PrefBlog

Brookfield Renewable is making a big fat acquisition:

Brookfield Renewable Energy Partners L.P. (TSX: BEP.UN; NYSE: BEP) (“Brookfield Renewable”) today announced that with its institutional partners it has committed to acquire 57.6% of the outstanding common shares of Isagen S.A. (“Isagen”) from the Colombian government. Isagen owns and operates a renewable energy portfolio consisting of 3,032 MW of principally hydroelectric generating capacity and a 3,800 MW development portfolio in Colombia.

A Brookfield led consortium will acquire 1,570,490,767 common shares of Isagen for aggregate consideration of COP 6,486 billion1 (approximately US$2.2 billion), payable in cash in US dollars on the expected closing date of January 26, 2016. This reflects a purchase price of COP 4,130 per share (approximately US$1.38). Brookfield Renewable’s equity commitment will be approximately US$243 million giving it an approximate 9% interest in Isagen. Brookfield Renewable currently has $1.2 billion of available liquidity and will fund its commitment with available resources.

DBRS notes:

The Acquisition is expected to close on January 26, 2016. As part of the Acquisition, two mandatory tender offers (MTO) will also be provided to all remaining shareholders of ISAGEN within six months after closing of the initial investment. This could increase BREP’s equity commitment by approximately $517 million if all remaining ISAGEN shares are tendered, which would bring BREP’s interest in ISAGEN to approximately 25%. BREP is expected to initially fund its $243 million equity commitment with $1.2 billion of available liquidity (comprising available credit facilities and cash on hand). The additional MTO commitment is expected to initially be funded with a $500 million acquisition facility and existing liquidity. The rating actions largely reflect the current uncertainty with the final MTO commitment net to BREP and the Company’s permanent financing strategy for the Acquisition. The Acquisition is not expected to have a significant impact on the Company’s business risk profile.
…
BREP’s financial risk profile is based on its deconsolidated key credit metrics. The Acquisition (including the MTO commitment), combined with the 292 MW Pennsylvania hydroelectric portfolio acquisition (the Pennsylvania Acquisition) expected to close in Q1 2016 (see DBRS press release dated October 9, 2015), have increased the funding pressure on the Company’s deconsolidated balance sheet over the near term as the Company finalizes its permanent financing alternatives for these growth initiatives. Pro forma the (1) $243 million initial investment in the Acquisition, (2) $224 million equity commitment for the Pennsylvania Acquisition, (3) CAD 175 million Preferred LP Units issuance in December 2015 and (4) $135 million of incremental proceeds from the Bear Swamp refinancing in October 2015, BREP’s deconsolidated debt-to-capital was approximately 25% as of September 30, 2015. Assuming the MTO is fully tendered, the $517 million equity commitment would result in a pro forma deconsolidated debt-to-capital of approximately 28%. DBRS notes that BREP’s ratings reflect the Company’s history of prudently financing its growth initiatives to maintain its deconsolidated key credit metrics at a level that is commensurate with the BBB (high) rating category, which has included a mix of equity, preferred shares, asset divestitures and debt. In its review, DBRS will assess BREP’s permanent financing plan and the impact on the Company’s deconsolidated key credit metrics. Upon final review, if the Company prudently finances the Acquisition in a way that its deconsolidated debt-to-capital remains around the 20% threshold over time, and other deconsolidated credit metrics, such as cash flow-to-debt and interest coverage ratios, remain supportive of the current rating, DBRS will likely confirm BREP’s ratings. However, if the Company finances the Acquisition in such a way that its non-consolidated debt-to-capital structure exceeds 20% significantly on a sustained basis and its other non-consolidated credit metrics deteriorate significantly without corrective action within a reasonable time frame, then a negative rating action is likely to occur.

DBRS will proceed with its review as more information becomes available and aims to resolve the Under Review status once the equity commitment (pending MTO clarity) and permanent financing details are known.

Brookfield Renewable is the proud issuer of BRF.PR.A, BRF.PR.B, BRF.PR.C, BRF.PR.E and BRF.PR.F. One of these issues, BRF.PR.E, is the subject of an Exchange Offer that will expire January 20.

This entry was posted on Thursday, January 14th, 2016 at 3:13 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.