PrefBlog

Brookfield Renewable Energy Partners L.P. has announced:

an agreement to acquire a 488 MW multi-technology renewable portfolio in Brazil from Energisa S.A. The transaction represents a total enterprise value of approximately $R2.4 billion (US$935 million), subject to working capital adjustments. The equity purchase price is $R1.4 billion (US$545 million), net of assumed long-term non-recourse debt. Brookfield Renewable will acquire and fund the transaction with its institutional partners and maintain an economic interest in the portfolio of approximately 40 percent.
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The acquisition will be funded through available capital from Brookfield Renewable and its institutional partners. The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close in the first quarter of 2015.

Brookfield Renewable Power Preferred Equity Inc. is a wholly owned subsidiary of Brookfield Renewable Energy Partners L.P., and is the issuer of record for BRF.PR.A, BRF.PR.C, BRF.PR.E and BRF.PR.F. The first two are FixedResets, the second two are Straight Perpetuals, all are tracked by HIMIPref™ and all are relegated to the Scraps index on credit concerns.

I have no idea why they issue these things through a subsidiary, quite frankly. At any rate, the guarantee is solid enough (sample language taken from BRF.PR.E prospectus dated 2013-1-22):

As described below, the Series 5 Shares will be guaranteed by the Partnership, Brookfield Renewable Energy L.P. (“BRELP”), Brookfield BRP Holdings (Canada) Inc. (“CanHoldco”) and BRP Bermuda Holdings I Limited (“Bermuda Holdco”, and collectively with the Partnership, BRELP and CanHoldco, the “Guarantors”).
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Each Series 5 Share will be fully and unconditionally guaranteed, jointly and severally, by the Guarantors as to (i) the payment of dividends, as and when declared, (ii) the payment of amounts due on redemption of the Series 5 Shares, and (iii) the payment of the amounts due on the liquidation, dissolution and winding-up of the Corporation (the “Series 5 Guarantee”). As long as the declaration or payment of dividends on the Series 5 Shares are in arrears, the Guarantors will not make any distributions or pay any dividends on their respective equity securities or make any distributions or pay any dividends on securities of any successor entity to the Guarantors. The Series 5 Guarantee will be subordinated to all of the respective senior and subordinated debt of the Guarantors that is not expressly stated to be pari passu with or subordinate to the Series 5 Guarantee and will rank senior to the equity securities of the Guarantors. The Series 5 Guarantee will rank on a pro rata and pari passu basis with the obligations of the Guarantors under similar guarantees that may be provided by the Guarantors in respect of other Class A Preference Shares of the Corporation.

The rights, obligations and liabilities of a Guarantor pursuant to the Series 5 Guarantee will terminate upon the conveyance, distribution, transfer or lease of all or substantially all of its properties, securities and assets to another Guarantor. A Guarantor may not otherwise convey, distribute, transfer or lease all or substantially all of its properties, securities and assets to another person, unless the person which acquires the properties, securities and assets of such Guarantor assumes such Guarantor’s obligations under the Series 5 Guarantee.

There is no word from the credit agencies as yet regarding their perceptions of the deal, but it will be remembered that on November 4 I reported:

Brookfield’s aggressive approach to expansion has cost Brookfield Renewable Energy Partners L.P. it’s S&P ‘Positive’outlook:

• •We are revising our outlook on Brookfield Renewable Energy Partners L.P. (BREP) to stable from positive.
• •The outlook revision reflects our assessment of the amount of debt being maintained at the parent level in relation to parent-only cash flow that the partnership is generating.
• •We are also affirming our ratings on BREP and subsidiaries Brookfield Renewable Power Preferred Equity Inc. and BRP Finance ULC, including our ‘BBB’ long-term corporate credit rating on BREP.

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At the same time Standard & Poor’s affirmed its ratings on BREP and subsidiaries Brookfield Renewable Power Preferred Equity Inc. and BRP Finance ULC, including its ‘BBB’ long-term corporate credit rating on BREP.

The outlook revision reflects our view of the company’s ability to generate strong remittable cash flows from its holdings and its increased level of holding company (holdco) recourse debt. The company has articulated a policy of maintaining relatively low levels of leverage at the holdco level with leverage at the holdco used opportunistically for acquisitions with equity as market conditions allow. However, during the course of the year, the company has made a number of acquisitions that, although partially funded with new equity issuance, maintained a higher level of debt at the holdco. This has resulted in lower credit metrics.
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The stable outlook reflects our expectation that BREP will continue to increase its parent-only cash flow while maintaining modest amounts of debt at the holding company as well as maintaining the highly contracted and well-diversified portfolio of generation assets.

We could raise the ratings if we believe that parent-only cash flow to debt will continue at or above 30% assuming the current quality of cash flow score of ‘4’.

We could lower the rating if the partnership is unable to maintain parent-only cash flow to debt above 23% or if there is deterioration in the quality of cash flow score. This could result from acquisitions financed with substantially higher levels of holding-company debt or a material change in the partnership’s contractual profile.

This entry was posted on Saturday, November 22nd, 2014 at 1:30 am 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.