March 29, 2024
Global Renewable News

PATTERN ENERGY
Pattern Energy Announces Key Strategic Initiatives for Major Expansion of Growth and Capital Opportunities with Pattern Development, Riverstone and PSP Investments

June 20, 2017

Pattern Energy Group Inc. (NASDAQ and TSX: PEGI) ("Pattern Energy" or the "Company"), Pattern Energy Group LP ("Pattern Development 1.0"), Pattern Energy Group 2 LP ("Pattern Development 2.0" and together with Pattern Development 1.0, "Pattern Development"), Riverstone Holdings LLC ("Riverstone") and the Public Sector Pension Investment Board ("PSP Investments") announced a series of strategic initiatives to significantly increase Pattern Energy's long-term growth outlook and enhance its access to capital. Collectively, these strategic initiatives position Pattern Energy to capture an increased share of the annual $250 billion global renewable energy market, and support its Pattern 2020 vision to double its portfolio to 5 gigawatts ("GW") by 2020. All references herein to "$" or dollars are to U.S. dollars. 

The initiatives include a major increase in capital committed to Pattern Development 2.0, and a minority investment by Pattern Energy, as well as a significant expansion of the development pipeline. In addition, Pattern Energy has created a strategic relationship with PSP Investments, aligning it with one of the world's leading long-term institutional investors. PSP Investments will have a direct ownership stake in Pattern Energy and co-invest in projects.

Highlights

Pattern Development secures long-term funding commitments for expanded development business:

  • The arrangements create increased opportunities for growth with improved alignment with Pattern Energy's core business strategy;
  • Pattern Development's pipeline expands to 10 GW total capacity, including an additional 275 megawatts ("MW") of owned capacity to the identified right of first offer ("ROFO") list;
  • $724 million in new long-term funding commitments for Pattern Development 2.0, primarily from major institutional investors through a Riverstone managed investment entity; and
  • A $60 million initial investment by Pattern Energy, for a ~20% interest in Pattern Development 2.0, ensuring access to an exclusive project pipeline and enhancing alignment with the development business.

Strategic partnership with PSP Investments:

  • PSP Investments to acquire 8.7 million shares (~9.9%) of Pattern Energy stock from Pattern Development 1.0;
  • PSP Investments to co-invest $500 million in projects acquired by Pattern Energy under the Company's ROFO with Pattern Development, including investments in the Meikle, Mont Sainte-Marguerite and Panhandle 2 projects (the "Initial Projects"); and
  • PSP Investments to have an indirect investment interest in Pattern Development 2.0. 

Accretive acquisition of two new projects and sale of a minority interest in Panhandle 2:

  • $65 million1 acquisition by Pattern Energy for a 51% interest in the 179 MW Meikle project from Pattern Development 1.0, which represents a 10x multiple of the five-year average cash available for distribution2 ("CAFD"), PSP Investments will acquire the remaining 49%;
  • $40 million1 acquisition by Pattern Energy of a 51% interest in the 143 MW Mont Sainte-Marguerite project from Pattern Development 1.0 at the project's commercial operations date (expected in the first quarter of 2018), which represents a 10x multiple of the project's five-year average CAFD2, PSP Investments will acquire the remaining 49%; and
  • $59 million sale by Pattern Energy of 49% of the Class B interest in the 182 MW Panhandle 2 project to PSP Investments, which represents a cash gain of 20% over the Company's net investment basis and more than a 12x multiple of the project's five-year average CAFD2.

  1. Based on a CAD to USD exchange rate of $1.32.
  2. This forward looking measure of five-year average annual purchase price multiple of cash available for distribution (CAFD) contribution from the Meikle, Mont Sainte-Marguerite and Panhandle 2 projects is a non-GAAP measure that cannot be reconciled to net cash provided by operating activities as the most directly comparable GAAP financial measure without unreasonable effort primarily because of the uncertainties involved in estimating forward-looking changes in working capital balances which are added to earnings to arrive at cash provided by operations and subtracted therefrom to arrive at CAFD. A description of the adjustments to determine CAFD can be found on page 60 of Pattern Energy's 2016 Annual Report on Form 10-K. 

The initial investment by Pattern Energy in Pattern Development 2.0, Meikle and Mont Sainte-Marguerite, net of the Panhandle 2 proceeds, will require $106 million from Pattern Energy, which can be funded from available liquidity, with no capital raise required. Closing of the above transactions, which are subject to customary closing conditions, is expected to occur in the next 60 days for the initial investment in Pattern Development 2.0 and the acquisition of Meikle, 120 days for the Panhandle 2 acquisition, and 210 days for the Mont Sainte-Marguerite acquisition. The transactions are not conditioned on closing of the other above transactions.

"With these exciting initiatives, we have created an extraordinary opportunity to continue our growth. Pattern Development has secured major long-term commitments, increased the size of its pipeline by 70% and increased the identified ROFO list by 43%," said Mike Garland, Chief Executive Officer of Pattern Energy. "Pattern Energy's investment in the development business allows us to improve our margins and secure access to a tremendous pipeline of new projects. The strategic relationship with PSP Investments provides us with increased capital flexibility for new opportunities while allowing us to meet our growth targets. PSP Investments' participation demonstrates confidence in our business model, and in the renewables sector. We believe these major initiatives support our commitment to increase value for our shareholders, and we can make all of these initial investments without an equity raise."

Pattern Development 2.0 Transaction

To support the expanded growth, Pattern Development has secured $724 million in long-term capital commitments from an investment entity managed by Riverstone and an investment by Pattern Development management. This includes commitments from leading pension, sovereign wealth, endowments, family office, and investment funds. 

Pattern Development 2.0 will initially own development assets, subject to Pattern Energy's ROFO rights, and focus on wind, solar, transmission and storage projects in the U.S., Canada and Mexico. Excluding the Grady and Crazy Mountain projects, which are owned by Pattern Development 2.0, the balance of the current identified ROFO assets will remain with Pattern Development 1.0 and are subject to Pattern Energy's ROFO rights. Pattern Development 1.0 will gradually wind up its business by completing and selling the remaining projects.

To enhance alignment and allow Pattern Energy to benefit from development, Pattern Energy has agreed to an initial investment of $60 million in Pattern Development 2.0, which will result in an initial ownership of ~20%. Pattern Energy will have the right, but not the obligation, to participate in subsequent capital calls for a total commitment of up to $300 million. If this right is exercised for all future capital calls, this would increase Pattern Energy's ownership to ~29%. All investors are investing on the same financial terms.

Pattern Energy retains all its prior ROFO arrangements with Pattern Development 1.0 and has enhanced certain of these rights under the arrangements with Pattern Development 2.0. For example, while Pattern Development 1.0 can under certain circumstances sell assets to another party so long as the price is not less than 105% of Pattern Energy's ROFO price, such threshold has now been increased to 110% for Pattern Development 2.0.

"Riverstone and Pattern have had a successful and profitable partnership over the last eight years. We continue to be excited about both the sector and the Pattern team, and look forward to supporting Pattern's further growth with a significant amount of new capital," said Chris Hunt, partner at Riverstone.

Click here to read the full press release.

For more information

Pattern Energy
Pier 1, Bay 3
San Francisco California
United States 94111
www.patternenergy.com


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