NextEra Energy to Acquire 1,080-MW Net Interest in Portfolio

(NextEra, 18.Nov.2022) — NextEra Energy Partners, LP (NYSE: NEP) has entered into an agreement with subsidiaries of NextEra Energy Resources, LLC to acquire a 49% interest in an approximately 1.5-gigawatt renewables portfolio and approximately 100% of the indirect membership interests in an approximately 345-megawatt (MW) portfolio of operating wind assets. Immediately following the acquisition, NextEra Energy Partners will contribute its interests in the newly acquired projects and in six existing renewables assets to a new portfolio.

In conjunction with the acquisition and creation of the new portfolio, NextEra Energy Partners has entered into a convertible equity portfolio financing with Ontario Teachers’ Pension Plan Board (Ontario Teachers’), a leading global infrastructure investor, to invest $805mn into the new portfolio.

Highlights:

  • Announces agreement to acquire a 49% interest in an approximately 1.5-gigawatt renewables portfolio and approximately 100% of the indirect membership interests in an approximately 345-MW portfolio of operating wind assets
  • Enters into agreement for a 10-year convertible equity portfolio financing for $805 million that includes the newly acquired assets plus six existing NextEra Energy Partners’ wind projects

“The transactions announced today demonstrate NextEra Energy Partners’ continued ability to execute on its long-term growth plan and continued access to attractive low-cost sources of capital,” said John Ketchum, chairman and chief executive officer. “The acquisition of the high-quality, long-term contracted renewable energy assets further enhances the diversity of the partnership’s existing portfolio. Combining this acquisition with the recapitalization of six existing NextEra Energy Partners’ assets through the convertible equity portfolio financing with a global infrastructure investor is expected to provide significant benefits for unitholders, including a low cash coupon and the ability to retain upside from the share price appreciation for up to 10 years. This significant access to low-cost capital leaves NextEra Energy Partners uniquely positioned to take advantage of the transformation underway in the energy industry and meet its long-term growth objectives. In our view, NextEra Energy Partners remains well positioned to deliver unitholder value going forward.”

Portfolio acquisition details

The contracted renewables portfolio of wind and solar assets to be acquired has a cash available for distribution (CAFD)-weighted remaining contract life of approximately 15 years and average customer credit rating of A+ at S&P and A2 at Moody’s Investors Service. The assets included are:

  • 49% of the membership interests in Emerald Breeze, an existing portfolio holding company, which indirectly owns:
    • Great Prairie Wind, an approximately 1,029-MW wind generation facility located in Texas and Oklahoma.
    • Appaloosa Run Wind, an approximately 172-MW wind generation facility located in Texas.
    • Eight Point Wind, an approximately 111-MW wind generation facility located in New York.
    • Yellow Pine Solar, an approximately 125-MW solar generation and 65-MW storage facility located in Nevada.
  • 100% of the indirect membership interests in:
    • Elk City Wind II, an approximately 107-MW wind generation facility located in Oklahoma.
    • Sac County Wind, an approximately 80-MW wind generation facility located in Iowa.
    • Sholes Wind, an approximately 160-MW wind generation facility located in Nebraska.

NextEra Energy Partners expects to acquire the interests in the assets for total consideration of approximately $805mn, plus the assumption of its share of the portfolio’s estimated $1.5bn in tax equity financing, subject to working capital and other adjustments. NextEra Energy Partners expects to complete the acquisition later this year, subject to customary closing conditions. At the time of the closing, all of the assets other than Appaloosa Run Wind, Eight Point Wind and Yellow Pine Solar will be in operation, with Appaloosa Run Wind and Eight Point Wind expected to be in service in December 2022 and Yellow Pine Solar scheduled to begin initial operations by the end of the third quarter of 2023. If any of those projects do not achieve commercial operation by 30 Nov. 2023, NextEra Energy Partners will have the right to require the seller to repurchase the ownership interests in such projects for the same purchase price paid by NextEra Energy Partners. Following the acquisition and all of the projects achieving commercial operation, the portfolio of assets is expected to contribute adjusted EBITDA of approximately $210mn to $230mn and CAFD of approximately $62mn to $72mn, each on a five-year average annual run-rate basis, beginning 31 Dec. 2023.

Creation of a new portfolio

Immediately following the acquisition, NextEra Energy Partners will contribute its interests in the newly acquired projects to a new portfolio alongside six of the partnership’s existing wind assets: Alta Wind VIII, Brady Wind, Brady Wind II, Golden West Wind, Osborn Wind and Oliver Wind III.

Financing details

In conjunction with the acquisition and creation of the new portfolio, NextEra Energy Partners has entered into a convertible equity portfolio financing agreement of approximately $805mn with Ontario Teachers’ (the investor). Under the terms of the financing, the investor will initially fund approximately $645mn, which will be used by NextEra Energy Partners to finance its acquisition of the newly acquired assets. A second funding of approximately $160mn is expected to occur by the end of the third quarter of 2023 upon the achievement of the commercial operations of Appaloosa Run Wind, Eight Point Wind and Yellow Pine Solar.

The investor is expected to earn an effective annual coupon of approximately 2.8% on the outstanding investment over its initial 10-year period. The financing is expected to provide NextEra Energy Partners the flexibility to periodically buy out the investor’s equity interest at a fixed approximately 7.0% pre-tax annual return (inclusive of all prior distributions) between the 5-year and 10-year anniversaries of the agreement. NextEra Energy Partners has the right to pay 100% of the buyout amount in NextEra Energy Partners common units, issued at no discount to the then-current market price.

Outlook

From a base of its fourth quarter 2021 distribution per common unit at an annualized rate of $2.83, NextEra Energy Partners continues to expect 12% to 15% growth per year in limited partner distributions per unit as being a reasonable range of expectations through at least 2025, subject to the usual caveats. NextEra Energy Partners expects the annualized rate of the fourth-quarter 2022 distribution that is payable in February 2023 to be in a range of $3.17 to $3.25 per common unit.

NextEra Energy Partners continues to expect year-end 2022 run-rate adjusted EBITDA and CAFD in the ranges of $1.785 billion to $1.985bn and $685mn to $775mn, respectively, reflecting calendar year 2023 contributions from the forecasted portfolio at the end of 2022.

NextEra Energy Partners also continues to expect 31 Dec. 2023, run-rate expectations for adjusted EBITDA in a range of $2.220bn to $2.420bn and CAFD in a range of $770mn to $860mn, reflecting calendar year 2024 expectations for the portfolio at year-end 2023.

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.

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 (4) maintenance capital, less (5) income tax payments less, (6) 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 and limited partner distributions and other expectations assume, among other things, normal weather and operating conditions; positive macroeconomic conditions in the U.S.; 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; access to capital at reasonable cost and terms; and no changes to governmental policies or incentives. 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 expected net income because NextEra Energy Partners’ net income includes unrealized mark-to-market gains and losses related to derivative transactions, which cannot be determined at this time.

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