PrefBlog

Brookfield has announced:

a plan to combine Brookfield Renewable Power Fund and the power generating assets owned Brookfield Renewable Power Inc., to create Brookfield Renewable Energy Partners L.P. (“BREP”), a global, publicly-traded partnership focused on renewable power generation.
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The transaction will require approval by 662/3% of Fund unitholders and a majority of unitholders other than Brookfield and related persons present at the meeting in person or by proxy and Ontario court approvals. In addition, Brookfield will seek approval from 662/3% of the holders of Preferred Shares and Brookfield Renewable Power’s unsecured bondholders, which are conditions to closing. Meeting materials containing details of the proposed transaction are expected to be mailed to security holders of the Fund, Brookfield Renewable Power Equity and Brookfield Renewable Power as soon as practicable. It is anticipated that meetings of security holders to seek the approvals referred to above will be held in October and November of 2011.

In response, DBRS has announced:

has today placed the Senior Unsecured Debentures and Notes rating of Brookfield Renewable Power Inc. (BRPI) Under Review with Developing Implications. DBRS has also placed the Issuer Rating and Income Fund rating of Brookfield Renewable Power Fund (the Fund) and the Preferred Shares, Series 1 (the Preferred Shares) rating of the Fund affiliate Brookfield Renewable Power Preferred Equity Inc. (Equity Inc.) Under Review with Developing Implications.
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Equity Inc.’s Preferred Shares will become the obligation of a BREP subsidiary, guaranteed on a subordinate basis by BREP, mimicking the current structure under which the Preferred Shares are guaranteed on a subordinate basis by the Fund. Similar to the Fund, BREP would feature a contracted generation portfolio, with a weighted-average term of approximately 24 years. For the Preferred Shareholders, DBRS views the Transaction as offering a number of positive aspects that reduce business risk:

(1) BREP would be a much larger and more diverse renewable generator than the Fund, with the addition of contracted assets in the United States and Brazil. BREP’s approximate $13 billion in total assets would be more than double the Fund’s current size (C$5.6 billion as of June 30, 2011). BREP’s generating capacity (approximately 4,400 MW) is also substantially larger than that of the current Fund (approximately 1,700 MW). As mentioned above, BREP is expected to generate $1.1 billion annual EBITDA and $550 million cash flow from operations, based on long-term average hydrology and production levels. The added geographic diversity would result in lower exposure to weak hydrology in any one area.

(2) Average contract prices for the Ontario generation operations, which represent approximately 50% of the Fund’s production, will increase from C$68/MWh to C$88/MWh.

(3) Counterparty exposure to BRPI will be reduced. Currently, BRPI is the counterparty on more than 70% of the Fund’s revenues (DBRS estimate); with the addition of the new assets, this concentration is expected to decline to the range of 50% to 60%.

(4) BREP is expected to have improved access to equity capital given its larger market capitalization and broader investor base.

However, the Transaction is expected to increase the financial risk from the perspective of the Preferred Shareholders as post-Transaction, the Preferred Shares would rank behind the C$1.1 billion of MTNs as opposed to behind the minimal levels of Fund-level debt that existed historically. Additionally, many of the U.S. and Brazilian generating assets have existing non-recourse project debt (as do many of the Fund’s current assets). DBRS views this negative effect as being balanced by the above-mentioned improvement in business risk resulting from the much larger, diverse contracted asset base and, therefore, as neutral from the perspective of an Equity Inc. Preferred Shareholder.

This entry was posted on Tuesday, September 13th, 2011 at 9:09 pm and is filed under Issue Comments. 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.