess of 100% of net income) throughout the medium term. As such, consolidated credit metrics are expected to remain tight for the rating category through the medium term, with EBITDA-to-interest in the area of 2.5 times (x) and cash flow-to-debt in the 8% to 10% range. DBRS would expect future modest improvement in coverage metrics when assets under development are completed and enter service. Debt-to-capital, currently 62%, would be expected to migrate upward over time, given the significant common dividends.

The proceeds from the intended $85 million preferred share offering will be used to refinance existing debt and to fund future capital expenditures. While the amount of preferred shares will comprise a material portion of the capital structure, particularly in relation to the book value of shareholders’ equity, DBRS is comfortable with the provisional Pfd-3 (low) rating given the stability of the underlying business (largely attributable to the young generating fleet and strong PPAs), as well as the significant financial cushion that the common dividends provide.

Eight of the Company’s 14 operating assets have non-recourse debt totalling approximately $320 million; while selective use of project financing can serve to isolate business risk at the individual asset level, the asset-level debt obligations rank ahead of Innergex’s obligations.

Update, 2010-9-8: DBRS has finalized the rating at Pfd-3(low) with a stable trend.

This entry was posted on Monday, August 23rd, 2010 at 11:08 am and is filed under New Issues. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.