NextEra Energy Partners, LP announced that it has completed the previously announced acquisition of NET Midstream, a privately held developer, owner and operator of a portfolio of seven long-term contracted natural gas pipeline assets located in Texas. NextEra Energy Partners also announced the completion of the acquisition of the 149 MW Jericho Wind Energy Center in Ontario, Canada, from a subsidiary of its sponsor, NextEra Energy Resources, LLC. In addition, the partnership has closed US$600 million of term loans, which completes its financing for the NET Midstream and Jericho acquisitions.
Comments from NextEra
"I'm very pleased that we have completed the necessary financing and closed these two acquisitions, which support our growth strategy," said Jim Robo, Chairman and Chief Executive Officer. "The NET Midstream acquisition establishes NextEra Energy Partners' presence in the long-term contracted natural gas pipeline space and complements the partnership's existing renewables portfolio by reducing the impact of resource variability on our total portfolio. The Jericho acquisition further expands NextEra Energy Partners' renewables portfolio, demonstrating the strength of the pipeline for drop-downs from its sponsor. We expect both of these acquisitions to provide attractive yields to our investors, and we continue to view NextEra Energy Partners as the premier yieldco in the space."
The seven pipelines
The seven natural gas pipelines in the portfolio are all strategically located, serving power producers and municipalities in South Texas, processing plants and producers in the Eagle Ford Shale, and residential, commercial and industrial customers in the Houston area. The NET Mexico Pipeline, the largest pipeline in the portfolio, provides a critical source of natural gas transportation for low-cost, US-sourced shale gas to Mexico under a 20 year ship-or-pay contract with a BBB+-rated, wholly owned subsidiary of Pemex Gas y Petroquimica Basica, a division of PEMEX, the Mexican state-owned oil and gas company. The NET Mexico Pipeline is 10% owned by a PEMEX subsidiary. The combined acquisition portfolio includes 3 billion ft3/d of ship-or-pay contracts, with on average investment-grade counterparty credit and long-term contracted assets with a 16 year average contract life. The three largest pipelines in the portfolio have planned growth and expansion projects that, if completed, are expected to provide approximately 1 billion ft3/d of additional contracted volumes.
The cost of acquisition
NextEra Energy Partners acquired NET Midstream for a total transaction value of approximately US$2.1 billion, including US$934 million in cash consideration and the assumption of approximately US$654 million in existing debt, and excluding post-closing working capital and other adjustments. Of the US$2.1 billion, roughly US$500 million will be deferred, with US$200 million payable 18 months after closing contingent upon no breach of representations and warranties by the seller, up to US$200 million payable for certain expansion projects contingent upon satisfaction of certain financial performance and capital expenditure thresholds, and, if successful, up to approximately US$100 million of capital expenditures for the expansion projects. The US$300 million for the expansion projects is expected to be financed almost entirely with incremental future debt.
NextEra Energy Partners expects the NET Midstream acquisition to contribute adjusted EBITDA and CAFD of approximately US$145 million - US$155 million and US$110 million - US$120 million, respectively, on an annual run rate basis as of 31 December 2015. If certain expansion projects are completed as planned, the acquisition is expected to contribute adjusted EBITDA and CAFD of approximately US$190 million - US$210 million and US$135 million - US$155 million, respectively, on an annual run rate basis as of 31 December 2017.
For the NET Midstream acquisition, Wells Fargo Securities served as financial advisor to NextEra Energy Partners and Locke Lord served as legal counsel to the partnership.
In addition, NextEra Energy Partners acquired the 149 MW Jericho Wind Energy Center from its sponsor, NextEra Energy Resources, for a total purchase price of approximately US$210 million in cash consideration, plus approximately US$19 million in working capital (subject to post-closing adjustments), and assumed approximately US$294 million in existing debt. The addition of the Jericho Wind Energy Center in Ontario, Canada, increases NextEra Energy Partners' renewables portfolio to more than 2072 MW.
NextEra Energy Partners expects the Jericho acquisition to contribute adjusted EBITDA and CAFD of approximately US$40 million - US$45 million and approximately US$20 million - US$25 million, respectively, on an annual run rate basis as of 31 December 2015. See Definitional Information below for definitions of adjusted EBITDA and CAFD for the NET Midstream and Jericho acquisitions.
The annual run rates for the NET Midstream and Jericho acquisitions are included in NextEra Energy Partners' previously provided annual run rate expectations as of 31 December 2015 and 31 December 2016.
In addition, NextEra Energy Partners (through a subsidiary) has completed the financing of its previously disclosed US$1.5 billion capital need through the execution of several US term loans totaling US$600 million in the aggregate. With the term loans, as well as US$213 million from the previously announced public issuance of common units representing limited partner interests in NextEra Energy Partners and the US$702 million investment by NextEra Energy in additional NextEra Energy Partners operating company units, the partnership has completed its necessary financing for the payment of the NET Midstream acquisition cash purchase price, payment of the cash purchase price for the Jericho acquisition and repayment of the US$313 million term loan for the purchase of the four wind assets acquired during the second quarter.
NextEra Energy Partners expects to reach a distribution level at an annualised rate of US$1.23 per unit by the end of 2015 and, after 2015, expects per unit distributions to grow about 12 - 15% per year through 2020. These distribution levels assume, among other things, normal weather and operating conditions, public policy support for wind and solar development and construction, market demand and transmission expansion support for wind and solar development and access to capital at reasonable cost and terms. NextEra Energy Partners' adjusted EBITDA and CAFD expectations should be viewed in conjunction with NextEra Energy Partners' cautionary statements and risk factors set forth below and in NextEra Energy Partners' filings with the Securities and Exchange Commission. Adjusted EBITDA and CAFD do not represent substitutes for net income, as prepared in accordance with generally accepted accounting principles. The expected run rates have not been reconciled to GAAP net income because NextEra Energy Partners did not prepare estimates of the effect of any acquisitions on certain GAAP line items that would be necessary to provide a forward-looking estimate of GAAP net income, and the information necessary to provide such a forward-looking estimate is not available without unreasonable effort.
Edited from source by Stephanie Roker
Read the article online at: https://www.worldpipelines.com/business-news/07102015/nextera-pipeline-acquisition/