Capstone Infrastructure Corporation

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TSX : CSE.DB.A
TSX : CSE.PR.A
TSX : CPW.DB


Capstone Infrastructure Corporation

March 26, 2014 16:32 ET

Capstone Infrastructure Corporation Announces 20-Year Contract for Cardinal

- Completes new long-term agreements with Ontario Power Authority and Ingredion Canada Incorporated

- Ensures sustainability of current dividend level

- Advances Capstone's strategy to reduce risk, extend the portfolio's cash flow profile and establish a solid platform for the future

TORONTO, ONTARIO--(Marketwired - March 26, 2014) - Capstone Infrastructure Corporation (TSX:CSE)(TSX:CSE.DB.A)(TSX:CSE.PR.A)(TSX:CPW.DB) (the "Corporation") today announced it has signed a new 20-year non-utility generator contract (the "Contract") with the Ontario Power Authority for its 156-megawatt ("MW") Cardinal combined-cycle, natural gas-fired facility ("Cardinal"). The new Contract will be effective January 1, 2015.

"This new contract allows Cardinal to continue providing reliable, affordable electricity to Ontario ratepayers. It also provides certainty for our shareholders on Cardinal's longevity and contribution to Capstone's cash flow profile and dividend sustainability following 2014," said Michael Bernstein, President and Chief Executive Officer. "We are proud to remain part of the local community and look forward to delivering cost-effective, flexible electrical capacity and energy to Ontarians over the next 20 years."

The New Contract and Cardinal's Future Operations

Starting in 2015, Cardinal will become a dispatchable facility rather than a baseload generator, supplying electricity to the Ontario grid only when needed. The new Contract provides Cardinal with a fixed monthly payment, escalating annually according to a pre-defined formula, intended to cover Cardinal's fixed operating costs and return on capital. Cardinal will also earn variable market revenue from the electricity it delivers to Ontario's power grid, and will be responsible for arranging its own gas supply. The Corporation expects to invest approximately $30 million of capital over 2014 and 2015 to prepare Cardinal for cycling, including purchasing a new rotor and related equipment to extend and enhance the facility's capabilities. The new Contract will expire on December 31, 2034.

Under the new Contract, the Corporation currently expects Cardinal to generate Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") in the range of $7 million to $9 million in 2015. This outlook reflects payments under the contract as well as anticipated market revenue and fees for operations and maintenance ("O&M") services provided to Ingredion Canada Incorporated's ("Ingredion") adjacent manufacturing facility.

In addition, the Corporation and the OPA have reached a mutually beneficial agreement for Cardinal to provide additional operational flexibility to Ontario's electricity system for the duration of its current power purchase agreement, which expires on December 31, 2014.

The Corporation also announced today that Cardinal has entered into an agreement with Ingredion to renew its energy savings agreement ("ESA") for a term of 20 years. This agreement includes O&M services to be provided to Ingredion for a fee, an extension of the lease for the land on which the Cardinal facility is located, and a royalty payable by Cardinal to Ingredion based on variable market revenue from electricity sales.

"We are pleased with this new agreement," said Jim Zallie, Ingredion's President, North America. "It provides Ingredion Canada with more options for the future of its Cardinal facility and allows Cardinal Power to continue serving Ontario's electricity needs."

Capstone's Dividend Profile

Based on the Corporation's current portfolio and with Cardinal's new Contract secured, the Corporation intends to maintain its current common share dividend level of $0.075 per common share quarterly or $0.30 per common share on an annual basis, which it believes is sustainable over the long term.

The Corporation targets an average long-term payout ratio range of approximately 70% to 80% of Adjusted Funds from Operations (AFFO), which it anticipates achieving by 2017 when the Corporation's current pipeline of wind power projects is expected to be fully commissioned and generating cash flow, and with the increased dividends it expects to receive from Bristol Water over the next regulatory period, which commences in April 2015 and concludes in March 2020. In 2015 and 2016, the Corporation's payout ratio may exceed 100% of AFFO, reflecting Cardinal's reduced cash flow contribution starting in 2015. The Corporation believes it has sufficient liquidity to fund its needs over this period, including cash and cash equivalents on hand, operating cash flows from its various businesses, and use of its corporate credit facility.

"We believe the cash flow generated by our current businesses and project pipeline will more than sustain our dividend over the long term," said Mr. Bernstein. "Over the past three years, we have deliberately refocused our portfolio to reduce risk, extend our cash flow profile and establish a solid platform for the future. In particular, our investments in Bristol Water and Värmevärden have significantly improved the quality of Capstone's overall investment profile by offering perpetual, increasing cash flow and the potential for considerable organic growth. Similarly, our new power development arm positions us to realize higher investment returns. The fundamental value of our company is growing and we are confident in our ability to sustain our dividends and to deliver an attractive total return to our shareholders as we complete the build out of our development pipeline."

The Corporation's dividend policy is determined by the Board of Directors of the Corporation and is based on a number of factors, including forecasts for operating and financial results, anticipated cash flows, maintenance and capital expenditure requirements, market activity and conditions, and the satisfaction of solvency tests imposed under corporate law for the declaration of dividends and other relevant factors.

Conference Call and Webcast

The Corporation will hold a conference call and webcast (with accompanying slides) today at 5:30 p.m. EDT to discuss this announcement. To listen to the call from Canada or the United States, dial 1-800-319-4610. If calling from elsewhere, dial +1-604-638-5340. A replay of the call will be available until Wednesday, April 9, 2014. For the replay, from Canada or the United States, dial 1-800-319-6413 and enter the code 1109#. From elsewhere, dial +1-604-638-9010 and enter the code 1109#. The event will be webcast live with an accompanying slide presentation on the Corporation's website at www.capstoneinfrastructure.com.

About Capstone Infrastructure Corporation

Capstone's mission is to provide investors with an attractive total return from responsibly managed long-term investments in core infrastructure in Canada and internationally. The company's strategy is to develop, acquire and manage a portfolio of high quality utilities, power and transportation businesses, and public-private partnerships that operate in a regulated or contractually-defined environment and generate stable cash flow. Capstone currently has investments in utilities businesses in Europe and owns, operates and develops thermal and renewable power generation facilities in Canada with a total installed capacity of net 439 megawatts2. Please visit www.capstoneinfrastructure.com for more information.

  1. See Notice to Readers.
  2. Reflects Capstone's economic interest in its various power facilities.

Notice to Readers

Certain of the statements contained within this document are forward-looking and reflect management's expectations regarding the future growth, results of operations, performance and business of Capstone Infrastructure Corporation (the "Corporation") based on information currently available to the Corporation. Forward-looking statements and financial outlook are provided for the purpose of presenting information about management's current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. These statements and financial outlook use forward-looking words, such as "anticipate", "continue", "could", "expect", "may", "will", "intend", "estimate", "plan", "believe" or other similar words. These statements and financial outlook are subject to known and unknown risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied by such statements and financial outlook and, accordingly, should not be read as guarantees of future performance or results. The forward-looking statements and financial outlook within this document are based on information currently available and what the Corporation currently believes are reasonable assumptions, including the material assumptions set out in the management's discussion and analysis of the results of operations and the financial condition of the Corporation ("MD&A") for the year ended December 31, 2013 under the heading "Results of Operations", as updated in subsequently filed MD&A of the Corporation (such documents are available under the Corporation's SEDAR profile at www.sedar.com).

Other potential material factors or assumptions that were applied in formulating the forward-looking statements and financial outlook contained herein include or relate to the following: that the business and economic conditions affecting the Corporation's operations will continue substantially in their current state, including, with respect to industry conditions, general levels of economic activity, regulations, weather, taxes and interest rates; that there will be no material delays in the Corporation's wind development projects achieving commercial operation; that the Corporation's power infrastructure facilities will experience normal wind, hydrological and solar irradiation conditions, and ambient temperature and humidity levels; that there will be no material changes to the Corporation's facilities, equipment or contractual arrangements; that there will be no material changes in the legislative, regulatory and operating framework for the Corporation's businesses; that there will be no material delays in obtaining required approvals and no material changes in rate orders or rate structures for the Corporation's power infrastructure facilities, Värmevärden or Bristol Water; that there will be no material changes in environmental regulations for the power infrastructure facilities, Värmevärden or Bristol Water; that there will be no significant event occurring outside the ordinary course of the Corporation's businesses; the refinancing on similar terms of the Corporation's and its subsidiaries' various outstanding credit facilities and debt instruments, which mature during the period in which the forward-looking statements and financial outlook relate; market prices for electricity in Ontario and Alberta; the re-contracting of the PPA for the Sechelt hydro power generating station; that there will be no material change to the accounting treatment for Bristol Water's business under International Financial Reporting Standards, particularly with respect to accounting for maintenance capital expenditures; that there will be no material change to the amount and timing of capital expenditures by Bristol Water; that there will be no material changes to the Swedish Krona to Canadian dollar and UK pound sterling to Canadian dollar exchange rates; and that Bristol Water will operate and perform in a manner consistent with the regulatory assumptions underlying AMP5 and those expected under AMP6, including, among others: real and inflationary increases in Bristol Water's revenue, Bristol Water's expenses increasing in line with inflation, and capital investment, leakage, customer service standards and asset serviceability targets being achieved.

Although the Corporation believes that it has a reasonable basis for the expectations reflected in these forward-looking statements and financial outlook, actual results may differ from those suggested by the forward-looking statements and financial outlook for various reasons, including: risks related to the Corporation's securities (dividends on common shares and preferred shares are not guaranteed; volatile market price for the Corporation's securities; shareholder dilution; and convertible debentures credit risk, subordination and absence of covenant protection); risks related to the Corporation and its businesses (availability of debt and equity financing; default under credit agreements and debt instruments; geographic concentration; foreign currency exchange rates; acquisitions, development and integration; environmental, health and safety; changes in legislation and administrative policy; and reliance on key personnel); risks related to the Corporation's power infrastructure facilities (power purchase agreements; completion of the Corporation's wind development projects; operational performance; fuel costs and supply; contract performance and reliance on suppliers; land tenure and related rights; environmental; and regulatory environment); risks related to Värmevärden (operational performance; fuel costs and availability; industrial and residential contracts; environmental; regulatory environment; and labour relations); and risks related to Bristol Water (Ofwat price determinations and changes to Instrument of Appointment; failure to deliver capital investment programs; economic conditions; operational performance; failure to deliver water leakage target; SIM and the serviceability assessment; pension plan obligations; regulatory environment; competition; seasonality and climate change; and labour relations). For a comprehensive description of these risk factors, please refer to the "Risk Factors" section of the Corporation's annual information form dated March 21, 2013, as supplemented by disclosure of risk factors contained in any subsequent annual information form, material change reports (except confidential material changes reports), business acquisition reports, interim financial statements, interim MD&A and information circulars filed by the Corporation with the securities commissions or similar authorities in Canada (which are available under the Corporation's SEDAR profile at www.sedar.com).

The assumptions, risks and uncertainties described above are not exhaustive and other events and risk factors could cause actual results to differ materially from the results and events discussed in the forward-looking statements and financial outlook. The forward-looking statements and financial outlook within this document reflect current expectations of the Corporation as at the date of this document and speak only as at the date of this document. Except as may be required by applicable law, the Corporation does not undertake any obligation to publicly update or revise any forward-looking statements and financial outlook.

This document is not an offer or invitation for the subscription or purchase of or a recommendation of securities. It does not take into account the investment objectives, financial situation and particular needs of any investor. Before making an investment in the Corporation, an investor or prospective investor should consider whether such an investment is appropriate to their particular investment needs, objectives and financial circumstances and consult an investment adviser if necessary.

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