TransAlta Renewables Inc.
TSX : RNW

TransAlta Renewables Inc.

March 23, 2015 15:17 ET

TransAlta Renewables agrees to invest $1.78 billion in TransAlta Corporation's Western Australia Portfolio

Announces concurrent bought deal agreement for the sale of $200 million of Subscription Receipts, and a significant dividend increase

CALGARY, ALBERTA--(Marketwired - March 23, 2015) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION TO THE UNITED STATES

TransAlta Renewables Inc. ("TransAlta Renewables" or the "Company") (TSX:RNW) and TransAlta Corporation ("TransAlta") (TSX:TA)(NYSE:TAC) announced today that they have entered into an investment agreement (the "Investment Agreement") pursuant to which TransAlta Renewables has agreed to invest in TransAlta's Australian power generation and gas pipeline portfolio (the "Portfolio") and fund the remaining project costs for the South Hedland gas-fired project for a combined value of approximately $1.78 billion (the "Transaction"). The Portfolio consists of 575 MW of power generation from six operating assets and the South Hedland project currently under construction, as well as the recently commissioned 270 km gas pipeline. TransAlta Renewables' investment will consist of the acquisition of securities which will track the cash flows of the Portfolio. The Company also announced that, in order to finance the cash portion of the investment, it has entered into a $200 million bought deal agreement led by CIBC and RBC Capital Markets as joint bookrunners, for the sale of 15,820,000 subscription receipts ("Subscription Receipts") of the Company at a price of $12.65 per Subscription Receipt (the "Offering"). The Company anticipates that the Transaction will close in May 2015.

"The enhanced cash flow per share from this transaction results in an immediate dividend increase of $0.07 per share to $0.84. We also expect a further dividend increase when South Hedland is fully commissioned in mid-2017" said Brett Gellner, President of TransAlta Renewables. "The Portfolio is highly contracted, significantly increases the scale of the Company, provides additional cash flow diversification, and positions us for further growth in Australia. In addition, TransAlta Renewables continues to be positioned to pursue additional investment opportunities with our sponsor and majority owner, TransAlta."

Investment Highlights:

  • Mid-teen percent increase in cash available for distribution ("CAFD")/share
  • Initial dividend increase of 9% ($0.07 per share on an annualized basis) upon closing of the Transaction, and another 6-7% expected once South Hedland is fully commissioned
  • Expected increase in the Company's CAFD by approximately 140% once South Hedland is fully commissioned
  • Long-term, highly contracted cash flows
  • Significant increase in the scale and diversity of the Company
  • Provides a Right of First Offer ("ROFO") on select potential growth initiatives in Australia
  • Increases the size of the public float by approximately 50%
  • Provides the opportunity to invest in other gas-fired and renewable assets owned by TransAlta

The Transaction is expected to increase the Company's CAFD by approximately $127 million once the South Hedland project is fully commissioned, currently scheduled for mid-2017. The Transaction is expected to be highly accretive to cash flow per share, and the Company will increase the dividend by 9% upon closing of the Transaction, and an additional 6-7% increase is expected once South Hedland is fully commissioned. The Investment Agreement provides TransAlta Renewables with certain protections in relation to the cost to complete the construction of South Hedland and the timing for the facility to reach commercial operation.

Upon completion of the Offering, but before giving effect to the over-allotment option, TransAlta will own approximately 77% of the outstanding shares of TransAlta Renewables. TransAlta's interest will be reduced to approximately 76% if the over-allotment option is exercised in full.

As TransAlta is an "insider" and "related party" to the Company under applicable securities laws and stock exchange rules, the Transaction will require the approval of the shareholders of the Company (excluding TransAlta), which will be sought at a special meeting of the Company to be held on May 7, 2015. The Transaction is expected to close shortly after shareholder approval is received.

Transaction Financing

TransAlta Renewables intends to finance the investment through a combination of cash and shares issued to TransAlta. The cash consideration, payable to TransAlta pursuant to the Investment Agreement, will be raised through the Offering. TransAlta Renewables has entered into an agreement with a syndicate of underwriters, led by CIBC and RBC Capital Markets as joint bookrunners, for an offering of 15,820,000 Subscription Receipts at a purchase price of $12.65 per Subscription Receipt which will result in gross proceeds to TransAlta Renewables of approximately $200 million. TransAlta Renewables has granted the underwriters an over-allotment option to purchase up to an additional 2,373,000 Subscription Receipts at the same price, exercisable in whole or in part at any time for 30 days following closing of the Transaction. Gross proceeds to TransAlta Renewables, if the over-allotment option is fully exercised, will be approximately $230 million.

Immediately prior to the closing of the Transaction, each holder of Subscription Receipts will automatically receive one Common Share for each Subscription Receipt held, without further action or additional consideration on the part of the holder. In addition, if the Transaction closes as anticipated, any dividends declared by the Company to holders of Common Shares from the date of closing of the Offering, up to, but not including, the date of closing of the Transaction, will be paid to such Subscription Receipt holders.

The net proceeds from the sale of Subscription Receipts will be held by an escrow agent and invested in short-term obligations of, or guaranteed by, the Government of Canada (and other approved investments) until the earlier of the closing of the Transaction and July 31, 2015 (the "Termination Date"). If the closing of the Transaction does not occur on or before the Termination Date, or is terminated at any earlier time, the Subscription Receipts will be terminated and cancelled, and the full subscription price of the Subscription Receipts will be returned to holders of Subscription Receipts, together with their pro-rata portion of any interest earned thereon.

The Subscription Receipts will be offered in all provinces of Canada, pursuant to a short form prospectus. Closing of the Offering is subject to certain conditions, including receipt of the approval of the Toronto Stock Exchange and all other necessary regulatory approvals.

TransAlta will receive $1,284 million as consideration pursuant to the Transaction through a combination of Common Shares and class B Shares (the "Class B Shares") in the capital of the Company as well as cash. The Class B Shares will provide voting rights equivalent to the Common Shares and are non-dividend paying, but will convert to Common Shares when the South Hedland project is fully commissioned. The number of Common Shares that TransAlta receives on the conversion of the Class B Shares will be adjusted based on the actual amount that the Company funds for the construction and commissioning of the South Hedland project relative to the budgeted costs. In the event that the construction amount funded by the Company exceeds the budgeted costs, TransAlta will receive fewer Common Shares upon conversion and, comparably, TransAlta will receive more Common Shares in the event the Company funds less than the budgeted costs. The remaining budgeted costs to be funded by TransAlta Renewables in connection with the construction and commissioning of the South Hedland project are approximately $490 million, which are expected to be funded through a combination of internally generated cash flow and borrowings under a credit facility.

Special Committee and Board Recommendation

As the Transaction constitutes a "related party transaction" under applicable securities laws, a special committee consisting of independent directors of TransAlta Renewables (the "Special Committee") was formed to review the Transaction and determine if it was in the best interest of, and fair to the Company, to invest in the Portfolio. The Special Committee retained independent technical, legal, tax and financial advisors, including Moelis & Company LLC as financial advisor to provide advice, including a valuation of the Transaction and a fairness opinion. The fairness opinion delivered to the Special Committee concludes that the consideration payable for the Portfolio is fair, from a financial point of view, to the Company.

Moelis & Company LLC provided the Special Committee with an opinion (the "Valuation Opinion"), which concluded that the consideration to be paid by the Company pursuant to the Transaction is fair from a financial point of view to the Company. Based on its evaluation and advice from its advisors, the Special Committee negotiated the terms of the Transaction with TransAlta, including the consideration to be paid to the Company and recommended that the board of directors of the Company (the "Board") approve the Transaction. The Board considered the recommendation of the Special Committee, the Valuation Opinion, and the advice of the independent advisors retained by the Special Committee and concluded (with directors that are also officers or former officers of TransAlta abstaining) that the Transaction is in the best interests of and fair to the Company, and in the best interests of the shareholders of the Company (without regard to TransAlta), and unanimously approved the Transaction.

Special Meeting of Shareholders

The Company will ask its shareholders (excluding TransAlta and its subsidiaries, where required by law) to approve the Transaction at a special meeting of the Company (the "Meeting") which will be held on May 7, 2015. Shareholders of record on April 7, 2015 will be entitled to attend and vote at the Meeting. It is anticipated that the Transaction will close as soon as practicable following the receipt of the required shareholder approvals at the Meeting.

To assist shareholders in their assessment of the Transaction, the Valuation Opinion, which was among a number of factors taken into consideration by the Board in recommending approval of the Transaction, will be included in the Management Information Circular (the "Circular") to be delivered to shareholders in respect of the Meeting. Shareholders are encouraged to carefully review and consider the Circular. The Circular and the Valuation Opinion will be filed on SEDAR at www.sedar.com concurrently with the mailing of the materials for the Meeting.

Conference call

TransAlta Renewables' management will hold a conference call and webcast at 2:00 p.m. MT (4:00 p.m. ET) to present the Transaction. Please contact the conference operator five minutes prior to the call, noting "TransAlta Renewables" as the company and "Jacqueline O'Driscoll" as moderator.

Dial-in numbers:

Toll-free North American participants call: 1-800-319-4610

Outside of Canada & USA call: 1-604-638-5340

A link to the live webcast will be available on the Investor Centre section of TransAlta Renewables' website at www.transaltarenewables.com/investors/events-and-presentations. If you are unable to join the call, the instant replay is accessible at 1-800-319-6413 (Canada and USA toll free) or 1-604-638-9010 (Outside of Canada) with TransAlta Renewables' pass code 2231 followed by the # sign. A complete copy of the news release is available in the Investor Centre section of our website: www.transaltarenewables.com. A transcript of the broadcast will be posted on the website once it becomes available.

This news release does not constitute an offer to sell or a solicitation of an offer to buy the Subscription Receipts in any jurisdiction. The Subscription Receipts offered have not been registered in the United States Securities Act of 1933, as amended, and may not be offered or sold within the United States unless registered under the U.S. Securities Act and applicable state securities laws or under an exemption of such registration.

Forward-Looking Statements

This news release contains forward looking statements within the meaning of applicable securities laws, including statements regarding the business and anticipated financial performance of TransAlta Renewables. All forward looking statements are based on the Company's beliefs and assumptions based on information available at the time the assumptions were made, management's experience and perception of historical trends, current conditions and expected future developments, and other factors deemed appropriate in the circumstances. These statements are not guarantees of the Company's future performance and are subject to a number of risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward looking statements. In particular, this news release contains forward looking statements pertaining to, among other things: the anticipated financial performance of the Company; the completion, size, and timing of the Transaction; the expected gross proceeds from the Offering; the receipt of listing approval from the TSX; the increase to the dividend following closing of the Transaction and the expected increase to the dividend following the South Hedland project being fully commissioned; the composition of the shareholdings of the Company upon completion of the Transaction and TransAlta's expected share ownership; expectations and plans for future growth, including expansion into existing and new markets and other forms of power generation and acquisition activities, including acquisition activities involving TransAlta; the ability to obtain the necessary regulatory and shareholder approvals for the Transaction; the timing of the shareholder meeting; a forecast of CAFD and expected CAFD/share accretion; success in executing on growth projects; the timing and completion and commissioning of projects under development, including the South Hedland project and the costs thereof; the need for additional capital and the expected sources of, and access to, such capital; the closing of the Offering, and the exercise of the over-allotment option; and expectations regarding TransAlta's continued ownership of Common Shares.
These forward-looking statements are subject to risks and uncertainties pertaining to the Transaction and the Offering, including risks associated with the receipt of required regulatory and shareholder approvals, the timing and cost of the construction and commissioning of the South Hedland project, weather, economic and competitive conditions, changes in tax law and tax rate increases, exchange rates, interest rates, and other risk factors contained in the Company's annual information form. Furthermore, unless otherwise stated, the forward-looking statements contained in this news release are made as of the date of this news release, and the Company has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities regulations. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

About TransAlta Renewables Inc.

TransAlta Renewables owns 29 wind and hydroelectric power generation facilities, including our economic interest in Wyoming Wind, having an aggregate installed generating capacity of 1,376 MW, in which it holds a net ownership interest of approximately 1,255 MW. TransAlta Renewables' power generating capacity is among the largest of any publicly-traded renewable independent power producer ("IPP") in Canada, with more wind power generating capacity than any other Canadian publicly-traded IPP. TransAlta Renewables' strategy is focused on the efficient operation of its portfolio of renewable power generation assets and expanding its asset base through the acquisition of additional renewable power generation facilities in operation or under construction. TransAlta Renewables objectives are to (i) create stable, consistent returns for investors through the ownership of contracted renewable power generation assets that provide stable cash flow through long-term power purchase agreements with creditworthy counterparties, including TransAlta; (ii) pursue and capitalize on strategic growth opportunities in the renewable power generation sector; and (iii) pay out a portion of cash available for distribution to the shareholders of TransAlta Renewables on a monthly basis.

Non-GAAP Measures

This news release contains references to the Cash Available for Distribution (CAFD) expected to be generated by the transaction. CAFD represents the amount of cash generated from operations, before changes in working capital that is available to invest in growth initiatives, make additional non-scheduled principal repayments of debt, pay additional common share dividends, or repurchase common shares. Changes in working capital are excluded so as not to distort free cash flow with changes that are considered to be temporary in nature, reflecting, among other things, the impact of seasonal factors and the timing of capital projects. CAFD is not a measure that has standardized meaning prescribed by Canadian Generally Accepted Accounting Principles (GAAP) and is not considered a GAAP measure. Therefore, this measure may not be comparable with similar measures presented by other issuers.

Contact Information

  • Investor inquiries: TransAlta Renewables Inc.
    Brent Ward
    Director, Corporate Finance and Investor Relations
    1-800-387-3598 in Canada and U.S.
    investor_relations@transalta.com

    TransAlta Renewables Inc.
    Jacqueline O'Driscoll
    Manager, Investor Relations
    1-800-387-3598 in Canada and U.S.
    investor_relations@transalta.com

    Media inquiries: TransAlta Renewables Inc.
    Leanne Yohemas
    Senior Advisor, External Communications
    Cell: 587-437-3660 or Toll-free media number: 1-855-255-9184
    Alternate local number: 403-267-2540
    ta_media_relations@transalta.com