Pattern Energy Group Inc. announced it has agreed to buy two wind power projects from its majority shareholder, Pattern Energy Group LP, for total cash consideration of $202.4 million.
The purchase will add 214 MW (an increase of 21 percent) in net capacity when completed, increasing Pattern Energy’s portfolio to 1,255 MW. Acquisitions funded from available cash and credit facilities.
Grand Renewable is a 149-MW project in Haldimand County, Ontario, that is being built with 67 Siemens 2.3-MW wind turbines. Construction of the project began in September 2013 concurrently with the closing of a nonrecourse construction and term loan from a syndicate of leading project financing banks.
The project is scheduled to reach construction completion and commercial operation in the fourth quarter of 2014. The electricity from Grand Renewable is committed to the Ontario Power Authority (OPA), which has an AA-/Aa2 credit rating, under a 20-year power purchase agreement (PPA) that includes a predefined escalator. The Grand Renewable project has characteristics similar to Pattern Energy’s South Kent project but with a slightly higher PPA price and a slightly lower net capacity factor.
Grand Renewable is owned 45 percent by Pattern Energy, 45 percent by Samsung Renewable Energy Inc. and 10 percent by the Six Nations of the Grand River. Pattern Energy will be the operator for the project under a long-term agreement with the project partnership. Pattern Energy paid $79.5 million purchase price, which is subject to certain adjustments, for its 45 percent interest from its unrestricted available cash.
Panhandle 2, a 182 MW wind project, is being built in Carson County, Texas, and consists of 79 Siemens 2.3-MW wind turbines. Construction of Panhandle 2 began concurrently with the execution of Pattern Energy’s acquisition agreement and the execution of nonrecourse project construction financing with affiliates of Morgan Stanley.
Upon commissioning, some 80 percent of the expected output is contracted under a long-term energy price hedge, with an A-/Baa2 credit-rated affiliate of Morgan Stanley, with the balance paid at the Electric Reliability Council of Texas’ (ERCOT’s) spot market prices. The Panhandle 2 project has strong, consistent wind with an expected net capacity factor that is slightly higher than 50 percent.
Pattern Energy, together with three institutional tax equity investors, will acquire Panhandle 2 upon completion of construction, which is scheduled to occur in the fourth quarter of 2014. Pattern Energy is expected to hold an approximate 80 percent ownership interest and receive the majority of cash flow throughout the project’s life. There will be no long-term debt on the project. Pattern Energy will be the operator for the project under a long term agreement.
Pattern Energy will pay the $122.9 million cash purchase price, subject to certain adjustments, to Pattern Development upon certain conditions being met, including funding by the tax equity investors of their required equity contributions upon reaching commercial operation which will be used to repay the project’s construction loan financing. Pattern Energy expects to have sufficient available cash and credit facilities to fund the acquisition of its interest in Panhandle 2.
The Conflicts Committee of the board of directors of Pattern Energy, which is composed entirely of independent directors, approved the terms of the acquisitions. The committee was advised on financial matters by Evercore Group LLC, which also provided fairness opinions, and on legal matters by Davis Polk & Wardwell LLP.